Thursday, March 17, 2016

Will Robots Eliminate 5 Million Jobs in the Next 5 Years?

Daniel Reznicek emails:

 I am curious as to your thoughts on this article from a libertarian perspective?

Robots will eliminate more than 5 million jobs in the next 5 years

My response:

Well, first, this is an economic question, not really one about libertarianism. That said, it is important to understand what a robot is. It is a capital good. There are all kinds of capital goods, A shovel is a capital good, a tractor is a capital good, a computer can be a capital good.

What capital goods tend to do is take the place of labor. Without shovels, man would have to dig with his hands, without a tractor, man would have to till the soil with a hoe, without a computer, there are also sorts of calculations that would have to be done by pen and paper, if at all, and that is not taking into consideration the value of the computer in allowing us to communicate. follow news, etc. via the internet.

In short, capital goods make the world a much richer place. A robot is just a sophisticated capital good.

Could robots, eliminate 5 million jobs? Of course! Capital goods always free up labor for different kinds of work. Hell, wheels on luggage have resulted in something like 70% of hotel bellmen jobs being eliminated.

The problem with the article is the last sentence:
The net effect: 5.1 million jobs lost. And no new jobs to replace them.
This indicates a fundamental failure to understand basic economics. In an economy, markets clear, that is, if there is more supply of a good the price will drop. This includes wages. Unless the price of labor goes to zero, there is demand for labor.  It's basic supply and demand economics. The idea that 5.1 million people wouldn't be able to find jobs, other than for a transition period, makes no sense as long as there is a price for labor, And I hereby put a bid in at $1.00 an hour for any competent person who can't find work at a higher price. I could make tons of money offering laborers only $1.00 an hour, but I am not going to get anyone offering their labor at that rate because the market wage rate is much higher. I occasionally use CollegeLabor,org for various work. I never get any bids below the $ 12.00 to $15.00 range. Sometimes I have to pay more, in the $20 range.

Anyone who claims that there would be no jobs, just doesn't understand the dynamics of how markets work. There will always be entrepreneurs who will figure out where to employ laborers. Until we all have 5 or 6 servants waiting on us for every need, the idea that the labor market is saturated is just a myth created by rigid thinkers. But there is more!

Here is the real kicker. If capital goods are used to increase production, which they do, and they free up individuals for other work, which they do, then the amount of output in an economy increases. The more output, the more access individuals have to goods and services. In other words, increases in capital, including robots, are always a good thing. They increase the standard of living for an economy overall. Just think about what an economy would be like without cement trucks, freight planes, computers, forklifts, factory equipment and on and on.

Without capital, there would be jobs for all of us, but it would be gruesome work and the standard of living for all  of us would be much, much lower. All hail the robots!

(Note: The one place robots may actually replace workers who can't find other jobs is when minimum wage laws are high. If there is a low productivity worker and it makes sense for him to be replaced by a robot---and the higher the minimum wage in an area the more sense it will make, the less likely such a person will be able to find a job if he can't offer his services below the minimum wage.)



  1. I know this is in the extreme but what if nearly all "labor" was performed by robots. At what point is the demand for goods and services diminish. In other words if people are not needed to perform labor what justifies keeping them around? There is a type of loop here where people are needed to produce things other people want. Fewer people leads to smaller markets. With the current sensitivity to scarce resources I can see a point in time where all births will need to be justified. A little dystopian but at the same time I don't see anyone contemplating this possibility.

    1. If all labor were done by robots, then we would all like like kings. It would mean everyone is so rich that no one has to work. This isn't a dystopia but a utopia.

    2. I don't get it. What do you mean by "what justifies keeping them around?". Is there some higher entity who is currently justifying keeping us around? Government? I don't need government to tell me my life is justified or how many children I will have.

      And why would demand go down if supply is much higher? I would want fewer things if more are available? No, I want a yacht and my own airplane and on and on.

    3. There will always be a need for people to build, program, etc. et al things having to do with robots.(I hope so anyway, as I've a part of my business based on that supposition-lol)

      RW is right, robots are just another form of capital good that makes our lives easier.

      There is always pain for some people in obsolescence, but it's important to not lose sight of the importance free markets in improving the quality of man in general.

      I feel bad for people displaced by creative destruction, just like I'm sure people felt bad about buggy whip makers going out of business when cars came about en masse 100 years ago, but there's no denying that man came out better as a result.

      The only thing I can't help but continually wonder is how much manufacturing is lost due to monetary policy(not just US monetary policy either) and it's related distortion of capital investment versus comparative advantage. (we know that US manufacturing has been lost due to regulation)

      As RW points out, we also know that government policy in terms of regulation(min. wage) has distorted capital investment as well. (buying robots for jobs that have been regulated to a point too costly for human labor in a market, that goes for touchscreens at kiosks in restaurants too for example)

      Because by necessity the government hates deflation(the necessity of it's own existence in its collective mind), it's unthinkable for people to consider in a truly free market that something as wacky as this might occur:

      I get 50% gold coin a day reduction in wages because my labor is worth less(for whatever reason), yet I'm still wealthier than the year previous because my cost of living dropped by 75% in that same time frame. (I'm exaggerating to make a point)

      I don't know what it's like to live in a long term deflationary type environment...but in a truly free market economy where things are always getting more efficient and ostensibly less expensive, the above should be very possible.(think robots, :) )

      Yet another evil from government mandated inflation via monetary policy...

    4. I appreciate all the comments. To reply It's not dystopia if you get to live in the new world. "What justifies keeping them around"- the welfare state is a great market for Walmart etc. At some point the system stumbles into the fact that there is no need for that. I know that it is not common to think that people need to justify their existence but most recent societies are based on growing populations for a variety of reasons most of which involve the role people play in the producer/consumer balance. If people are not needed for labor then what justifies keeping them around? And one of my fears is that government system does indeed determine who has children - it has happened before. As far as never having enough I agree completely I am arguing about what the role of humans is in fulfilling those needs if it does not supply labor.

  2. There will always be jobs because there will always be scarcity. Robots just free us up from basic tasks to engage in activities that are desired by consumers. More consumers desires being met = higher standard of living.

  3. I would love having a robot housekeeper.