As Trump gets ready to renegotiate NAFTA and impose tariffs on companies looking to outsource production to Mexico, a new study from MIT and Boston University suggests that industrial robots, not Mexico, may be the bigger factor contributing to the high levels on unemployment in the Midwest.
Entitled "Robots and Jobs: Evidence From US Labor Markets," the authors of the study found that the addition of 1 robot per 1,000 workers results in an 18-35 bps reduction in the employment-to-population ratio and 25-50bps reduction in wages. Per Bloomberg:
One additional robot per thousand workers reduces the employment-to-population ratio by 0.18 percentage points to 0.34 percentage points and slashes wages by 0.25 percent to 0.5 percent, based on their analysis. To put that in context, the U.S. saw an increase of about one new industrial robot for every thousand workers between 1993 and 2007, based on the study.
"The employment effects of robots are most pronounced in manufacturing, and in particular, in industries most exposed to robots; in routine manual, blue collar, assembly and related occupations; and for workers with less than college education," the authors write. "Interestingly, and perhaps surprisingly, we do not find positive and offsetting employment gains in any occupation or education groups."
Worth noting: the authors estimate that robots may have increased the wage gap between the top 90th and bottom 10 percent by as much as 1 percentage point between 1990 and 2007. There's also room for much broader robot adoption, which would make all of these effects much bigger.
While the study found that only 360,000-670,000 jobs had been lost to robots over the past couple of decades, estimates indicate that an additional 3.5 million permanent jobs losses could occur over just the next 10 years which would increase the natural unemployment level by over 2%.
Because there are relatively few robots in the US economy, the number of jobs lost due to robots has been limited so far (ranging between 360,000 and 670,000 jobs, equivalent to a 0.18-0.34 percentage point decline in the employment to population ratio). However, if the spread of robots proceeds as expected by experts over the next two decades (e.g., Brynjolfsson and McAfee, 2012, especially pp. 27-32, and Ford, 2016), the future aggregate implications of the spread of robots could be much more sizable. For example, BCG (2015) offers two scenarios for the spread of robots over the next decade. In their aggressive scenario, the world stock of robots will quadruple by 2025. This would correspond to 5.25 more robots per thousand workers in the United States, and with our estimates, it would lead to a 0.94-1.76 percentage points lower employment to population ratio and 1.3-2.6 percent lower wage growth between 2015 and 2025.
Of course, the impact is even more dramatic when you consider that the job losses are heavily concentrated in a handful of industries. The automotive industry employs 39% of existing industrial robots, followed by the electronics industry (19%), metal products (9%), and the plastic and chemicals industry (9%).
Meanwhile, the following maps help to highlight the exposure of various regions of the country to industrial automation, imports and offshoring of jobs. Not surprisingly, the heaviest concentration of robots has developed in the rust-belt region where they've replaced 1,000s of UAW workers.
Of course, this wouldn't be the first time that economists had prematurely predicted the demise of labor markets due to technological advances:
"We are being afflicted with a new disease of which some readers may not have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment" - Keynes, 1930
“Labor will become less and less important. . . More and more workers will be replaced by machines. I do not see that new industries can employ everybody who wants a job” - Leontief, 1952