Hal Varian (Google Chief Economist) – Procreation vs Automation, UCL Economics Conference (2020)


Chapters

00:00:06 Hal Varian: A Pioneer in Economics, Information Technology, and the Study of Work
00:03:09 Automation and Demographic Trends Reshaping the Labor Market
00:14:08 Standardizing Environments for Robotic Automation
00:22:44 Automation and the Future of Work
00:27:15 Workweek Trends and the Potential for a Shorter Work Week
00:29:17 Empowering Workforces with Technology: Upskilling and Closing the Skills Gap
00:35:03 Demographic Challenges and Labor Shortages in Developed Countries
00:40:53 Automation and the Labor Market in the Next 30 Years

Abstract

The Evolution and Future of the Labor Market: A Comprehensive Analysis

The Intersection of Automation, Demographic Shifts, and the Global Workforce

Introduction: Hal Varian’s Insights and Legacy in Economics

Professor Hal Varian is a prominent figure in economics, recognized for his significant contributions including price discrimination, public goods, and information economics. His insights set the stage for a profound exploration of the labor market’s evolution. His book “Information Rules” and his role as the founding Dean of the School of Information at Berkeley, coupled with his impactful tenure as Google’s Chief Economist, provide a unique lens to examine the interplay of technology, demographic shifts, and labor market dynamics.

Automation’s Role in Labor Demand and Job Transformation

Technological advancements, especially in AI and robotics, are pivotal in reshaping labor demand. Automation has been gradually replacing manual tasks, leading to a transformation of job roles rather than their complete eradication. Examples like the historical role of elevator operators illustrate how automation substitutes specific tasks within jobs, thus evolving the job’s nature while retaining its essence in different forms.

Changing Nature of Jobs with Automation

Automation is transforming various tasks and jobs, leading to questions about what tasks can be automated, how job-related activities will change, and which jobs cannot be easily automated. Numerous studies, such as those by Oxford Price Waterhouse Coopers, OECD, and ITIF, have attempted to estimate the percentage of the workforce at risk of job loss due to automation. However, these estimates vary significantly due to the complexity of the issue. Examples of automation impact on specific occupations include retail salespeople, cashiers, and fast food workers, who have already been impacted by automation, such as self-ordering kiosks in restaurants.

Demographic Factors Affecting Labor Supply

The labor market is also being significantly influenced by demographic changes. Aging populations and declining birth rates, particularly in developed countries, are altering the labor supply. These changes, along with historical shifts such as the baby boom and the significant entry of women into the workforce, continue to shape the dynamics of labor markets globally.

Labor Force Growth

Labor force growth in the US from 2020 to 2040 is projected to be the lowest ever, with a slight uptick in the 2030s and 2040s. Population growth is outpacing labor force growth, with the labor force growing at only half the rate. Without immigration, the working-age population in the US would decrease by 2035.

Baby Boomers and Labor Shortages

Baby boomer retirements are expected to continue, leading to labor shortages. Northern US states face labor shortages and may not benefit from younger populations migrating from the south. Developed countries worldwide are experiencing labor shortages, with Japan, Spain, Korea, Italy, Germany, and France facing significant challenges.

Birth Rates and Economic Factors

Birth rates have declined during recent recessions, including the Great Recession and COVID-19 pandemic, impacting the future labor force. Low birth rates are primarily driven by economic factors.

Complex Nature of Jobs and Automation Limitations

Despite the advancements in automation, the complexity of many jobs poses challenges to complete automation. Industrial robots excel in structured environments like auto assembly lines, but tasks in less structured settings, like robotic gardeners and hotel housekeepers, reveal the limitations of current technology. This complexity necessitates a nuanced understanding of automation’s role in the labor market.

Impact of Automation on the Future of Work

The debate on automation’s impact on the labor market centers on the nature of tasks that can be automated and the resulting changes in job security and job roles. While some jobs, particularly in standardized environments, are more susceptible to automation, others that require human interaction or specific skills may be less affected. Automation has the potential to increase productivity, which could lead to shorter work weeks, more flexible working arrangements, or increased consumption, thereby altering the traditional work-life balance. Automation and increased productivity could also lead to reduced workweeks, more flexible working arrangements, or increased consumption.

Implications for Work Structure

Historically, people worked long hours, with an average of 66 hours per week in 1850 due to agricultural needs. Over time, work hours have decreased, with 62 hours in 1870 and 60 hours in 1890. There has been a consistent decline in average work hours in the US since the 1950s, from 38.5 hours to current levels. Significant differences in work hours exist across countries, with Mexico having a 45-hour workweek and the Netherlands having a 29-hour workweek. The Netherlands’ shorter workweek is due to the prevalence of part-time jobs and the sharing of childcare responsibilities between parents. It is possible to have a 29-hour workweek in countries like the US and the UK by implementing effective coordination and leveraging technology. The COVID-19 pandemic may accelerate the adoption of flexible work arrangements and contribute to a shorter workweek. People generally desire more jobs and less work. Universal basic income is a controversial concept, but most people appreciate having three-day weekends. Many countries offer long weekends during festive occasions, demonstrating the feasibility and popularity of shorter workweeks.

Education, Training, and the Role of Technology

Education and training are critical in preparing the workforce for this evolving landscape. The role of platforms like YouTube in providing accessible educational content for a wide range of skills, from cognitive to manual, underscores the changing nature of skill acquisition. Technology, by reducing the need for certain skills and offering cognitive assistance, is democratizing access to knowledge and potentially mitigating skill gaps.

Technology-Enabled On-the-Job Training

Online resources like YouTube provide a vast amount of instructional material, making it easier for individuals to acquire new skills. YouTube has over 1 billion daily views of how-to videos covering various topics, from cognitive skills like mathematics and computer science to manual skills like plumbing and welding. This democratizes access to educational content and makes YouTube an integral part of modern education.

Cognitive and Manual Skills

Technology enables the delivery of both cognitive and manual skills through online platforms. Cognitive skills, such as mathematics and computer science, are well-represented in online courses. Manual skills, such as plumbing and welding, are more effectively taught through videos.

Technology Reducing Barriers to Entry

Advances in technology have eliminated the need for certain skills in various occupations, reducing barriers to entry. Examples include cashiers no longer needing to know how to make change, writers no longer needing to be expert spellers, taxi drivers no longer needing to memorize city streets, and hospitality workers no longer needing to know multiple foreign languages. Technology now provides assistance for tasks like plant recognition and dog breed recognition, which were previously required knowledge for gardeners and veterinarians.

Economic Implications of Labor Force Changes

The slowdown in labor force growth due to demographic shifts like aging populations, low birth rates, and changes in immigration patterns presents significant economic challenges. These demographic changes, in combination with automation, require businesses and policymakers to adapt through enhanced productivity, automation strategies, and revised immigration policies.

Impact of Automation and Demographics on Labor Markets

Automation reduces labor demand and shifts labor supply, leading to an overall decline in employment population ratio. Boston Consulting Group estimates a 1.76% decline due to automation and 2.7% decline due to demographics.

Aging Workforce and Healthcare Costs

As retirees age, they often become more costly due to increased healthcare expenses, exacerbating the labor market effects.

Economic Benefits of Automation

Cost savings from automation are likely to be passed on to investors and consumers, leading to increased spending and job creation. High-income individuals have accumulated savings during COVID due to reduced spending opportunities, which may lead to increased consumption post-pandemic, further boosting the economy.

Economic Thought and Modeling in the Age of Big Data

Machine learning and big data provide novel indicators of economic activity, such as Google’s mobility index and consumer intent through Google Trends. Utilizing this new data can lead to more accurate predictions and insights into economic variables.

Labor Market Dynamics: Balancing Automation and Demographics

In conclusion, the labor market is at a critical juncture, with automation and demographic changes reshaping its landscape. The intricate balance between reducing labor demand through automation and the changing labor supply due to demographic shifts demands a multifaceted approach to understand and navigate the future of work. This evolving scenario underscores the need for adaptive strategies in education, policy-making, and business operations to ensure a resilient and dynamic labor market.


Notes by: datagram