By Stephen Letts
The future of work run by robots appears to be a dystopian march to rising inequality, falling wages and higher unemployment according to a International Monetary Fund research paper.
Workers are facing a "death spiral" of falling wages and rising inequality according to IMF report.
Skilled wage could rise by 160pc and unskilled wages fall by 60 pc in worst case scenario.
Conventional education and tax policies would have a limited impact in solving the problems.
The research looked at a variety of scenarios ranging from modest substitution of labour by robots and artificial intelligence to a world where they take over all traditional technologies.
In all cases, "automation is good for growth and bad for equality," the study found.
IMF economists Andrew Berg, Edward Buffie, and Luis-Felipe Zanna said currently the debate between the pessimists and the optimists is still unsettled.
However, they make it clear which side they fall on, right from the report's first quote appropriated from management consultant, Warren Bennis.
The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.
"In scenarios where the traditional technology disappears and robots take over the automatable sector, the economy either ascends to a virtuous circle of ongoing endogenous growth or descends into a death spiral of perpetual contraction," the IMF report said.
Low wages for an entire working life
"Unfortunately, the odds strongly favour the death spiral."
While the research does not necessarily represent the views of the IMF, the work is influential in the framing of the Washington-based organisation's policies in its work to promote employment and sustainable economic growth.
The paper found it does not take a big increase in automation to stimulate growth, but in all scenarios workers find the transition difficult and inevitably fall behind in terms of wealth creation.
Machines have long been replacing blue collar factory workers, but now artificial intelligence is threatening white collar jobs.
While real wage growth can materialise in "little as twelve years", the low wage phase can extend past 50 years."
"The 'short run' can consume an entire working life," the paper argued.
"Although the real wage increases in the long run, labour's share in income decreases most when real output increases most. The bigger the increase in the GDP pie, the less equitable the distribution of the pie."
The paper concedes the basic problem is that nobody knows what the world will look like in 2035.
It notes there is considerable disagreement among economists and technology experts about whether automation will destroy low-skill jobs or those at all skill levels, whether it will penetrate all sectors or just a few and even if it will reduce the demand for workers in all jobs or decrease it in some and increase it in others.
Different this time
However, the research rules out the benign conclusion from previous technological upheavals that everyone is likely to gain.
Will there be any jobs left as artificial intelligence advances?
If you're an accountant, lawyer or data analyst, a robot may soon take over your job. The worst outcome under the IMF modelling is where robots only replace low-skill workers.
"While skilled labour enjoys continuous large gains, the wage for low-skill labour decreases in the short/medium run under conditions much weaker than in the benchmark model [where robots can do any job]," the IMF found.
"Nor is there any assurance that growth eventually raises the low-skill wage. Quite the contrary: there is a strong presumption the real wage decreases more in the long run than in the short run.
"The magnitude of the worsening in inequality is horrific."
Under the research modelling in this case, the skilled wage increases from 56 to 157 per cent in the long run while wages paid to low-skill labour drops from 26 to 56 per cent.
The low-skilled group's share in national income also decreases from roughly a third to as low as 8 per cent.
Even in the scenario where robots only compete for some jobs, and the impacts on wages and growth are reduced, the IMF paper said inequality gets worse.
"Allowing for tasks that complement robots does not help as much as one might think, partly because more and more workers compete for those jobs, driving down the overall wage.
"In addition to the fall in the average wage and the rise in the capital share, unskilled workers suffer large decreases in absolute and relative wages."
Even in areas where robots can't compete, the news isn't great from the IMF team.
"This also does not really help, again because there are only so many of those jobs to go around, and labour chased out of the automatable sector tends to drive down wages."
No policy panacea
As for solutions, the IMF broadly targets two possible ways to limit mounting inequality: through education, and tax.
Sadly neither option looks overly promising.
While education can be seen as an investment to convert workers from unskilled to skilled labour, it has its limitations.
"Can it offset the huge real wage cuts unskilled labour suffers and the decrease in labour's overall income share at an acceptable cost? And if the answer is yes, how long will it take for wages to increase for those who remain unskilled?" the economists ask.
As for tax, as governments around the world are already aware, it is not easy to track down and get a fair share of the profits and capital accumulation of big corporations.