WEEKLY E-MAIL

29 August 2017

AI AND THE FUTURE OF JOBS

By Patrick Malcolm

There has been an explosion in recent times in the use of robots for everyday tasks. McDonald’s shares have hit an all-time high, buoyed by Wall Street’s expectations that investments in automation technologies will drive business value. As part of its “Experience of the Future” initiative, McDonald’s announced plans to roll out digital ordering kiosks that will replace cashiers in 2,500 of its locations. The company will also extend its customer self-service efforts, deploying mobile ordering at 14,000 locations.

Macquarie University, as part of its Lighthouse Lecture Series, recently hosted a discussion by world renowned labour economist, Professor Richard Freeman from Harvard University on “Employment and Income in the Age of Robots”.

Professor Freeman highlighted the game changing impact that Robots and Artificial Intelligence (AI) will have on work automation, wages and employment in the future.

With robots and AI getting better and better at these specific tasks it seems natural to ask, when will they replace human workers? According to 352 AI experts there could be a significant change in many areas, with AI outperforming humans in coming decades, but the possibility of AI replacing human workers entirely is still a very distant possibility.

Source: When will AI exceed human performance? Evidence from AI Experts. A research paper by Katja Grace, John Salvatier, Allan Dafoe, Baobao Zhang and Owain Evans. BBC Capital and Nigel Hawtin.

However, automation in the workplace and the replacement of labour with capital is not new. Throughout the past 200 years, jobs have been destroyed but also created.

Professor Freeman though says this time is different. The rise of AI and Robots is not the same as historical periods of automation. Historically, machines have replaced the (generally dangerous) work of humans, allowing us more time to think. In contrast, AI could replace the judgement and decisions making of our minds. This means AI can beat humans at tasks that are innately human, such as Google AlphaGo’s defeat of Ke Jie (the world’s number one Go player) earlier this year, something previously thought impossible. This is only becoming truer as our lives and work move increasingly into the digital world.

As historical comparisons are not appropriate Professor Freeman believes in using an economic theory knows as the law of Comparative Advantage to analyse the impact. Robots/AI could eventually outperform humans at most jobs, but Comparative Advantage tells us that there will still be jobs for humans, since Robots and AI will stick to the jobs they are best at.

As an example, AI software can analyse in two seconds the amount of data and text that a cancer research assistant would need two weeks to plow through. That frees up the assistant to do more thoughtful work and speeds up the search for cures. In that way, by acting as our collaborator, AI will give us a chance at cracking our most pressing problems.

Currently humans have advantages in many areas, most importantly in intuition and perception of patterns, in our level of general intelligence and in our touch and flexibility. But technology is catching up. Computers can now beat humans at poker!

This of course raises a myriad of ethical and economic questions. The critical juncture will be when the current system of single task AI algorithms move towards an ensemble of programs that can mimic the general intelligence of humans. When this happens, along with improvements in dexterity and the ability of Robots and AI to operate better, jobs and incomes for humans will be impacted.

Essentially the effect on incomes will come down to who owns the robots. If it is the employee then great, this will boost your income, and your robot can work for you and earn you an income! If the robot is owned by the employer, then watch out for the consequences.

From an economic sense, the capital share of income will rise and the labour share of income will fall, accelerating the trend witnessed in recent years. This would increase income inequality, lead to lower wages and continue the trend we have witnessed in political uncertainty.

Professor Freeman suggests that solutions to this would likely include forms of income redistribution through a tax on capital, or a Universal Basic Income (UBI) with more public goods available such as healthcare, food and leisure.

But exactly how a UBI might work in practice is still a big open question. We have to work out, for example, how to pay for a UBI, exactly who should get it and whether it should be paid in addition to other benefits, or replace them. As yet, we don’t have enough research or real-world pilots to understand, one, whether UBI will deliver as promised, and, two, whether it’s feasible in the real world. One major uncertainty is whether UBI would encourage people to work or encourage them to be lazy!

To answer these questions, in December 2016, a $10 million initiative was launched to fund organizations to research UBI. Backed by more than 100 activists, researchers, and technologists, the project looks to turn theory into practice and get into the nitty-gritty of how a UBI would work.

Patrick Malcolm
Partner
Certified Financial Planner®
SMSF Specialist Advisor™
Authorised Representative No. 278061

If you have any questions or comments, please email me at patrick@gfmwealth.com.au

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