Industrial robots in China push people out of jobs, slash wages

Exposed to 'droids? Symptoms may include indifference, unemployment, lower pay, along with a bit of depopulation

Exposure to industrial robots in the workplace leads to less participation in the labor force, less employment, and less pay, according to economics researchers.

Workplace automation also appears to increase family debt and reduce – by only a small amount – the number of children born to affected families, while adding to the time and money that families invest in existing children.

In a paper titled "How do Workers and Households Adjust to Robots? Evidence from China," distributed by the National Bureau of Economics Research, co-authors Osea Giuntella (University of Pittsburgh), Yi Lu (Tsinghua University), and Tianyi Wang (University of Toronto) analyzed the effects that industrial robots have on workers and their families.

They focused on data from China because in 2014, Chinese president Xi Jingping called for a robot revolution to boost manufacturing and China's 2016–2020 Five-Year Plan included billions of yuan to accelerate factory automation. They also sought to examine the impact of robots on "emerging economies" – which haven't been studied as much as "advanced economies."

China has the largest number of industrial robots in the world (~943,200 units) but lags behind more advanced economies on a per capita basis, the authors observed. According to the International Federation of Robotics, South Korea, Singapore, Japan, Germany, and Sweden have the most robots per 10,000 employees, followed by Hong Kong, the US, Taiwan, and China.

The researchers observe that investment in robots may help China increase productivity amid rising labor costs, increasing international competition, and an ageing population. However, automation affects the economic prospects of hundreds of millions of Chinese workers in manufacturing and other sectors.

Citing a 2016 paper, they argue that as many as 77 percent of Chinese jobs are susceptible to automation. As an example, they point to industrial manufacturing firm Foxconn, noting that between 2012 and 2016 the maker of iPhones replaced more than 400,000 jobs in China with robots as part of an effort to achieve 30 percent factory automation by 2020. Hopefully the metal machines won't also riot.

By analyzing China Family Panel Studies between 2010 and 2016, the authors assert that they found "significant negative effects of robot exposure on employment and wages."

"We show that an increase by 1 standard deviation in robot exposure lowers an individual's probability of being employed by 6 percentage points (-7.5 percent with respect to the mean), increases the likelihood of leaving the labor force by 1 percentage point (+10.5 percent with respect to the mean), and increases the likelihood of reporting unemployment status by 5 percentage points (or 0.17 standard deviations)," the authors state in their paper.

They also found that robot exposure reduces hourly income (-9 percent) but does so without affecting annual income because those affected – mainly low-skilled, male, and prime-age and older workers – tend to work longer hours (+14 percent) to make up for the lower wages.

Or they go into debt. "While exposure to robots has negative effects on wages and employment opportunities, we document an increase in borrowing (+10 percent) that allows families to keep their consumption and savings constant," the authors note.

As robots proliferate, that prompts older workers to retire early while younger workers are more likely to participate in technical or work-related training to maintain their value in the labor market.

Looking at the impact of robot exposure on families, the researchers assert they saw no evidence of any effect on marital behavior. However, they find that "robot exposure leads to a small decline in the number of children (-1.2 percent)."

What's more, robot exposure increased family time invested in education for children (+10 percent) and investment in kids' after-school and extra-curricular activities (+24 percent).

If automation does not create jobs, the authors observe, it may lead to inequality. Developing countries, they suggest, need to be particularly mindful that automation-based productivity gains may come at the cost of economic unfairness and social unrest. ®