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Technological Unemployment: an Approximation to the Latin American Case Desempleo Tecnológico: Una Aproximación Al Caso Latinoamericano

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Technological Unemployment: an Approximation to the Latin American Case Desempleo Tecnológico: Una Aproximación Al Caso Latinoamericano Nº 29 AD-MINISTER universidad eafit · medellín - colombia · JULIO - diciembre 2016 · ISSN 1692-0279 · e-ISSN: 2256-4322 ANDRÉS AGUILERA MARÍA GABRIELA RAMOS BARRERA JEL: E24, J24, O3 DOI: 10.17230/ad-minister.29.3 www.eafit.edu.co/ad-minister 59 AD-MINISTER AD-minister Nº. 29 julio-diciembre 2016 pp. 59 - 78 · ISSN 1692-0279 · eISSN 2256-4322 Technological Unemployment: an approximation to the Latin American Case Desempleo Tecnológico: una aproximación al caso latinoamericano ABSTRACT ANDRÉS Recent advancements in Artificial Intelligence (AI), robotics, control systems, software and related AGUILERA1 technologies have revived the debate on the influence that technology has on labor markets. So far, the focus of the literature has been on advanced economies. This document aims to analyze the MARÍA GABRIELA following variables: domestic spending in science and technology, GDP per capita, nominal minimum 2 RAMOS BARRERA wage, domestic spending in education and their impact on unemployment rate in seven Latin American countries from 1996 to 2011. Panel data was used to measure the relation of these variables with JEL: E24, J24, O3 unemployment rates in the region. The results allowed us to conclude that investment in Science and Received: 09/11/2015 Technology in the region has not reached levels that potentially reduce employment; on the contrary, innovation is regarded as a source of labor productivity gains. The broader implications of technology and Modified: 05/05/2016 automation are yet to be seen, however, both firms and the public sector in the region must prepare for Accepted: 16/06/2016 massive technological unemployement, as predicted by recent models. DOI: 10.17230/ad-minister.29.3 KEY WORDS www.eafit.edu.co/ad-minister Technological innovation; unemployment; science and technology investments, gross domestic product. Creative Commons (CC BY) RESUMEN Avances recientes en Inteligencia Artificial (IA), robótica, sistemas de control, software y tecnologías relacionadas han revivido el debate sobre la influencia que la tecnología ejerce en el mercado laboral. Hasta el momento, el enfoque de la literatura se ha dado en economías avanzadas. Este documento busca describir y comparar las siguientes variables: gasto doméstico en ciencia y tecnología, PIB per cápita, salario mínimo nominal, gasto doméstico en educación en siete economías latinoamericanas y su impacto en la tasa de desempleo durante el periodo 1996 a 2011. Se usaron datos panel para medir la relación de las variables con las tasas de desempleo en la región. Los resultados nos permitieron concluir que la inversión en ciencia y tecnología en la región no ha alcanzado niveles que reduzcan potencial- mente el empleo; por el contrario, la innovación es vista como una fuente de ganancias en productividad en la mano de obra. Las implicaciones más amplias de la tecnología y la automatización todavía no son evidentes, sin embargo, tanto las firmas como el sector público en la región deben prepararse para el desempleo tecnológico masivo que se ha estimado en modelos recientes. PALABRAS CLAVE Innovación tecnológica; desempleo; inversión en ciencia y tecnología, producto interno bruto. 1 Facultad de Administración, Finanzas y Ciencias Económicas, Universidad EAN, Bogotá, D. C, Colombia. Email: [email protected] ORCID: http://orcid.org/0000-0002-9484-7047 2 Facultad de Ciencias Económicas y Sociales, Universidad de La Salle, Bogotá, D. C, Colombia. Email: [email protected] ORCID: http://orcid.org/0000-0002-0887-5608 60 AD-MINISTER Andrés Aguilera · María Gabriela Ramos Barrera Technological Unemployment: an approximation to the Latin American Case INTRODUCTION The influence of technology and innovation on labor markets has been a recurring theme of study for economists and social scientists since the Luddite movement in England that opposed the integration of the spinning jenny in yarn production in the 19th century. (Autor, 2015) However, most of the specialized literature has focused its attention on advanced economies, leaving emerging markets out of their scope of analysis. In this paper, we address the following question: what could be the relationship between domestic expenditure in Science and Technology (S&T) and education and the unemployment rate in seven Latin American economies? To shed light on this issue, we analyzed panel data from Argentina, Brazil, Colombia, Costa Rica, Mexico, Panama and Uruguay for the period 1996-2011. More specifically, the document aims to review the most recent and relevant research on the topic of technological unemployment, reviewing it in a Latin American context. Finally, it will briefly describe the public policy options encountered in the literature and their implications for the private sector. Keynes (1930) in the short essay Economic Possibilities for our Grandchildren, mentioned how the increases in efficiency in the different production processes would result in the replacement of labor by capital, thus creating technological unemployment. Handel (2003) who based his conclusions primarily on the works by (Woirol, 1996; Bix, 2000) provided a glance of the literature on the subject matter during the 20th century, focusing on the public policy response from different U.S. administrations. Autor (2015) described the associated forces that have shaped labor markets throughout most of the 20th and beginning of the 21st century in developed countries. Those forces include changes in the relative supply of college and non- college labor, rising trade penetration, offshoring, globalization of production chains, declines in labor union penetration, and the changing (declining) share of labor in GDP. However, the one force that was singled out in the literature is the impact of information technology (IT). This focus on information technology has supported the hypothesis of Skill Biased Technological Change (SBTC) discussed by (Bell, 1996; Autor, Katz & Kruger, 1998; Bresnahan, Brynjolfsson & Hitt, 2002; Autor, Levy & Murnane, 2001). The SBTC hypothesis argues that the introduction of computers and information technologies reduced the demand for less-skilled workers hence reducing the employment options for this population but increasing the demand for medium and high skilled workers. Goos and Manning (2003) contributed to the discussion showing evidence of a market polarization in the United Kingdom where middle-skilled jobs are being lost due to the implementation of technologies. Additional studies (Beaudry, Green & Sand, 2016; Jaimovich & Siu, 2014) pointed out that technology not only affects those with lower skills but also those occupations with higher cognitive tasks. 61 AD-MINISTER AD-minister Nº. 29 julio-diciembre 2016 pp. 59 - 78 · ISSN 1692-0279 · eISSN 2256-4322 In a seminal work by Frey & Osborne (2013), the authors introduced a novel approach by quantifying the probability of job categories prone to automation in the United States. The result showed 47% of the jobs in the United States are in the high- risk category for computerization/automation in the coming 10-20 years. In the case of Germany, Bonin, Gregory & Zierahn, (2015) replicated the method suggested by Frey & Osborne and found comparable results with 42% of jobs with a probability over 0.7 for automation in coming years. Monroy, Moreno & Santos (2015), suggested the lack of reliable and comparable data in emerging countries to classify occupations as seen in the United States and Germany. Due to data availability limitations, the lack of a uniform and comparable job classification code among sample countries (e.g. the International Standard Classification of Occupations (ISCO) ISCO-88, ISCO-08) makes it impossible to replicate the methodology proposed by Frey and Osborne at this stage. TECHNOLOGY, INNOVATION AND UNEMPLOYMENT Contemporary society is currently reaping the benefits of decades of investment and cumulative innovation in information technology and telecommunications. The exponential growth of computing power (Moore’s Law), artificial intelligence, cloud computing, machine learning, robotics, 3D printing, big data and the Internet of things (IoT) are transforming most of human experience. These technologies are creating and making accessible new products and services for massive consumption in an unprecedented pace, but also threatening jobs in occupations of all skill categories. (Manyika et al., 2013; Ford, 2015; Pratt, 2015; Rifkin, 2015; Sachs, 2015) Handel’s (2003) characterization of information technology provided a quick glimpse of the scope and reach of IT. “IT systems are frequently fast, precise, high storage, high capacity, highly flexible, reprogrammable, and automatic or self-acting. They may be able to record, process, communicate, and react to information from users and feedback from the environment in more or less sophisticated ways.” (p. 12) Brynjolfsson and McAfee (2014) argued that modern society has reached a second machine age. The first age automated muscular work freeing labor from the agricultural sector, leading to the manufacturing and service sectors that employ the bulk of the population. The second machine age would automate complex work and tasks, which until recently, was the exclusive domain of humans. Vivarelli (2012) presented the six compensation mechanisms found in the literature regarding the labor savings that lead to the implementation of technological innovations: • Job creation in the capital goods sector: innovations that displace workers from a certain sector would create new
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