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
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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
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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
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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 jobs associated with these innovations. •• Reduced prices: given the increased productivity resulting from the implemen- tation of innovations, it is estimated that the unit production costs decreases. •• New investments: the gap between falling production costs and falling prices would generate surpluses that can be invested in new production and new jobs. 62
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Andrés Aguilera · María Gabriela Ramos Barrera Technological Unemployment: an approximation to the Latin American Case
•• Salary adjustments: the implementation of technologies and innovations that reduce labor would reassess the price of labor, thus, it could enable firms to absorb more labor at a lower price. •• Income: savings achieved due lower production costs could be translated into higher income pushing up demand. •• Creation and commercialization of new products: the creation of new sectors and industries would employ available labor freed due to technological change. In this regard, the effects of technological change on the labor market are both quantitative (unemployment) and qualitative (demand for more skilled labor to operate optimally implemented technologies); hence the hypothesis of Skill Biased Technological Change (SBTC), according to which the limitation of technology implementation is due to the shortage of skilled labor to operate innovations. Autor, Levy and Murnane (2001) studied the effects the use of computers introduced in the labor market had in the United States between 1970 and 1998, particularly highlighting an increase in the demand for labor with a tertiary education starting in the 1980s. They emphasized the difference between certain easy to automate tasks (routine and programmable) versus tasks considered difficult to automate like driving an automobile or a truck. However, recent innovations have demonstrated that the world is on the verge of autonomous vehicles with minimal or no human intervention to operate. (Bertoncello & Wee, 2015) Autor (2014) highlights the polarization of the labor market, as evidenced by the simultaneous growth of highly skilled, well-paid jobs with the growth of low-skilled and low-paid ones. Considering the SBTC hypothesis and some data collected by Manpower (2013), there are labor shortages in highly skilled jobs associated with the lack of training in these specific skills. Ironically, the report identified both unemployment and labor shortages. Formal education and training programs are particularly slow to adapt to the rapid technological changes; young people are graduating from universities with degrees in danger of obsolescence and the opportunity cost is losing a new generation of workers with the necessary skills to cope with a highly automated future. A profound discussion on the subject matter is found in Tether et al. (2005). The academic study of the effects of technology on labor markets in Latin America is incipient. Crespi and Tacsir (2012) approached the issue by comparing data from innovation surveys and its impact on employment: their observations found no “displacement effect” due to the introduction of product innovations. On a further note, they described the relationship between innovation and employment in the region as “idiosyncratic,” not to mention differences in economic and societal structure, thus, making it difficult to infer similar insights from developed countries. 63
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AD-minister Nº. 29 julio-diciembre 2016 pp. 59 - 78 · ISSN 1692-0279 · eISSN 2256-4322
METHODOLOGY DESCRIPTION
Data Set An empirical analysis of the variables was performed using panel data from Argentina, Brazil, Colombia, Costa Rica, Mexico, Panama and Uruguay for the period 1996-2011. . These countries were selected based on the criteria of highest investment in science and technology (S&T) as share of their GDP. In addition, two sets of countries were created using GDP per capita as a measure for differentiation in order to separate the effect their particular national economic structure may have within the model. Figure 1 shows Argentina, Brazil, Mexico and Uruguay maintaining an average GDP per capita of $9,000 (in constant USD), evidencing higher growth rates than the cases of Colombia, Costa Rica and Panama where GDP per capita averaged approximately $6,000 USD (in constant USD) during the observed period. Given the difference between the two groups, the analysis was done separately.
Figure 1. GDP per capita, 1996-2011.
14 00
12 00
10 00
8 00
6 00
4 00