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Covid-19: The Disaster Automation Was Waiting For

Automation has been slower in recent years than many expected – but with the pandemic forcing companies to innovate, and borrowing cheaper than ever, many of today's job losses might become permanent.

Earlier this month consultancy firm McKinsey released a new report on the future of work. Its findings gave an insight into how Covid-19 would deepen existing trends in the global economy.

The sectors most at risk of job losses as a result of Covid-19, it proposed, were also those most at risk through automation. It pointed to a job market where employment is becoming more secure for high-skilled, well-paid workers, and less secure for their low-paid counterparts.  

A huge amount has been written in recent years about the prospects for widespread job losses resulting from the introduction of new technologies capable of automating production. A widely-quoted previous study from McKinsey found that automation could lead to the loss of up to 800 million jobs by 2030.  

But automation has proceded far more slowly in recent years than initially anticipated, especially in the UK. Many economists have argued that low levels of automation are a key reason for the UK’s woeful performance on labour productivity, which has stagnated for over a decade. 

In the UK, particularly in the period since the financial crisis, the recovery has been marked by low wages and low productivity. Employment levels were, as the government liked to point out, higher than at any point on record before the coronavirus pandemic hit – but wages were extremely low and underemployment was rife. 

In the absence of a powerful and militant union movement that could organise workers to demand higher wages, firms found it easier to exploit cheap labour power – often provided by migrants and women – rather than investing in the creation, production and implementation of labour-saving technologies.

In place of the sci-fi nightmare of mass unemployment as the robots take over the world, we have been faced with a Victorian nightmare of spiralling in-work poverty, precarity and abuses of workers’ rights. 

Covid-19 may be the crisis that changes all this. Unemployment is likely to skyrocket as the pandemic escalates. Most government and central bank forecasts are predicting that unemployment will reach 3 million as a baseline scenario.

To put this in context, the last time the UK had 3 million workers unemployed was in the recession of the early 1980s. And if escalating corporate defaults destabilise the financial system when the government-backed coronavirus loans and extensive central bank support come to an end, this figure could end up being far higher. 

We know from previous experience that it can take years for unemployment to recover after a severe crisis, and that the recovery can be marked by severe hysteresis – a situation in which long-term unemployed workers suffer permanent damage to their employability resulting from absence from the labour market. Those entering the labour force during crises, meanwhile, suffer from permanently lower earnings. 

Economic crises also tend to be times of change for corporate business models. Many firms will use crises to significantly cut headcount – an option often not available during the upswing of the economic cycle – and replace employees with automated technologies when the crisis ends. 

Borrowing to invest in automation will be cheaper than ever for large, well-established companies that have lines of credit available to them. Interest rates will remain low for a long time, and investors will begin searching desperately for profitable investment opportunities as soon as the immediate crisis ends, meaning corporate borrowing will be very cheap. 

Capital is already flooding into the big tech monopolies, which are dramatically outperforming the rest of the stock market, as investors bet that these will be some of the only companies strong enough to survive the pandemic.

These monopolies – especially the big tech companies – are likely to use at least some of the cheap cash available to them to invest in labour-saving technologies throughout their supply chains, perhaps even to invest in research and development of their own automated technologies. 

The opportunities for such savings will increase as these firms expand into different markets. Amazon, for example, recently acquired the US grocery chain Whole Foods where it introduced a fully-automated shopping experience. The big tech monopolies will find it easier to acquire firms in different sectors owing to the ease with which they can access capital, and introduce automation to out-compete incumbent firms, deepening their monopoly power. 

Employment in smaller, less productive firms is also likely to dry up as a result of the pandemic. Millions of small firms are likely to go under as this crisis deepens, only to be bought up by their larger rivals.

Firms with low margins that rely on cheap labour – such as hospitality, retail and tourism – are likely to be severely impacted by the pandemic, if they have not been already. Autonomy’s jobs at risk index provides a breakdown of the workers most vulnerable to both unemployment and illness as a result of the pandemic. 

Covid-19 may have accelerated the risks associated with automation, but it has also revealed a way out. Some of the sectors in which economic activity has expanded dramatically – notably healthcare and social care – are sectors where automation has progressed much more slowly. These are sectors in which the importance of human interaction is always going to exceed that of introducing labour-saving technologies. 

As unemployment skyrockets to its highest levels in decades, the state will need to consider ways to expand employment to facilitate the economic recovery from the pandemic. The best way to do so would be to invest in providing secure, well-paid and dignified jobs for health and care workers who have saved so many lives over the course of the last several months.

If Covid-19 has taught us anything, it should be that many of the most valuable workers in our society are systematically underpaid and underappreciated. If more unequal futures are to be avoided, now is the time to correct that.