Automation Could Increase Income Inequality Because It Tends To Displace The Lowest-Paid Workers

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Written by Ann Brown
Automation
In this Friday, Nov. 9, 2018, photo a Bossa Nova robot scans shelves to help provide associates with real-time inventory data at a Walmart Supercenter in Houston. Scanning robots at a store in Houston as well as a cluster of others keep tabs of what’s on and not on the shelves and communicate that information to the automatic conveyor system that’s backed up to the truck bay. (AP Photo/David J. Phillip)

While many workers worry that automation will replace them, a new study has found that automation could have a negative impact on income inequality.

At a recent Economic Synopses, Economist Sungki Hong and Senior Research Associate Hannah Shell examined automation and computerization could affect employment and income inequality. Hong and Shell used estimates by Carl Frey and Michael Osborne to look at how automation is to affect certain occupations.

In their research, Frey and Osbourne identified the tasks of each occupation that may become automated and using a machine learning algorithm they calculated the proba­bilities that a computer could perform those tasks.

“Occupations with large employment and low income have a higher automation probability,” they found. These jobs range from office positions to food service jobs. It will be the low-paid occupations affected the most.


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“Automation increases inequality in every scenario because it tends to displace the lowest-paid workers,” Hong and Shell wrote.

But the authors of the study write this could increase income inequality.

“Higher ratios indicate more concentration of wealth in the higher end of the income distribution relative to the middle or lower end—in other words, higher income inequality,”  the Federal Reserve Bank of St. Louis reported.

The study found that there could be three possible scenarios.

“For the first (and most extreme) scenario, when all affected employees become unemployed…However, this scenario is very extreme; it is used here only as an exercise to understand where automation will most impact the income distribution,” Federal Bank of St. Louis reported.

In the second case, affected employees would earn the minimum wage. And in the final and most likely, workers would receive a 20 percent pay cut.

Still, researchers admit more work needs to be done, as the cost of the actual automation was never factored in.