What will production look like in 20 years time? Will familiar jobs in both manufacturing and the services be taken over by robots? And if so, which ones? What will be the effect on wages and on unemployment? Will most people be better off, or will just a few gain while others get by with minimum-wage jobs or no jobs at all?
The BBC has been running a series looking at new uses for robots and whether they will take people’s jobs? This complements three reports: one by Boston Consulting one by Deloitte and an earlier one by Deloitte and Michael Osborne and Carl Frey from Oxford University’s Martin School. As Jane Wakefield, the BBC’s technology reporter states:
Boston Consulting Group predicts that by 2025, up to a quarter of jobs will be replaced by either smart software or robots, while a study from Oxford University has suggested that 35% of existing UK jobs are at risk of automation in the next 20 years.
Jobs at threat from machines include factory work, office work, work in the leisure sector, work in medicine, law, education and other professions, train drivers and even taxi and lorry drivers. At present, in many of these jobs machines work alongside humans. For example, robots on production lines are common, and robots help doctors perform surgery and provide other back-up services in medicine.
A robot may not yet have a good bedside manner but it is pretty good at wading through huge reams of data to find possible treatments for diseases.
Even if robots don’t take over all jobs in these fields, they are likely to replace an increasing proportion of many of these jobs, leaving humans to concentrate on the areas that require judgement, creativity, human empathy and finesse.
These developments raise a number of questions. If robots have a higher marginal revenue product/marginal cost ratio than humans, will employers choose to replace humans by robots, wholly or in part? How are investment costs factored into the decision? And what about industrial relations? Will employers risk disputes with employees? Will they simply be concerned with maximising profit or will they take wider social concerns into account?
Then there is the question of what new jobs would be created for those who lose their jobs to machines. According to the earlier Deloitte study, which focused on London, over 80% of companies in London say that over the next 10 years they will be most likely to take on people with skills in ‘digital know-how’, ‘management’ and ‘creativity’.
But even if new jobs are created through the extra spending power generated by the extra production – and this has been the pattern since the start of the industrial revolution some 250 years ago – will these new jobs be open largely to those with high levels of transferable skills? Will the result be an ever widening of the income gap between rich and poor? Or will there be plenty of new jobs throughout the economy in a wide variety of areas where humans are valued for the special qualities they bring? As the authors of the later Deloitte paper state:
The dominant trend is of contracting employment in agriculture and manufacturing being more than offset by rapid growth in the caring, creative, technology and business services sectors.
The issues of job replacement and job creation, and of the effects on income distribution and the balance between work and leisure, are considered in the following videos and articles, and in the three reports.
What is artificial intelligence? BBC News, Valery Eremenko (13/9/15)
What jobs will robots take over? BBC News, David Botti (15/8/14)
Could a robot do your job? BBC News, Rory Cellan-Jones (14/9/15)
Intelligent machines: The robots that work alongside humans BBC News, Rory Cellan-Jones (14/9/15)
Intelligent machines: Will you be replaced by a robot? BBC News, John Maguire (14/9/15)
Will our emotions change the way adverts work? BBC News, Dan Simmons (24/7/15)
Could A Robot Do My Job? BBC Panorama, Rohan Silva (14/9/15)
Technology has created more jobs in the last 144 years than it has destroyed, Deloitte study finds Independent, Doug Bolton (18/8/15)
Technology has created more jobs than it has destroyed, says 140 years of data The Guardian, Katie Allen (18/8/15)
Will a robot take your job? BBC News (11/9/15)
Intelligent Machines: The jobs robots will steal first BBC News, Jane Wakefield (14/9/15)
Robots Could Take 35 Per Cent Of UK Jobs In The Next 20 Years Says New Study Huffington Post, Thomas Tamblyn (14/9/15)
The new white-collar fear: will robots take your job? The Telegraph, Rohan Silva (12/9/15)
Does technology destroy jobs? Data from 140 years says no Catch news, Sourjya Bhowmick (11/9/15)
Takeoff in Robotics Will Power the Next Productivity Surge in Manufacturing Boston Consulting Group (10/2/15)
Agiletown: the relentless march of technology and London’s response Deloitte (November 2014)
Technology and people: The great job-creating machine Deloitte, Ian Stewart, Debapratim De and Alex Cole (August 2015)
- Which are the fastest growing and fastest declining occupations? To what extent can these changes be explained by changes in technology?
- What type of unemployment is caused by rapid technological change?
- Why, if automation replaces jobs, have jobs increased over the past 250 years?
- In what occupations is artificial intelligence (AI) most likely to replace humans?
- To what extent are robots and humans complementary rather than substitute inputs into production?
- “Our analysis of more recent employment data also reveals a clear pattern to the way in which technology has affected work.” What is this pattern? Explain.
- Why might AI make work more interesting for workers?
- Using a diagram, show how an increase in workers’ marginal productivity from working alongside robots can result in an increase in employment. Is this necessarily the case? Explain.
HSBC is a familiar feature of many high streets in the UK and this is hardly surprising, given that it is the largest bank in Europe. But could this be about to change? With uncertainty surrounding the UK’s in-out vote on the EU, the future of the banking levy and HSBC’s desire to reduce the size of its operations, the UK high street might start to look quite different.
In the UK, 26,000 staff are employed in its retail banking sector, with 48,000 workers across the whole of its UK banking operations. HSBC has plans to downsize its business globally, with expected job losses in the UK of 8000 workers and a total of 25,000 jobs across the world. This would reduce its workforce by around 10%. This could have big implications for the UK economy. Although many of the job losses would not be enforced, given that HSBC does have a relatively high staff turnover, it is likely to mean some forced redundancies. With job creation being one of the big drivers of the UK economy in the last couple of years, this could put a dampner on the UK’s economic progress.
A further change we are likely to see will be the renaming of high street branches of HSBC, as new government rules are requiring HSBC to separate its investment and retail banking operations. Much of this stems from the aftermath of the financial crisis and governments trying to reign in the actions of the largest banks. Ring fencing has aimed to do this as a means of protecting the retail banking sector, should the investment banking part of the bank become problematic.
However, perhaps the biggest potential shock could be the possibility of HSBC leaving the UK and moving to a new base in Hong Kong. A list of 11 criteria has been released by HSBC, outlining the factors that will influence its decision on whether to stay or go.
The UK’s decision on Europe is likely to be a key determinant, but other key factors against remaining in the UK are ‘the tax system and government policy in support of [the] growth and development of [the] financial services sector’. HSBC pays a large banking levy, as it is based not just on UK operations, but on its whole balance sheet.
HSBC’s Chief Executive, Stuart Gulliver, has said that the discussion on the potential move to Hong Kong is based on the changing world.
“We recognise that the world has changed and we need to change with it. That is why we are outlining the following… strategic actions that will further transform our organisation… Asia [is] expected to show high growth and become the centre of global trade over the next decade… Our actions will allow us to capture expected future growth opportunities.”
Leaving the EU will have big effects on consumers and businesses, given that it is the UK’s largest market, trading partner and investor. Whether or not decisions of key businesses such as HSBC will have an impact on the referendum’s outcome will only be known as we get closer to the day of the vote (which is still some way off!). It will, however, be interesting to see if other companies raise similar issues in the coming year, as the referendum on the EU draws nearer. We should also look out for any potential change in the UK’s banking levy and what impact, if any, this has on HSBC’s decision to stay or go and on the future of any other banks.
Has HSBC already decided to leave the UK? The Telegraph, Ben Wright (10/6/15)
HSBC plans to cut 8,000 jobs in the UK in savings drive BBC News (9/6/15)
The Guaridan view on HSBC: a bank beyond shame The Guardian (10/6/15)
HSBC brand to vanish from UK high streets Financial Times, Emma Dunkley (9/6/15)
HSBC job cuts should come as little surprise Sky News, Ian King (9/6/15)
HSBC in charts: Where the bank plans to generate growth Financial Times, Jeremy Grant (9/6/15)
HSBC’s local rethink can’t shore up global act Wall Street Journal, Paul Davies (9/6/15)
Can George Osborne persuade HSBC to stay in the UK? BBC News, Kamal Ahmed (9/6/15)
- What is the UK’s banking levy and why does it affect a company like HSBC disproportionately?
- Look at the list of 11 criteria that HSBC have produced about staying in the UK or moving to Hong Kong. With each criterion, would you place it in favour of the UK or Hong Kong?
- Why is the banking sector ‘not a fan’ of the government policy of ring fencing?
- What impact would the loss of 8000 UK jobs have on the UK economy?
- Why does it matter to a bank such as HSBC if the UK is a member of the EU?
Real GDP depends on two things: output per hour worked and the number of hours worked. On the surface, the UK economy is currently doing relatively well, with growth in 2014 of 2.8%. After several years of poor economic growth following the financial crisis of 2007/8, growth of 2.8% represents a return to the long-run average for the 20 years prior to the crisis.
But growth since 2010 has been entirely due to an increase in hours worked. On the one hand, this is good, as it has meant an increase in employment. In this respect, the UK is doing better than other major economies. But productivity has not grown and on this front, the UK is doing worse than other countries.
The first chart shows UK output per hour worked (click here for a PowerPoint). It is based on figures released by the ONS on 1 April 2015. Average annual growth in output per hour worked was 2.3% from 2000 to 2008. Since then, productivity growth has stalled and output per hour is now lower than at the peak in 2008.
The green line projects from 2008 what output per hour would have been if its growth had remained at 2.3%. It shows that by the end of 2014 output per hour would have been nearly 18% higher if productivity growth had been maintained.
The second chart compares UK productivity growth with other countries (click here for a PowerPoint). Up to 2008, UK productivity was rising slightly faster than in the other five countries illustrated. Since then, it has performed worse than the other five countries, especially since 2011.
Productivity growth increases potential GDP. It also increases actual GDP if the productivity increase is not offset by a fall in hours worked. A rise in hours worked without a rise in productivity, however, even though it results in an increase in actual output, does not increase potential output. If real GDP growth is to be sustained over the long term, there must be an increase in productivity and not just in hours worked.
The articles below examines this poor productivity performance and looks at reasons why it has been so bad.
UK’s sluggish productivity worsened in late 2014 – ONS Reuters (1/4/15)
UK productivity growth is weakest since second world war, says ONS The Guardian, Larry Elliott (1/4/15)
UK productivity weakness worsening, says ONS Financial Times, Chris Giles (1/4/15)
Is the UK’s sluggish productivity a problem? Financial Times comment (1/4/15)
UK manufacturing hits eight-month high but productivity slump raises fears over sustainability of economic recovery This is Money, Camilla Canocchi (1/4/15)
Weak UK productivity unprecedented, ONS says BBC News (1/4/15)
Weep for falling productivity Robert Peston (1/4/15)
UK’s Falling Productivity Prevented A Massive Rise In Unemployment Forbes, Tim Worstall (2/4/15)
Labour Productivity, Q4 2014 ONS (1/4/15)
AMECO database European Commission, Economic and Financial Affairs
- How can productivity be measured? What are the advantages and disadvantages of using specific measures?
- Draw a diagram to show the effects on equilibrium national income of (a) a productivity increase, but offset by a fall in the number of hours worked; (b) a productivity increase with hours worked remaining the same; (c) a rise in hours worked with no increase in productivity. Assume that actual output depends on aggregate demand.
- Is poor productivity growth good for employment? Explain.
- Why is productivity in the UK lower now than in 2008?
- What policies can be pursued to increase productivity in the UK?
In a post last August we looked at the rising number of workers employed on ‘zero-hours’ contracts. These are contracts where there are no guaranteed minimum hours. Such contracts give employers the flexibility to employ workers as much or as little as suits the business. Sometimes it benefits workers, who might be given the flexibility to request the hours that suit them, but usually workers simply have to take the hours on offer.
Latest figures published by the Office for National Statistics show that zero-hours contracts are on the increase. In 2014 quarter 4, 697,000 workers were recorded as being on zero-hours contracts. This represents 2.3% of people in employment. Ten years ago (2004, Q4) the figures were 108,000 or 0.4%: see chart. (Click here for a PowerPoint of the chart.)
Around one third of the 697,000 people on zero-hours contracts wanted more work if they could get it and most wanted it in their current job rather than having to move jobs. These people wanting more work can be classed as underemployed. They also include those not on a zero-hours contract who would like to work more if they could.
According to the ONS:
‘People on zero-hours contracts are more likely to be women, in full-time education or in young or older age groups when compared with other people in employment. On average, someone on a zero-hours contract usually works 25 hours a week.’ (See section 4 of the report for more details.)
As we saw in the earlier post, many public- and private-sector employers use such contracts, including many small and medium-sized enterprises and many well-known large companies, such as Sports Direct, Amazon, JD Wetherspoon and Cineworld. It gives them the flexibility to adjust the hours they employ people. It allows them to keep people in employment when demand is low. It also makes them more willing to take on staff when demand rises, as it removes the fear of being over-staffed if demand then falls back.
As we also saw, zero-hours contracts are not the only form of flexible working. Other examples include: ‘self-employed’ workers, contracted separately for each job they do for a company; people paid largely or wholly on commission; on-call working; part-time working, where the hours are specified in advance, but where these are periodically re-negotiated; overtime; people producing a product or service for a company (perhaps at home), where the company varies the amount paid per unit according to market conditions.
The extent of zero-hours contracts varies dramatically from one sector of the economy to another. Only 0.6% of workers in the Information, Finance and Professional sectors were on zero-hours contracts in 2014 Q4, whereas 10% in the Accommodation and Food sectors were.
The flexibility that such contracts give employers may make them more willing to keep on workers when demand is low – they can reduce workers’ hours rather than laying them off. It also may make them more willing to take on workers (or increase their hours) when demand is expanding, not having to worry about being over staffed later on.
However, many workers on such contracts find it hard to budget when their hours are not guaranteed and can vary significantly from week to week.
lmost 700,000 people in UK have zero-hours contract as main job The Guardian, Phillip Inman (25/2/15)
UK firms use 1.8m zero-hours contracts, says ONS BBC News (25/1/15)
Zero-hours contracts jump in UK Financial Times, Emily Cadman (25/2/15)
Zero-hours contracts ‘disturbingly’ hit 1.8 million in 2014 International Business Times, Ian Silvera (25/2/15)
Zero-hours contracts a reality for almost 700,000 UK workers, ONS figures show Independent, Antonia Molloy (25/1/15)
Contracts with No Guaranteed Hours, Zero Hour Contracts, 2014 ONS Release (25/1/15)
Supplementary LFS data on zero hours contracts – October to December 2014 ONS dataset (25/2/15)
Analysis of Employee Contracts that do not Guarantee a Minimum Number of Hours ONS Report (25/1/15)
- Distinguish between open unemployment, disguised unemployment and underemployment?
- Distinguish between functional, numerical and financial flexibility? Which type or types of flexibility do zero-hours contracts give the firm?
- In a ‘flexible’ labour market, what forms can that flexibility take?
- Why does the Accommodation and Food sector have a relatively high proportion of people employed on zero-hours contracts?
- What are the benefits and costs to employers of using zero-hours contracts?
- If a company introduces a system of zero-hours contracts, is this in accordance with the marginal productivity theory of profit maximisation from employment?
- What are the benefits and costs to employees of working on zero-hours contracts?
- Why has the use of zero-hours contracts risen so rapidly?
- Using the ONS data, find out how the use of zero-hours contracts varies by occupation and explain why.
- Identify what forms of flexible contracts are used for staff in your university or educational establishment. Do they benefit (a) staff; (b) students?
- Consider the arguments for and against (a) banning and (b) regulating zero-hours contracts.
Figures for employment and unemployment give an incomplete picture of the state of the labour market. Just because a person is employed, that does not mean that they are working the number of hours they would like.
Some people would like to work more hours, either by working more hours in their current job, or by switching to an alternative job with more hours or by taking on an additional part-time job. Such people are classed as ‘underemployed’. On average, underemployed workers wanted to work an additional 11.3 hours per week in 2014 Q2. Underemployment is a measure of slack in the labour market, but it is not picked up in the unemployment statistics.
Other people would like to work fewer hours (at the same hourly rate), but feel they have no choice – usually because their employer demands that they work long hours. Some, however, would like to change to another job with fewer hours even if it involved less pay. People willing to sacrifice pay in order to work fewer hours are classed as ‘overemployed’.
Statistics released by the Office for National Statistics show that, in April to June 2014, 9.9%, or 3.0 million, workers in the UK were underemployed; and 9.7%, or 2.9 million, were overemployed.
The figures for underemployment vary between different groups:
||11.0% of female workers
||8.9% of male workers
||19.6% of 16-24 year olds
||9.9% of all workers
||21.1% of people in elementary occupations (e.g. cleaners, shop assistants and security guards)
||5.4% of people in professional occupations (e.g. doctors, teachers and accountants)
||11.5% of people in the North East of England (in 2013)
||9.2% of people in the East of England (in 2013)
||22.1% of part-time workers
||5.4% of full-time workers
As far as the overemployed are concerned, professional people and older people are more likely want shorter hours
The ONS data also show how under- and overemployment have changed over time: see chart (click here for a PowerPoint). Before the financial crisis and recession, overemployment exceeded underemployment. After the crisis, the position reversed: underemployment rose from 6.8% in 2007 to a peak of 10.8% in mid-2012; while overemployment fell from 10.5% in 2007 to a trough of 8.8% in early 2013.
More recently, as the economy has grown more strongly, underemployment has fallen back to 9.9% (in 2014 Q2) and overemployment has risen to 9.7%, virtually closing the gap between the two.
The fact that there is still significant underemployment suggests that there is still considerable slack in the labour market and that this may be acting as a brake on wage increases. On the other hand, the large numbers of people who consider themselves overemployed, especially among the professions and older workers, suggests that many people feel that they have not got the right work–life balance and many may be suffering consequent high levels of stress.
Rise in number of UK workers who want to cut back hours, ONS says The Guardian, Phillip Inman (25/11/14)
Data reveal slack and stretch in UK workforce Financial Times, Sarah O’Connor (25/11/14)
Will you graduate into underemployment? The Guardian, Jade Grassby (30/9/14)
Three million people would take pay cut to work shorter hours: Number who say they feel overworked rises by 10 per cent in one year Mail Online, Louise Eccles (26/11/14)
ONS: Rate of under-employment in Scotland lower than UK average Daily Record, Scott McCulloch (25/11/14)
Underemployment and Overemployment in the UK, 2014 ONS (25/11/14)
- Distinguish between unemployment (labour force survey (LFS) measure), unemployment (claimant count measure), underemployment (UK measure), underemployment (Eurostat measure) and disguised unemployment.
- Why is underemployment much higher amongst part-time workers than full-time workers?
- How do (a) underemployment and (b) overemployment vary according to the type of occupation? What explanations are there for the differences?
- Is the percentage of underemployment a good indicator of the degree of slack in the economy? Explain.
- How is the rise in zero hours contracts likely to have affected underemployment?
- How could the problem of overemployment be tackled? Would it be a good idea to pass a law setting a maximum number of hours per week that people can be required to do in a job?
- Would flexible working rights be a good idea?