Automation has “significantly contributed” to a decrease in the portion of national income that goes to American workers over the past two decades, according to a new report published by the Federal Reserve Bank of San Francisco.
Although the bank found that a decline in union membership,m increased outsourcing and offshoring and non-compete clauses that hurt workers’ ability to switch jobs are also contributing to a shrinking paycheck, automation is the primary cause.
Despite a strong labor market and consistently low unemployment, the labor share, or the portion of national income going to workers, declined to 56 percent in 2018, compared to about 63 percent in 2000. Although the decline steepened during the financial crisis, the labor share has remained at historically low levels, despite strong employment growth over the past few years.
In part, that’s more businesses are increasingly relying on automation for what are generally hard-to-fill jobs. Because of rapid advances in artificial intelligence and robotics, robots can perform jobs and tasks that only humans could do just a few years ago.
Coupled with a steady decline in the price of this equipment over the past few decades, it’s not only easier for businesses to automate, but cheaper. Plus, workers -- worried about the possibility of being replaced by a machine -- have a weaker amount of bargaining power.
“In this environment, workers may be reluctant to ask for significant pay raises out of fear that an employer will replace their jobs with robots,” the report found.
Since the early 2000s, the labor share has dropped about 7 percentage points, half of which occurred during the 2008 recession. But even in the midst of a record-long economic expansion, labor share remains stagnant at 56 percent, near the historical low.
“The significant decline in the labor share reflects that increases in real wages have not kept up with labor productivity improvements over the past two decades,” the authors wrote.
Of course, automation can sometimes help workers, as well.
The bank found that robots have had a positive impact on aggregate employment, contributing to the steady decline in the unemployment rate in recent years. At 3.7 percent, unemployment is currently close to a 50-year low.
“If automation had not been a part of the picture over the past two decades, productivity would have risen even less than it actually did, while wages would have risen more,” the report said.