Automation Creates Jobs and Raises Wages

In December 21, 2016, the New York Times ran an article titled, “The Long-Term Jobs Killer Is Not China. It’s Automation.” It repeated across its 1,250 words the assertion that automation is bad news for the worker. This is demonstrably wrong, and, in fact, the opposite is true. Automation increases human productivity, lowers costs, increases wages and creates good jobs. Centuries of economic data bear this out. Think about the amount of automation that has been introduced since the end of the 18th century, and compare that with the increase in the standard of living over the same period. One of the most unequivocal lessons of history is that increases in automation improve the standard of living of workers. To portray automation in a villainous role is, by extension, to maintain that the Industrial Revolution itself was a bad idea that harmed workers.

How exactly does automation create jobs and raise wages? What are the mechanisms at work? Let’s start by looking at how jobs are created in the first place. Jobs are made when a person takes something, such as lumber, and adds labor and know-how to it, thereby turning it into something of higher value, such as a bookcase. In a moderately free market, the amount of value the person is able to add is the upper limit to the wage they earn for the work. If craftsman Bill buys $5 worth of lumber, works for five hours and makes a bookcase he sells for $55, he made $50 in five hours, so Bill created a $10-an-hour job.

So how does automation play in? Imagine that Bill’s neighbor Jill decides to get into the bookcase-making business as well. But Jill invests in automation: She buys a power saw and an electric sander. Then, using $5 worth of lumber, she makes the same kind of bookcase that Bill makes, but she does so in just one hour. Selling this bookcase for the same $55, Jill ends up with $50 in profit for one hour of labor, so Jill created a $50-an-hour job.

By Byron Reese and Bill Leber

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