Why machines won’t save us from the labour shortage

Working only fifteen hours a week thanks to machines. This is how the British economist John Maynard Keynes envisioned today’s world almost a hundred years ago. Since then, as Keynes anticipated, a great deal has been automated. However, the abundance of free time did not materialise, nor did the feared unemployment. Indeed, there is actually a shortage of workers. So what happened?

The idea that machines would make it possible to work less and thus also overcome the labour shortage is based on assumptions that are not necessarily true.

Efficiency, wages and performance

Firstly, increasing efficiency does not necessarily lead to savings. Technology does allow more efficient processes. As early as the nineteenth century, however, the economist William Jevons observed that more efficient steam engines did not lead to less coal consumption, but to more. This so-called rebound effect is also evident in the world of work. E-mails allow enormously efficient communication. However, this did not lighten the workload for the vast majority of employees. They simply read and write a lot more messages than ever before.

In an interview conducted for our study “Strategies for dealing with the labour shortage”, an employee of a production company reported that a new packaging machine had not mitigated their labour shortage. Instead, the efficiency gain was compensated for with more different package sizes.

Whether it makes business sense or not, efficiency increases often seem to result in more output rather than savings. In a survey conducted for our study, 40 percent of the 280 managers questioned said that previous automation savings had been fully offset by an expansion of output. A further 30 percent somewhat agreed.

A second point concerns the link between wages and technological progress. Of course, some jobs have been automated – in agriculture, for example. But where does freed-up labour go? Does the market provide sufficient incentives to do the most necessary work? The literature indicates that jobs with higher wages cause more negative externalities, i.e. more social follow-on costs. The opposite is true for low-paid jobs. But externalities aside: in a survey we conducted with a thousand Swiss employees, only a minority are convinced that those in their company who earn more also contribute more to the company’s success.

A 2016 article in the Harvard Business Review estimated that the American economy could get by with half the number of management positions. Around 40 percent of the employees we surveyed also think that they would work better with fewer managers. This is presumably also because, as we show in the study, their number has tripled in the last thirty years. Nevertheless, managers are the highest earning occupational group in Switzerland, while the incentives for some “systemically relevant” jobs are significantly lower despite a shortage of staff.

Arms race in the service sector

Thirdly and finally, there is the question of the connection between performance and value creation. Some work in the service sector does not directly generate value, but redistributes existing assets. Advertisers compete for limited consumer spending, scientists for limited funding, lawyers for guilty verdicts or acquittals. If the pie to be distributed does not grow, the efforts of competitors neutralise each other.

The British economist Lord Adair Turner speaks of a zero-sum economy. The introduction of technological aids is then comparable to high-tech shoes that do not allow a football team to do without its players. After all, the competition uses the same tools, and the (zero-sum) game continues at a higher level. An arms race is taking place in the service sector, which at a certain point no longer generates any added value for society.

It is a social dilemma: from an individual perspective, participation in the arms race may represent a necessary investment and meaningful work. From a social perspective, such zero-sum jobs are an infinitely large catch basin for technological productivity gains, and they tie up resources that would be put to better use elsewhere. Perhaps they are also one of the reasons why the digital revolution has hardly been reflected in economic productivity so far (see the Solow paradox).

Ultimately, the labour shortage can therefore be described as an allocation problem: If 1) increased efficiency does not automatically lead to an increase in output, 2) the market does not provide sufficient incentives and 3) resources are tied up in unproductive redistribution and arms races, we do not have too few workers – we are just deploying them incorrectly. In this case, simply trying to solve the problem with more machines (but also people) will be very inefficient, to say the least.

Dr. Jakub Samochowiec is Senior Researcher and Speaker at the Gottlieb Duttweiler Institute. The holder of a doctorate in social psychology, he analyses social, economic and technological changes with a focus on decision-making, age, media and consumption.