A New Era of Automation Leading to Higher Inequality - Term Paper Example

A new era of automation is leading to higher inequality and threatening the social order Introduction Historically, the success of any business entity was largely based on the ability of the business to attract talented and highly skilled employees (Whaples, 456). However, at the turn of the 20th century, technological inventions started playing an increasingly greater role in determining the success of organizations, most especially with the coming of the computer age (Stone, 7). Thus, technology has been consistently evolving in the last few decades and its global impacts economically, socio-culturally and politically is insurmountable. The value of technology in enhancing efficiency within organizations and thus increasing productivity and profitability cannot be disputed (Jacobs, 2). Nevertheless, the fact that technology has also resulted in the loss of jobs and layoff of some employees in the course of creating efficiency within organizations is also a fact that cannot be denied. The major difficulty therefore arises in the attempt to balance the positive impacts and the negative impacts of technology on economic progress, employment and the consequent social change. Thus, while the proponents of the argument that technological automation is likely to create higher unemployment going forward are pitching their argument on the negative effects that technology has created historically, the opponents of this argument counter it with pointing at the positive effects of employment creation arising from technological automation. Overall, there is no single industry in the global economy that has not felt the impacts of technological changes that have created automation and replaced manual processes. The difference emanates from the fact that; while technological automation has favorably affected certain industries, it has affected the other industries unfavorably (EMSI, n.p.). Thus, whether technological automation increases or decreases unemployment, is all dependent on which industry is affected. For example, a study undertaken by the Economic Modeling Specialists International (EMSI) to assess the impact of automation on job losses in different industries indicated that the tourism industry in the USA has lost 24% of its jobs by laying-off 38,000 workers between 2002 and 2014 (EMSI, n.p.). However, the internet marketing industry created 99,000 new jobs between the same 12 year period running between 2002 and 2014 (EMSI, n.p.). The increase or decrease in employment has a major impact on the social equality or inequality within the society, respectively. Nevertheless, it can be easily concluded that a new era of automation is leading to higher wealth and employment inequality and thus threatening the social order. 2. Specification of an Economic Model The Bathtub Model of Unemployment is an important approach to the evaluation of how technological automation leads to higher inequality and thus threatens the social order. The Bathtub Model of Unemployment states that; the change in unemployment results from the difference between inflows into the unemployment zone and outflow from the unemployment zone (Şahin and Patterson, n.p.). Thus, an economic factor that causes a change either through increasing inflow into the unemployment zone or outflow from the unemployment zone will eventually have a change in the unemployment volume within an economy (Şahin and Patterson, n.p.). In this respect, technological automation, which is an economic factor that might cause either increased inflow or outflow of the population into the unemployment zone, will eventually change the unemployment levels in the economy. According to the Bathtub Model of Unemployment, the rate of unemployment in the economy is analogous with the amount of water in a bathtub (Şahin and Patterson, n.p.). Thus, the amount of water that remains in the bathtub is determined by the rate of water inflow compared with the rate of water outflow from the bathtub. Under circumstances where the rate of water inflow into the bathtub is higher than the rate of water outflow, the volume of water remains consistently high in the bathtub and vice versa. Similarly, under circumstances where the economy is creating more jobs relative to the population within the economy, the percentage of the unemployed within the economy is low, compared to the circumstances where the economy is creating less jobs relative to the population, where then unemployment is then higher (Şahin and Patterson, n.p.). First, the relevance of the Bathtub Model of Unemployment in analyzing the relationship between a new era of automation and higher social inequality derives from the fact that this model operates on the basis of the volume of unemployment, as opposed to the rate at which the unemployment is created. Therefore, the application of the Bathtub Model of Unemployment makes it possible to assess the effect of automation on the volume of unemployment, based on the consideration of how many employees a certain technological invention can replace within an organization. This makes it possible to ultimately determine the level of inequality created by the technological automation, since the level of inequality is best measured through volume, as opposed to the rate at which it occurs (Stone, 27). Secondly, the relevance of the Bathtub Model of Unemployment in assessing the causal relationship between automation and higher rates of inequality derives from the fact that this model takes cognizance of sudden changes. The Bathtub Model of Unemployment recognizes the effect of sudden changes in economic factors, such that where there is a surge in an economic factor that creates high employment opportunities in the economy, the volume of the unemployed population in the society decreases at a faster rate (Şahin and Patterson, n.p.). On the contrary, where there occurs economic factors that cause a sudden reduction of employment opportunities within an economy, the volume of unemployed population within the economy will remain disproportionately high (Şahin and Patterson, n.p.). This is analogous with the upsurge of water in the inflow pipe, which causes the volume of water to increase at a higher rate compared to the rate of draining the water from the bathtub. Thus, an upsurge in the technological automation may either cause the unemployed population to increase or decrease. 3. Discussion: Evidence and Analysis The concept of automation influences the rate of inequality in two major ways. First, the automation of the processes and tasks within an organization may result in the decreased need for the workers by the organization, since some of the work that was previously done manually is now machine-completed (Whaples, 454). Secondly, the automation of the processes and tasks within an organization may operate towards increasing the efficiency of the tasks performance, thus increasing the rate of productivity and the consequent profitability of the organization, without altering the wage rate of the employees (Stone, 33). Notwithstanding the way in which the automation era affects the organization between these two ways mentioned above, the overall effect is that there will be a resultant inequality. i. Automation creating inequality through increasing unemployment Automation can also impact an organization by creating more efficient processes and task performance procedures that may render some workforce in the organization redundant (Jacobs, 12). The redundancy of some part of the workforce may emanate from the fact that the automation of certain processes and procedures of an organization are easily and fully completed through the use of machines (Stone, 40). This would in turn mean that the organization would no longer need the redundant workforce, and thus may end up laying-off the affected workers. The consequence of laying-off the redundant workforce is the increased unemployed population, which then means that the gap between the rich and the poor will continue to widen (Field, 177). A study undertaken by the Economic Modeling Specialists International (EMSI) to evaluate the effect of automation for the major USA companies has shown that 21% of the US companies had replaced their workforce through automation in the last 12 years (EMSI, n.p.). The most worrying fact about the findings of this study is that the USA companies with 500 employees and above were even more likely to replace their workforce with automation, since 30% of these companies had laid off part of their workforce and replaced the same with automation (EMSI, n.p.). These statistics serves to indicate that the effect of automation in this new era has been to cause loss of employment for many workers, which then means that the financial position and the social status of such employees is adversely affected (Whaples, 457). The same study has also indicated that 68% of the companies that had laid-off their workers had replaced them with few but more trained and highly specialized workers, who were capable of running the new technology (EMSI, n.p.). Another Economic Modeling Specialists International study undertaken to evaluate the effect of automation on the overall change in the employment trend in the USA over the last 12 years has indicated that a total of 257 occupations within the USA, which represents 25% of the total occupation in the country, have experienced a fall in employment since 2002 (EMSI, n.p.). The findings of the same study also indicated that for the rest of the 75% of the occupations within the USA, the increase in employment was between 0% and 1%, an indication that automation has caused a sharp reduction in the creation of employment with the USA economy (EMSI, n.p.). The effect of these findings is to show that highly trained and technologically savvy professionals are more likely to find new jobs as a result of automation, while the lowly technologically trained and specialized workforce loses their jobs (Stone, 17). The problem however is in the fact that the population losing jobs as a result of automation is much higher than the population gaining new jobs. This simply means that there is an increased inequality between the highly trained technology experts and the rest of the society, which increases their financial, political and social influence over the rest of the society (Field, 181). This is likely to change the social order in the future, with the highly trained technology experts wielding more political, social and economic influence than the rest of the professionals. ii. Automation creating inequality through disproportionate wealth creation for business owners Automation results in the creation of inequality within the society, through creating disproportionate financial advantage for business owners compared to the workers within the organization. Automation is a strategy that is meant to increase the productivity and efficiency of process within an organization, without due regard for the salary scale of the organizational workforce. This is because, when automation has resulted in increased efficiency of the organization thus creating high productivity and profitability without altering the workers’ wages, the overall effect is that the automation will have created more wealth for the owners of the business, while not benefitting the workers (Stone, 14). Consequently, the financial state of the workers will continue to remain the same, while more wealth will be created for the owners of the organization, causing owners to become disproportionately richer than the workers (Whaples, 457). The increased profit flows to the owners of the business, which means that these individuals and their families are likely to climb the social ladder faster than the working class who creates this wealth. Therefore, in the future, a higher inequality will be created between the business owners and the workers, where the business owners will be wealthier, while the workers will remain in the same financial position through to the future, due to the disproportionate advantage granted to the business owners over the employees by the process of automation (Stone, 12). Thus, the future society will be highly fragmented, with a higher percentage of the wealthy business owners occupying the apex of the social pyramid, while the working class will continue to stagnate in the same middle or lower middle-class section of the social hierarchy (Field, 175). This will have effectively created higher inequalities in the future society. A good example of disproportionate wealth creation for the business owners is the case of Instagram v. Kodak, where Instagram managed to create seven billionaires within just 15 months of its operation, compared to Kodak that had been running for many years, due to automation of the photography industry. iii. Automation influencing the future social order The social order is also likely to be altered in the future, as a result of the new era of automation. This is because; automation has resulted in the creation of a disproportionate advantage for the business owners over the working class. Automation creates efficiency in the organizational processes and tasks, allowing for the consumption of fewer resources to achieve high productivity (Stone, 36). The enhanced productivity and increased organizational profitability, benefits the business owners directly without changing the financial status of the workers, since the wages of the workers remain stagnated despite the increased productivity (Whaples, 454). This simply means that the business owners will have a higher political bargaining power and also a higher social influence in the society, compared to the working class, as a result of their benefiting from the increased productivity and profitability of the businesses they own. Social and political influence is highly tied with the wealth and class status of individuals within the society (Jacobs, 18). Therefore, it will be much easier for such wealthy business owners to influence the political and the social policies within the society, resulting in a disrupted social order that favors the wealthy business owners, at the expense of the working class population (Jacobs, 19). The social and political influence by the wealthy business owners that disrupts the social order may take the form of influencing the formulation of political and social policies that create a favorable business environment. This will continue to benefit the business owners more, at the expense of the working class and the wider society. 4. Conclusion Historically, employee training and skills formed the fundamental basis of determining the organizational success. However, with the rise of the computer age, technology has increasingly played an important role in influencing the organizational success. Automation can cause higher inequality through increasing unemployment or creating a disproportionate wealth formation advantage for the business owner over the working class. On the other hand, automation can result in the loss of jobs for some workers, especially the less specialized and lowly trained, which then gives the highly trained technology expert an upper hand in employment. The result is a higher disruption of the social order, through making the business owners and the highly trained technological experts more influential socially, economically and politically. Works Cited Economic Modeling Specialists International (EMSI). “One in Five Companies Have Replaced Workers with Technology”. CareerBuilder and Economic Modeling Specialists Intl, July 31, 2014. Web. November 26, 2014. < http://marketbusinessnews.com/does-automation-kill-jobs/28996> Field, Alezander J. U.S. Economic Growth in the Gilded Age. Journal of Macroeconomics 31, 2007. 173–190. Print. Jacobs, Lawrence, et al. American Democracy in an Age of Rising Inequality: Task Force on Inequality and American Democracy. Journal of American Political Science Association, 1-24. Print. Şahin, Ayşegül and Patterson Christina. “The Bathtub Model of Unemployment: The Importance of Labor Market Flow Dynamics”. Federal Reserve Bank of New York: Liberty Street Economics, March 28, 2012. Web. November 26, 2014. < http://libertystreeteconomics.newyorkfed.org/2012/03/the-bathtub-model-of-unemployment-the-importance-of-labor-market-flow-dynamics.html#.VHX_b6ASTGg> Stone, Katherine V.W. Income Inequality in the Digital Era. I working Papers 12, 2002. 1-44. Whaples, Robert. The Shortening of the American Work Week: An Economic and Historical Analysis of Its Context, Causes, and Consequences. The Journal of Economic History 51(2): 1999. 454–457. Print. Read More