SPRU - Science Policy Research Unit

Technical change, employment & inequality

According to the London Futures Deloitte report (Frey and Osborne, 2014), 35 per cent of the current workforce in the UK is at risk of being made redundant over the next two decades as a result of the introduction of digital robots that will replace their tasks. For those that manage to remain employed, it is difficult to predict whether and how they are able to adapt their skills to the changing demand for occupational tasks.

One emerging trend is that, after the introduction of new digital capital, firms dismiss large shares of medium-skilled workers, while seeking either low skilled workers to perform highly routinised tasks, or very high skilled people who provide creative ideas and apply sophisticated knowledge to maximise the benefits of digital capital.

The polarisation of demand for tasks and the skills required to perform them is likely to be reflected in a similar polarisation of wages. This will depend on how firms decide to increase digital mechanisation, for instance what type of hardware and software services they purchase, and what types of new occupations this new capital requires.

Also, as pointed out by Piketty (2014), rising share of capital in production goes hand in hand with decreasing share of labour, favouring top income concentration. Overall, innovative firms might be responsible for increasing income inequality, both through higher concentration of capital returns in the hands of a few creative CEOs and a higher proportion of the wage bill going to a proportionally smaller share of very high-skilled workers.

Summary

The project, “Technical change, Employment & Inequality. A Spatial analysis of households & plant data” will investigate the innovation-inequality relation by looking at three mechanisms: the Schumpeterian creative destructive effect, the employment effect and the wage effect.

Income inequality has been steadily increasing for over three decades in developed countries and is now seen as a major policy issue, which needs to be understood with more fine-grained data, new methods, and at a more disaggregated level than currently used. Technical change and innovation have been highlighted among the drivers of income inequality.

Methodology

This project aims to reveal the micro-level mechanisms responsible for the effects of technical change on employment and income distribution by looking at firms’ decisions to invest; how this affects demand for different tasks and skills, and how the changing composition of such demand and the ensuing creative destruction affect the distribution of wage income and capital income at a fine-grained geographical area. 

Impact and outreach

To ensure engagement with stakeholders the project team will run three workshops, facilitated by the Young Foundation – in Leeds (Summer 2017), Brighton/Manchester (Autumn 2017) and London (Spring/Summer 2018).

The first of these - a participatory workshop on 'Automation, Employment & Inequality' - was held on 6 July 2017, and addressed questions such as: What impact is automation having on our jobs, in the North and beyond? What does this mean for geographic and intergenerational inequality? What can we do about it? To attend, register free via Eventbrite.

At the end of the project there will also be an event to share the findings with stakeholders from previous workshops.

In liaison with the Young Foundation, the project researchers will co-write two policy reportsThe first will feature the main results on the relation between the dynamics of innovation and inequality in the last three decades in the UK, across regions. The second policy report will discuss the main mechanisms (robotisation and occupation, wage polarisation, and accumulation of the returns to innovation) driving this relation. The policy report will provide the stakeholders with cutting edge evidence based on robust data and analysis, to inform their agendas. 

The results of the study will support national and local governments, employers, civil society organisations, charities and donor organisations focused on poverty and inequality, trade unions and social innovators to formulate responses to the economic and social pressures induced by increasing income inequality and the impact of robotisation on employment. These decision makers will be able to formulate policies on inequality and firm investment with a better knowledge of specific leverages and incentives that, while promoting innovations, reduce its impact on unemployment, underemployment and inequality, driving more inclusive and a fairer society.

The project will add to the debate on social and policy issues around income inequality and unemployment and on the job-destruction resulting from digital mechanization and robotisation in the UK.

Partners and Links
The project team, led by Professor Maria Savona (Principal Investigator), includes Dr Tommaso Ciarli, Dr Alberto Marzucchi and Edgar Salgado Chavez (Co-Investigators). The team will collaborate with the Young Foundation to disseminate results beyond academia.