Since the onset of the COVID-19 pandemic, businesses have been searching for technology solutions to help them deal with the fact that some tasks, at least for the time being, can no longer be performed by humans—from sanitizing floors to transporting infectious samples. In many ways, the crisis is spurring firms to consider technologies they should have arguably already adopted to improve occupational health and safety, productivity, and revenues.
Although in many ways this economic downturn is different from those in our recent past and while some of the motivations to automate may also differ, the fact is that during economic downturns of all kinds, firms’ adoption of technology is greatly accelerated. This poses a dual challenge for Canada.
On the one hand, it is essential for Canadian companies to adopt technology during and after the pandemic—an area where our track record has historically been spotty at best. This will not only help companies to solve some more immediate challenges, but will also help them enjoy the productivity benefits of technology investments during and after the pandemic. If Canadian businesses continue to falter in this area, they may risk getting squeezed out by the firms that do decide to automate when the dust settles. On the other hand, accelerated automation can mean that certain workers may see longer-term dislocation from the labour market. The second challenge then lies in supporting these workers to transition into gainful employment if their jobs don’t return.
Automation, or the substitution of workers with technology to perform certain job tasks, is a central feature of economic progress, which can ultimately lead to job creation. But it is also a process that can create inequities in the labour market. Technology has proven to be quite effective at substituting for workers as it relates to performing routine, codifiable tasks. Since these tasks are primarily concentrated in middle-earning occupations, automation has historically contributed to job polarization across many advanced countries. For example, a study of 17 countries between 1993 and 2007 found that while industrial robots increased productivity and had little to no effect on total hours worked, they did result in fewer hours worked by low- and middle-skilled workers.
But perhaps most important in the context of the current pandemic is that these labour market shifts seem to almost entirely take place during recessions. One study found that since the 1980s in the US, the vast majority (88 percent) of job loss in routine occupations occurred within a 12-month window of the last 3 recessions. This suggests that automation is likely to be accelerated during this COVID-19-induced economic downturn.
As a result of the current pandemic, Canadian workers already face unprecedented challenges navigating a dramatically changed labour market, in which many of Canada’s most vulnerable workers have been particularly hard hit. Workers across the economy are going to face an uphill battle integrating back into a radically altered economy during the recovery period. If automation truly does accelerate and exacerbate existing structural shifts in the economy, some of these hills may become even steeper.
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It is absolutely essential to support workers who may be negatively impacted by automation. It is just as important to recognize that automation can be a positive force in the economy. In our report, Better, Faster, Stronger, we devised a framework for understanding the impact of automation on firms and workers. To fully capture and understand the extent to which automation might impact firms and workers requires first an understanding of whether, and to what extent, firms adopt technology. When a firm does choose to invest in automation, a variety of effects take place. Yes, certain workers will be left behind. But automation can also change jobs (sometimes for the better) and help firms to improve their productivity and eventually hire more workers in the long-run.
Firms’ decisions to invest in technology are shaped by a wide variety of internal and external factors, ranging from the availability of technology; internal skills and expertise; the kind of business they run; and the external context in which they operate. In the context of a recession, the decision to automate may get accelerated for a number of reasons. As the Brookings Institute points out, in a downturn, labour becomes relatively more expensive compared to technology. As businesses become more financially constrained, they are likely to look to cut costs and increase efficiencies where they can—and technology may be one solution to do so. This may be especially true in the current downturn. Recent estimates suggest that as a result of COVID-19, nearly 1/3 of Canadian firms have seen revenues drop by 40 percent. Businesses may also look for new markets and opportunities that technology can unlock and as other businesses invest, the competitive pressure to keep up may also accelerate. But unique to the current crisis is the fact that technology can go where people cannot and perform duties that are no longer safe.
In the long-run, these investments now may lay the foundation for future growth and prosperity for both firms and workers alike.