In today’s world of automation, automatedsystems match and are sometimes able to perform better than humans in a number ofactivities. With the growing popularity of artificial intelligence, this alsoholds true for those tasks that require cognitive abilities.
The replacement oflow cost labour with automation in industries is likely to have a profoundimpact on the global economy. Employment of labour leads to a number of challenges for any organization likeabsenteeism, workers leaving the organization, etc. When the workers leave theorganization, the organization has to incur additional expenses on hiring andtraining the new workforce. Not only this, it also affects the quality in theshort run as the new workers have their own learning curve and it takes time toget acquainted with the standard operating procedures. Lower productivity andemployee morale are some of the other drawbacks.With the use of automation, productivity and reliability increase, errors reduce,quality improves, variability and wastage decreases and so do the operatingcosts. One of the most important benefits of automation is safety.
For example,more than 90% of the accidents in hazardous industries occur due to humanerrors. This can be considerably reduced with the help of automation. Moreover,since human abilities differ from one another there is variation in thecharacteristics of the final product of a given type produced by differentworkers. An organization can overcome this problem by automation. It isestimated that by adopting automation the productivity at a global level canincrease by 0.8% to 1.4% annually.Automation in different sectorsWith the stateof the art technologies, complete automation can be achieved in less than 5% ofall the occupations.
There are about 60% of occupations in which up to 30% ofthe work can be automated. Due to the repetitive nature of activities in themanufacturing sector, food service, accommodation and retail trade they are highlysusceptible to automation. As per the McKinsey Global Institute Analysis,activities in food services and accommodation have the maximum potential to beautomated (73%) and educational services have the least (27%). The automationpotential for other sectors are 60% in manufacturing, 57% in transportation andwarehousing, 53% in retail trade and 43% in finance and insurance. It isimportant to understand that within different sectors there is a huge amount ofvariation in the percentage of the activities that can be automated. Forexample, the degree of automation that can be achieved in activities likewelding, soldering and cutting in the manufacturing sector is more than 90%while it is less than 30% in activities involving customer service.
This meansthat the demand for cheap labour will continue to exist even in thoseindustries that are highly prone to automation. Automationin Supply Chain There are manyactivities in supply chain that are repetitive and monotonous. Firms can employautomated systems instead of manual labour to carry out these activities morequickly and efficiently. For example, in a warehouse, movement of goods fromone place to another requires very little skill and can be automated. Amazonprimarily has automated warehouses. Besides warehousing, transportation ofgoods can be done by using drones as well as automated trucks. The advantage ofusing drones is that they can be used to deliver goods to remote areas.
RoboticProcess Automation can be used in carrying out administrative tasks inprocurement as they consume a lot of time when done manually.Factors that affect automation in different economiesAs per the report published by McKinsey if all the technically feasibleactivities were automated at a global level, it would replace 1.1 billionworkforce that is paid wages worth $15.8 trillion. Over half of these totalwages and employees are accounted for by four big economies namely China,India, Japan and the United States.
The degree of automation in differentcountries depends on which sectors have dominant presence in the economy, eitheragriculture, manufacturing or service sector and what percentage of workforceis engaged in activities that can be automated in these sectors.Factors affecting replacement of low cost labour with automation The rate at which automation will replace cheap labour depends on technicalfeasibility and technical know-how of firms in the economy. Though onceautomation is adopted it leads to lower operating costs but developingautomated systems at the first place takes considerable capital. Hence,adoption of automated systems depends on the ability of the country to investin the capital intensive technologies.
Over a period of time, as the costs ofhardware and software decline, automated solutions will become competitive withhuman labour for many activities. The rate at which manual labour will bereplaced by automation also depends on the wage rate. In developing countrieslike India where the wage rate is low automation will be adopted at a slowerpace in comparison to developed countries like the USA, where the wage ratesare high. Moreover, it is believed that most of the occupations will initiallybe only partially automated and it will take considerable time for completeautomation.
Advanced as well as developing economies with aging workforce arelikely to be more inclined towards adopting automation as fast as possible foreconomic growth. For sustaining economic growth in developing countries likeIndia which has abundant young working-age population the focus should be onboth automation as well as additional productivity raising measures. Automation lowers the operating costs of an organization andincreases the profits in the long run. Hence the increased profits would beeither paid as dividend to the shareholders or invested by the company. Automationwould lead to concentration of wealth in the hands of a few as the firms wouldbe employing considerably less workforce.
Though there is no doubt thatautomation leads to loss of employment for the labour class but it is importantto realize that transition from manual labour to complete automation will takeplace gradually and policy makers and managers must take measures to raiseskills of the workforce and at the same time promote job creation. Although inthe short run it will lead to unemployment of the workforce but in the long run it can be anticipated thatthere will be a gradual shift in the nature of work with the creation of newemployment opportunities. This shift is likely to be similar to the shift inthe share of employment from agriculture and manufacturing sectors to servicesector, observed in the developed countries like the United States of Americafew decades ago. But in a country like India where the population is growing,generation of new jobs may be difficult in the short run. But as automationreduces the cost of manufacturing at a global level, low cost labour may loseits edge as a tool for development of emerging economies.