May 22, 2014

LABOR HAS NO VALUE:

Labor's Digital Displacement (Michael Spence, 5/22/14, Project Syndicate)

Now comes a second, potentially even more powerful, wave of digital technology that is replacing labor in increasingly complex tasks. This process of labor substitution and disintermediation has been underway for some time in service sectors - think of ATMs, online banking, enterprise resource planning, customer relationship management, mobile payment systems, and much more. This revolution is spreading to the production of goods, where robots and 3D printing are displacing labor.

It is important to understand the economics of these technologies. The vast majority of the cost comes at the start, in the design of hardware (like sensors) and, more important, in creating the software that produces the capability to carry out various tasks. Once this is achieved, the marginal cost of the hardware is relatively low (and declines as scale rises), and the marginal cost of replicating the software is essentially zero. With a huge potential global market to amortize the upfront fixed costs of design and testing, the incentives to invest are compelling.

In other words, unlike the preceding wave of digital technology, which motivated firms to gain access to and deploy underutilized pools of valuable labor around the world, the driving force in this round is cost reduction via the replacement of labor.

Posted by at May 22, 2014 5:48 PM
  
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