Why could robots lead the recovery from the pandemic?

Once the health emergency is contained, countries will concentrate all their efforts on recovering their economies from one of the hardest recessions in history. The solutions seem difficult, but humanity could count on an unexpected ally: robots.

On August 18, it was officially confirmed that the Japanese government will approve in 2021 the use of robots to deliver packages at home. The announcement, made during the ZMP World 2020 technology event in Tokyo, opens the door to new practical applications for existing technology and takes a further step in the robotization of economies.

Meanwhile, the world is in a historic recession with heavy job and wealth destruction. In this context, the attention of economic authorities is usually focused on large measures of fiscal or monetary stimulus, although they sometimes forget that technological advantages at the microeconomic level can be much more effective than any other type of measure.

In fact, if we analyze the evolution of employment, we will see that the loss of jobs is being relatively lower in the more robotic economies (South Korea, Taiwan, Germany, Sweden, etc.) than in those more dependent on less automated sectors such as tourism (Spain, Italy, etc.). This allows us to deduce that the intensive use of robots in production processes is showing a series of advantages that can be translated into solid bases for the economy of the coming decades.

Telework and resilience

Contrary to popular belief, robots can help protect human work rather than make it precarious.

The first thing to point out is that the robotization of the economy is not a recent phenomenon but a trend that has been consolidating since the beginning of the 21st century. The global COVID-19 pandemic, therefore, has only contributed to reinforcing it, but has done so in such a way that it seems to have made it irreversible.

The first reason is obvious. In a context of mandatory social distancing and employees who cannot go to their workplace, the fact that part of the tasks are carried out by robots is an important advantage for companies. This occurs not only because robots can work without being infected, but also because by requiring less face-to-face human employment, physical work spaces have less occupation and, therefore, it is easier to maintain safety distances. In this way, the solution is beneficial for the company (which does not see its production capacity diminished) and also for the employees, since it is safer for them to go to their workplace.

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The second reason is linked to the resilience on which the economic authorities insist so much. In other words, the ability of economies to resist shocks external offer as the current one and exceed them later. In this sense, the advantage of robots is that they provide companies with great flexibility, since they only require fixed implementation and maintenance costs and have practically no variable costs linked to the volume of work.

In other words, a company that uses robots must limit itself to obtaining a level of turnover that allows it to cover fixed operating costs, and from there it will be able to expand its business volume with a minimal impact on costs. In contrast, activities that are highly employment-intensive in human labor are often forced to increase their spending on personnel as their total turnover grows, and when it falls they must resort to adjustments in their workforce.

Do robots really destroy jobs?

By reducing the variable nature of operating expenses, the use of robots can limit temporary employment in the job market.

The use of robots, therefore, could bring, contrary to what is believed, an improvement in job stability and not a precariousness of work. To the extent that operating expense savings reduce the breakeven point and the impact of production on variable costs, companies will be able to cope with the impact of a sharp drop in sales with less difficulty. In this way many fewer businesses would be forced to close, and the shocks supply should not translate so directly into job destruction.

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Take as an example two completely different activities within the service sector, banking and hospitality. A financial institution that makes intensive use of robots has minimum operating costs that are higher than a bar, but once covered it has the ability to expand its business volume without hiring much more staff. If its income falls but not below the breakeven point, the bank will have a greater margin to absorb the impact without resorting to drastic adjustments in its workforce.

The bar, on the contrary, by not having robots, will demand a volume of human work directly proportional to its level of activity, and in the face of an increase in the number of customers it will have to hire more staff. The problem is that if this number is reduced, the only possible action will be to adjust the amount of contracted work, since this factor is an essentially variable cost for the bar. In this way, as paradoxical as it may sound, the sectors that make more intensive use of robots could see their working conditions more protected against the impact of a shock on offer than those who continue to rely exclusively on human manual labor.

This is not an exclusive feature of robots. The same can be said of machines, and the difference in job destruction between more or less robotized sectors is analogous to that which existed between more or less mechanized activities during the first Industrial Revolution. In this sense, robots simply make it possible to expand the number of activities that can be automated, allowing more people to benefit from the consequent improvement in working conditions.

However, while it is true that an intensive use of robots can help economies to resist certain crises, it is not an antidote to any type of economic problem. Situations such as financial bubbles, distorted markets or sudden changes in demand patterns can continue to cause harmful effects regardless of the use of robots.

The benefits of the Fourth Industrial Revolution

In addition to the direct effects on the profitability of companies and the conditions of workers, robots also have other advantages. First, as many of them require a higher proportion of virtual work, they encourage teleworking and the reduction of paper consumption. In this way, there could be a positive environmental effect, and many workers could enjoy more freedom when choosing their place of residence and more facilities for family reconciliation.

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Secondly, the increase in unemployment caused by the current crisis has exacerbated in some countries the problems linked to the aging of the population, especially the sustainability of the pension system. In this sense, robots could help boost productivity and thus increase the disposable income of pensioners in the long term. This could happen thanks to a double effect:

  1. Reduction of the sale prices of goods and services produced by robots.
  2. Increase in real wages of employees, giving them a greater ability to contribute to the pension system.

Finally, the recovery in international trade that is expected as containment measures fade around the world is also a great opportunity to take advantage of robots. The reason is that the most open economies will probably seek to recover part of the lost gross domestic product (GDP) by increasing their exports, and for these to be competitive without reducing wages, it may be essential to incorporate robots into production processes.

Robots are not, therefore, a magic solution to all economic problems, but they can help the recovery to be faster and the countries to return to the path of growth. Just as the First Industrial Revolution enriched a Europe devastated by the Napoleonic wars in just a few years, the fourth may perhaps once again bring prosperity to our economies so hard hit by COVID-19.

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