Globalization and the Rise of Robots

Dalia Marin, University of Munich and CEPR

Strategies for Growth: The Changing Role of the State

Columbia Global Center Paris, October 2014

The Rise of the Robots Breakthroughs in Artificial Intelligent (AI) combining big data with ever more powerful computers have led to the emergence of -3D Printing -driverless cars -drones -legal software displacing lawyers -technology displacing medical diagnosticians -Udacity (online open courses) replacing professors

Brynjolfsson and Mc Afee 2014, The Second Machine Age

Two Hypotheses

Hypothesis 1: Robots will bring manufacturing back to the rich countries as machines are replacing workers and the cost of labor will not matter much. Hypothesis 2: Intelligent machines will replace smart people rather than increase the demand for skills (capital bias rather than skill bias technical change)

Hypothesis 1

Anecdotal evidence on reshoring Apple shifting back from Foxcomm, China Airtex Design Group shifts part of textile production back to the US, NY Times 2013 But can we see this in the data?

² offshoring = (intermediates used from region)/(total intermediates used) Source: World Input-Output Database, Timmer et al 2014

00,005

0,010,015

0,020,025

0,030,035

0,040,045

0,05offshoring² USA

00,005

0,010,015

0,020,025

0,030,035

offshoring²

France

Offshoring to low wage countries

00,010,020,030,040,050,060,070,080,09

offshoring² Germany

00,005

0,010,015

0,020,025

0,030,035

0,040,045

0,05offshoring²

Italy

00,010,020,030,040,050,060,070,080,09

offshoring²

Austria Offshoring to Asia,Eastern Europe andBrazil&Mexico

00,005

0,010,015

0,020,025

0,030,035

0,040,045

offshoring²

UK

00,005

0,010,015

0,020,025

0,030,035

0,04offshoring²

Spain

Offshoring Regions

¹ offshoring = (intermediates used from region)/(total intermediates used) Source: World Input-Output Database, Supply-Use Tables (Nov 2013 release)

00,005

0,010,015

0,020,025

0,030,035

0,040,045

offshoring¹ Germany

00,0020,0040,0060,008

0,010,0120,0140,0160,018

0,02offshoring¹ France

0

0,005

0,01

0,015

0,02

0,025

0,03offshoring¹ UK

0

0,005

0,01

0,015

0,02

0,025offshoring¹ Italy

00,005

0,010,015

0,020,025

0,030,035

offshoring¹ USA

00,0020,0040,0060,008

0,010,0120,0140,0160,018

offshoring¹ Spain

00,010,020,030,040,050,060,07offshoring¹

Austria

Offshoring to Eastern Europe

Offshoring to Asia

Offshoring to Brazil&Mexico

So far we do not see any reshoring in the data!

Hypothesis 2 Skill-biased technical change: (Acemoglu and Autor 2011) Technology requires ever more skills, Technology and skills are complements Rise in the relative wage between the most educated to the least educated workers.

Hourly wages by Skill level

¹ x skilled hourly wage = (share of x skilled in labor compensation*total labor compensation)(share of x skilled in hours worked*total hours worked); year 1995 is set to 1 for each country Source: EU KLEMS Database, O’Mahony and Timmer 2009, Socioeconomic Accounts (July 2014 release)

0,80,9

11,11,21,31,41,51,61,71,8

hourly wage¹ USA

0,80,9

11,11,21,31,41,51,6

hourly wage¹ Germany

0,80,9

11,11,21,31,41,51,61,71,8

hourly wage¹ UK

0,80,9

11,11,21,31,41,51,6hourly wage¹ Spain

0,80,9

11,11,21,31,41,51,6

hourly wage¹ Italy

0,80,9

11,11,21,31,41,51,6

hourly wage¹ France

0,80,9

11,11,21,31,41,51,6

hourly wage¹ Austria

high skill

medium skill

low skill

¹ high skilled hourly wage relative to low skilled hourly wage; where x skilled hourly wage = (share of x skilled in labor compensation*total labor compensation)(share of x skilled in hours worked*total hours worked). Low: ISCED 1&2, medium: ISCED 3&4, high: ISCED 5&6. ² offshoring = (intermediates used from region)/(total intermediates used) Source: World Input-Output Database, EU KLEMS Database based on Socioeconomic Accounts

00,511,522,533,5

00,005

0,010,015

0,020,025

0,030,035

0,040,045

0,05relative wage¹ offshoring² USA

0

0,5

1

1,5

2

2,5

00,005

0,010,015

0,020,025

0,030,035

relative wage¹ offshoring²

France

Offshoring and the Skill Premium (high to low skill wage)

2,22,252,32,352,42,452,52,552,62,65

00,010,020,030,040,050,060,070,080,09

relative wage¹

offshoring² Germany

0

0,5

1

1,5

2

2,5

3

00,005

0,010,015

0,020,025

0,030,035

0,040,045

0,05relative wage¹ offshoring²

Italy

0

0,5

1

1,5

2

2,5

3

00,010,020,030,040,050,060,070,080,09

relative wage¹

offshoring²

Austria Offshoring to Asia,Eastern Europe andBrazil&Mexico

relative wage

1,61,651,71,751,81,851,91,95

00,005

0,010,015

0,020,025

0,030,035

0,040,045

relative wage¹

offshoring²

UK

0

0,5

1

1,5

2

2,5

00,005

0,010,015

0,020,025

0,030,035

0,04relative wage¹

offshoring²

Spain

Summing up:

Except for the US and more recently in Germany, the skill premium between high and low skill workers is declining in Europe.

Why is this happening? Is the skill premium in Europe declining because higher education is outpacing technological chance? Goldin and Katz (2010): Race between Education and Technology, show that the skill premium in the US has risen in the 1980s and 1990s, because technology advanced too quickly for education to keep up.

Tertiary Education of 25-64 year-olds in percent of population ¹

0

0,5

1

1,5

2

2,5

3

Austria

France

Germany

Italy

Spain

UK

USA

¹ tertiary education: International Standard Classification of Education (ISCED) categories 5&6. Source: OECD, 2014, Education at a Glance .

Fazit

Except for the US and Germany, the share of the population with tertiary education has increased by 60-70 percent (in some it doubled) in the last 15 years.

Are we fighting the wrong battle?

Capital rather than Human Capital

Capital-biased technical change: What if intelligent machines are replacing us (lawyers, doctors, professors, journalists)? Production uses ever more physical capital Technology and skills are substitutes

Capital vs Labor Evidence: - Declining skill premium in Europe - Rising skill unemployment - Global decline of the labor share in GDP since

1980 Karabarbounis and Neiman QJE 2014 decline is due to lower prices for technology, explains 50 % of the decline

Unemployment Rates workers with tertiary education

25-64 years old 25-34 years old 2000 2012 2000 2012 ___________________________________________________________ Austria 1.5 2.1 2.7 France 5.1 5.1 6.6 6.8 Germany 4.0 2.4 2.7 2.8 Italy 5.9 6.4 15.5 13.7 Spain 9.5 14.0 14.5 19.8 UK 2.1 3.6 2.0 4.2 USA 1.8 4.6 2.0 4.9 ____________________________________________________________ OECD, Education at a Glance, 2014

Policy Implication

Scarcity of education and talent may lie behind us New issue: Capital vs Labor The push for more higher education may be the wrong way to go.

¹ tertiary education: ISCED categories 5&6. Secondary and post-secondary non-tertiary education: ISCED categories 3&4 (except 3C short). Source: OECD 2014 , Education at a Glance.

Ratio of Tertiary to Secondary Education

0,8

1

1,2

1,4

1,6

1,8

2

2,2

2,4

2,6

Austria

France

Germany

Italy

Spain

UK

USA

Polarization Hypothesis

¹ high skilled hourly wage relative to low skilled hourly wage; where x skilled hourly wage = (share of x skilled in labor compensation*total labor compensation)(share of x skilled in hours worked*total hours worked). Low: ISCED 1&2, medium: ISCED 3&4, high: ISCED 5&6. ² offshoring = (intermediates used from region)/(total intermediates used) Source: World Input-Output Database, 2014

Offshoring and the Skill Premium (high to medium skill wage)

1,551,61,651,71,751,81,851,91,95

00,005

0,010,015

0,020,025

0,030,035

0,040,045

0,05offshoring² relative wage¹

USA

1,35

1,4

1,45

1,5

1,55

1,6

1,65

00,005

0,010,015

0,020,025

0,030,035

0,04offshoring² relative wage¹

Spain

0

0,5

1

1,5

2

2,5

00,005

0,010,015

0,020,025

0,030,035

0,040,045

0,05offshoring² relative wage¹ Italy

1,46

1,48

1,5

1,52

1,54

1,56

1,58

00,005

0,010,015

0,020,025

0,030,035

0,040,045

offshoring² relative wage¹ UK

1,521,541,561,581,61,621,641,661,681,71,72

00,010,020,030,040,050,060,070,080,09

offshoring² relative wage¹ Germany

1,351,41,451,51,551,61,651,71,751,81,85

00,005

0,010,015

0,020,025

0,030,035

offshoring² relative wage¹ France

1,521,541,561,581,61,621,641,661,681,71,721,74

00,010,020,030,040,050,060,070,080,09

offshoring² relative wage¹ Austria Offshoring to Asia,Eastern Europe andBrazil&Mexico

relative wage