Labor Substitution Research Articles

Why Are There Still So Many Jobs? The History and Future of Workplace Automation

In this essay, I begin by identifying the reasons that automation has not wiped out a majority of jobs over the decades and centuries. Automation does indeed substitute for labor—as it is typically intended to do. However, automation also complements labor, raises output in ways that leads to higher demand for labor, and interacts with adjustments in labor supply. Journalists and even expert commentators tend to overstate the extent of machine substitution for human labor and ignore the strong complementarities between automation and labor that increase productivity, raise earnings, and augment demand for labor. Changes in technology do alter the types of jobs available and what those jobs pay. In the last few decades, one noticeable change has been a “polarization” of the labor market, in which wage gains went disproportionately to those at the top and at the bottom of the income and skill distribution, not to those in the middle; however, I also argue, this polarization and is unlikely to continue very far into future. The final section of this paper reflects on how recent and future advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth. I argue that the interplay between machine and human comparative advantage allows computers to substitute for workers in performing routine, codifiable tasks while amplifying the comparative advantage of workers in supplying problem-solving skills, adaptability, and creativity.

On the (de)stabilizing effect of public debt in a Ramsey model with heterogeneous agents

AbstractWe introduce public debt in a Ramsey model with heterogeneous agents and a public spending externality affecting utility which is financed by income tax and public debt. We show that public debt considered as a fixed portion of GDP can have a stabilizing or destabilizing effect, depending on some fundamental elasticities. When the public spending externality is weak and the elasticity of capital–labor substitution is low enough, public debt can only be destabilizing, generating damped or persistent macroeconomic fluctuations. However, when the public spending externality and the elasticity of capital–labor substitution are strong enough, public debt can be stabilizing, driving to monotone convergence an economy experiencing damped or persistent fluctuations without debt.

Time Preference and the Intertemporal Substitution of Labour: Böhm-bawerk Reconsidered

Abstract This paper shows that the introduction of the intertemporal substitution of labour to the Bohm-Bawerkian system may reinforce the first reason for interest. However, its operation is conditioned upon the second reason. Since people may underestimate (discount) satisfaction not only from future consumption goods but also from future leisure, they may allocate more work to the future. This generates an increasing profile in their real income stream, even if the real wage rate is constant over time. The first reason and the second reason might be closely interconnected; with the second reason being the underlying determinant and the first cause having a subsidiary effect. This paper also shows that the intertemporal substitution in labour may generate a concave “investment opportunity curve”, which is usually associated with the third reason of interest and the productivity element in the Bohm-Bawerk theory. Thus, the underestimation of future wants supported by the intertemporal substitution of labour could be the primary source of interest—all curves in the Fisherian diagram may be based on these two phenomena, i.e. on utility.

Effectiveness of micro health insurance on financial protection: Evidence from India.

Iatrogenic poverty caused by inadequate public expenditure on health, lack of social health insurance and low penetration of private health insurance can be mitigated by micro health insurance (MHI) schemes that provide financial protection. The empirical evidence on the impact of MHI on financial protection is limited in India. This paper elucidates the effect of Sampoorna Suraksha Programme (SSP), a MHI scheme in Karnataka on financial protection. Cross-sectional study was undertaken in Karnataka and the data was gathered from 416 insured, 366 newly insured and 364 uninsured households. The impact of SSP on out of pocket expenses (OOPE), catastrophic health expenditure (CHE), non-medical consumption expenditure, hardship financing and labour supply was analysed using linear and logistic regression methods. Results of the study demonstrate that insured members incurred lower OOPE, CHE and hardship finance. There was no effect on consumption expenditure and no direct impact on labour supply measured in terms of withdrawal from workforce and substitution of labour. We advocate a larger role of MHI in health financing in India since it curtails impoverishment of households in informal sector by reducing OOPE and hardship financing.

Work productivity loss from depression: evidence from an employer survey.

BackgroundNational working groups identify the need for return on investment research conducted from the purchaser perspective; however, the field has not developed standardized methods for measuring the basic components of return on investment, including costing out the value of work productivity loss due to illness. Recent literature is divided on whether the most commonly used method underestimates or overestimates this loss. The goal of this manuscript is to characterize between and within variation in the cost of work productivity loss from illness estimated by the most commonly used method and its two refinements.MethodsOne senior health benefit specialist from each of 325 companies employing 100+ workers completed a cross-sectional survey describing their company size, industry and policies/practices regarding work loss which allowed the research team to derive the variables needed to estimate work productivity loss from illness using three methods. Compensation estimates were derived by multiplying lost work hours from presenteeism and absenteeism by wage/fringe. Disruption correction adjusted this estimate to account for co-worker disruption, while friction correction accounted for labor substitution. The analysis compared bootstrapped means and medians between and within these three methods.ResultsThe average company realized an annual $617 (SD = $75) per capita loss from depression by compensation methods and a $649 (SD = $78) loss by disruption correction, compared to a $316 (SD = $58) loss by friction correction (p < .0001). Agreement across estimates was 0.92 (95% CI 0.90, 0.93).ConclusionAlthough the methods identify similar companies with high costs from lost productivity, friction correction reduces the size of compensation estimates of productivity loss by one half. In analyzing the potential consequences of method selection for the dissemination of interventions to employers, intervention developers are encouraged to include friction methods in their estimate of the economic value of interventions designed to improve absenteeism and presenteeism. Business leaders in industries where labor substitution is common are encouraged to seek friction corrected estimates of return on investment. Health policy analysts are encouraged to target the dissemination of productivity enhancing interventions to employers with high losses rather than all employers.Trial registrationClinical trials registration number: NCT01013220.

Assessing the economic burden of illness for tuberculosis patients in Benin: determinants and consequences of catastrophic health expenditures and inequities.

To inform policy-making, we measured the risk, causes and consequences of catastrophic expenditures for tuberculosis and investigated potential inequities. Between August 2008 and February 2009, a cross-sectional study was conducted among all (245) smear-positive pulmonary tuberculosis patients of six health districts from southern Benin. A standardised survey questionnaire covered the period of time elapsing from onset of tuberculosis symptoms to completion of treatment. Total direct cost exceeding the conventional 10% threshold of annual income was defined as catastrophic and used as principal outcome in a multivariable logistic regression. A sensitivity analysis was performed while varying the thresholds. A pure gradient of direct costs of tuberculosis in relation to income was observed. Incidence (78.1%) and intensity (14.8%) of catastrophic expenditure were high; varying thresholds was insensitive to the intensity. Incurring catastrophic expenditure was independently associated with lower- and middle-income quintiles (adjusted odd ratio (aOR) = 36.2, 95% CI [12.3-106.3] and aOR = 6.4 [2.8-14.6]), adverse pre-diagnosis stage (aOR = 5.4 [2.2-13.3]) and less education (aOR = 4.1[1.9-8.7]). Households incurred important days lost due to TB, indebtedness (37.1%), dissaving (51.0%) and other coping strategies (52.7%). Catastrophic direct costs and substantial indirect and coping costs may persist under the 'free' tuberculosis diagnosis and treatment strategy, as well as inequities in financial hardship.

Vent for surplus or productivity breakthrough? TheGhanaian cocoa take‐off, c. 1890–1936

Through a case study of cocoa‐farming inGhana, this article takes up the long‐running but recently neglected debate about the ‘cash crop revolution’ in tropicalAfrica during the early colonial period. It focuses on the supply side, to test the much criticized but never superseded ‘vent‐for‐surplus’ interpretation of the export expansion as a substitution of labour for leisure. The article argues that while the model captured certain features of the case, such as the application of labour to underused land, its defining claim about labour is without empirical foundation. Rather, the evidence points to a reallocation of resources from existing market activities towards the adoption of an exotic crop, entailing a shift towards a new, qualitatively different and more profitable kind of production function. This innovation is best understood in the context of the long‐term search ofAfrican producers for ways of realizing the economic potential of their resource of relatively abundant land, while ameliorating the constraints which the environment put upon its use.

Long-Term Ecological Assessment of Farming Systems (LEAFS): Comparing Human, Animal, and Small Machine Power for Fresh-Market Horticulture

In order to assess the potential for human and animal power and related fertility management systems to reduce the demand for energy fossil fuels in agricultural production, we report findings from the first 2 years of the Long-Term Ecological Assessment of Farming Systems (LEAFS) at Green Mountain College in Poultney, VT, USA. LEAFS compares three small-scale, diverse vegetable production systems, one powered by human labor, one by draft animal power, and one by small engine power. Data was collected on all inputs including land usage, labor, and direct and indirect energy consumption. Yield of crops was measured and converted into energetic and economic output. This data was used to calculate efficiency statistics including energy and financial returns on land, labor, and energy invested. The draft animal and machine power systems were comparable in the financial returns to labor while the human system yielded approximately 25% less in this regard. The human and draft animal systems had equal energy returns to energy invested of 1.21, a high rate of efficiency for vegetable production. The machine system was net energy negative but efficient compared to conventional production. Data from all three systems suggests factor substitution of both labor and land for energy.

Examining Labor Substitution: Does Family Matter for U.S. Cash Grain Farmers?

The substitution of capital for labor and new labor-saving technologies has reduced the labor required for farming, yet many farms today depend on hired labor in some form. Common in the literature is the assumption of perfectly substitutable farm labor. This has implications for the operator's off-farm labor decision. Intuitively, different forms of farm labor have different impacts on production. We use the Agricultural and Resource Management Survey to estimate the elasticity of substitution between hired and family labor. The results provide little evidence to support the popular homogeneity assumption and find labor can be unitary and complimentary under certain scenarios.

PUBLIC SPENDING AS A SOURCE OF ENDOGENOUS BUSINESS CYCLES IN A RAMSEY MODEL WITH MANY AGENTS

We introduce public spending, financed through income taxation, into the Ramsey model with heterogeneous agents. Public spending as a source of welfare generates more complex dynamics. In contrast to previous contributions focusing on similar models but with wasteful public spending, limit cycles through Hopf bifurcation and expectation-driven fluctuations appear if the degree of capital–labor substitution is high enough to be compatible with capital income monotonicity. Moreover, unlike frameworks with a representative agent, our results do not require externalities in production and are compatible with a weakly elastic labor supply with respect to wage.

Taxation and the Allocation of Talent

Taxation affects the allocation of talented individuals across professions by blunting material incentives and thus magnifying nonpecuniary incentives of pursuing a “calling.” Estimates from the literature suggest that high-paying professions have negative externalities, whereas low-paying professions have positive externalities. A calibrated model therefore prescribes negative marginal tax rates on middle-class incomes and positive rates on the rich. The welfare gains from implementing such a policy are small and are dwarfed by the gains from profession-specific taxes and subsidies. These results depend crucially on externality estimates and labor substitution patterns across professions, both of which are very uncertain given existing empirical evidence.

Holdups and overinvestment in capital markets

This paper considers a decentralized capital market characterized by trading frictions in which firms and suppliers need to make investment decisions before meeting with each other and bargaining over the price of capital. The resulting holdup problem provides firms with a strategic incentive to overaccumulate capital so as to reduce their marginal productivity and thus the bargained price. In equilibrium, this strategic incentive can outweigh the usual distortionary effects of holdup problems that on their own would lead to underinvestment, thus resulting in the economy to overinvest. In a setting with both capital and labor, the holdup problem in capital markets interacts with holdup problems in labor markets. This presents firms with a trade-off that has non-trivial equilibrium effects and that – depending on the substitutability of capital and labor and the firm's bargaining power in each market – can mitigate or exacerbate the overinvestment result.

Capital Labor Substitution, Structural Change, and the Labor Income Share

Long run economic growth goes along with structural change. Recent work has identified explanatory factors on the demand side (non-homothetic preferences) and on the supply-side, in particular differential productivity growth across sectors and differences in factor proportions and capital deepening. This paper documents that there have also been differential trends in labor and capital income shares across sectors in the U.S., and in a broad set of other industrialized economies, and shows that a model where the degree of capital-labor substitutability differs across sectors is consistent with these trends. The interplay of differences in productivity growth and in the substitution elasticity across sectors drives both the evolution of sectoral factor income shares and the shape of structural change. We evaluate the empirical importance of this mechanism and the other mechanisms proposed in the literature in the context of the recent U.S. experience. We find that differences in productivity growth rates between manufacturing and services have been the most important driver of structural change. Yet, differences in substitution elasticities are key not only for understanding the evolution of sectoral and aggregate factor income shares, but also for the shape of structural change. Differences in capital intensity and non-homothetic preferences have hardly mattered for the manufacturing-services transition.

The work, workforce, technology and organisational implications of the ‘111’ single point of access telephone number for urgent (non-emergency) care: a mixed-methods case study

BackgroundNHS 111 represents a fundamental change in the way that urgent care is delivered. It is underpinned by a computer decision support system (CDSS) and involves significant labour substitution, in particular the greater use of non-clinical staff to deliver services.ObjectiveTo investigate four core features of health-care innovation and change in relation to the new NHS 111 telephone-based service for 24/7 access to urgent care, namely the way in whichworkandworkforceare organised for this new service and how thetechnologyandorganisational contextshape the way in which services are delivered.DesignComparative mixed-methods case study of NHS 111 providers.SettingsFive NHS 111 sites, characterised by differences in organisational size, form and ethos and in the type of workforce employed and professional roles and skill mix.MethodsThe study combined ethnographic and survey methods. Non-participant observation was conducted at NHS 111 call centres and their linked urgent care centre(s) (UCCs; a total of 356 hours). Six focus groups were conducted with 47 call advisers, clinicians and organisational managers. An online survey was administered to call centre and UCC staff (n = 745) to ask their views about NHS 111; trust in NHS Pathways; and communication and information sharing (response rate: 41% for call centre staff, 35% for UCC staff).ResultsClinical assessment by call advisers is characterised by high levels of communication (including negotiation, communication and translation) and ‘emotion’ work, extending the work beyond simple operation of a CDSS. At most sites clinical advisers supported call advisers in clinical assessment but also played an important role in managing and sanctioning dispositions, notably emergency ambulance dispositions. Clinicians at UCCs have experienced a loss of control over their everyday work, which is now shaped by call centre workers. The Directory of Services, which provides information about locally available services, is key to delivering an integrated urgent care system. Trust in the CDSS is higher amongst call advisers than amongst clinical staff but there is widespread belief that the CDSS is risk averse. Staff often develop workarounds to ‘make the technology work’. There is considerable variation in how NHS 111 is organised and delivered, shaped by the organisational history and the professional culture of the organisations involved. Some sites were driven more by rationing and systemising, pursuing the NHS 111 vision of ‘right care, right place, right time’, whereas others were driven more by an ethos of what they perceived was a more patient-centred service.ConclusionsNHS 111 is primarily founded on a network of different organisations providing different aspects of the service. This network is primarily enabled through technological integration. Successful integration also requires understanding and trusting relationships between different providers, which were lacking in some sites. Underpinning NHS 111 with non-clinical workers offers significant opportunities for workforce reconfiguration, but this is not a simple substitution of labour (i.e. non-clinical staff replacing clinical staff). There is a significant organisational structure that is necessary to support and ‘keep in place’ both the CDSS itself and non-clinical workers using the CDSS.FundingThe National Institute for Health Research Health Services and Delivery Research programme.

SHOCKING STUFF: TECHNOLOGY, HOURS, AND FACTOR SUBSTITUTION

The response of hours to technology shocks is a key controversy in macroeconomics. We show that differences between RBC and NK models hinge on highly restrictive views of technology. We introduce CES production technologies and demonstrate that the response of hours depends on the factor-augmenting nature of shocks and the capital–labor substitution elasticity in both models. We develop analytical expressions to establish the thresholds determining its sign. This opens new margins for shock identification combining theory and VAR evidence. We discuss how our models provide new robust restrictions for empirical work, especially using the labor income share.

The technical efficiency of specialised milk farms: a regional view.

The aim of the article is to evaluate production efficiency and its determinants of specialised dairy farming among the EU regions. In the most of European regions, there is a relatively high significance of small specialised farms including dairy farms. The DEAVRS method (data envelopment analysis with variable returns to scale) reveals efficient and inefficient regions including the scale efficiency. In the next step, the two-sample t-test determines differences of economic and structural indicators between efficient and inefficient regions. The research reveals that substitution of labour by capital/contract work explains the variability of the farm net value added per AWU (annual work unit) income indicator by more than 30%. The significant economic determinants of production efficiency in specialised dairy farming are farm size, herd size, crop output per hectare, productivity of energy, and capital (at α = 0.01). Specialised dairy farms in efficient regions have significantly higher farm net value added per AWU than inefficient regions. Agricultural enterprises in inefficient regions have a more extensive structure and produce more noncommodity output (public goods). Specialised dairy farms in efficient regions have a slightly higher milk yield, specific livestock costs of feed, bedding, and veterinary services per livestock unit.

Do Employers Prefer Undocumented Workers? Evidence from China's Hukou System

We study urban Chinese employers' preferences between workers with and without a local residence permit (hukou) using callback information from an Internet job board serving private sector employers. We find that employers prefer migrant workers to locals who are identically matched to the job's requirements; these preferences are especially strong at low skill levels. We argue that migrants' higher work hours and effort help to account for employers' preferences, and present evidence that efficiency wage and intertemporal labor substitution effects might explain these hours/effort gaps.

The economics of the light economy

The paper provides an interpretative framework and structured empirical evidence of the processes leading to the emergence of a light and slow growth economy in advanced countries. The interpretative framework rests upon the grafting of a) the Schumpeterian hypothesis about the role of creative reaction as the main determinant of the rate of technological change b) in a dynamic version of the Hecksher–Ohlin analysis with c) the Kuznets approach on the strict complementarity of structural and technological changes, and d) the new approach about the direction of technological change biased towards the most intensive use of locally abundant production factors. The analysis of the stylized facts and the empirical evidence confirms that the twin globalization of product and capital markets brought about by the entry of new labor abundant countries in international markets had profound effects on advanced countries leading to the introduction of skill biased technological change with the consequent decline of the role of the manufacturing industry and the emergence of a strong knowledge intensive business service sector. The new biased direction of technological change accelerated the substitution of both capital and unskilled labor with skilled workers with the ultimate effect of reducing the stock of working capital and hence the rates of growth of advanced economies. The slow growth is a physiological feature of the new emerging light economies that rely upon knowledge intensive but capital saving technologies.

Avoiding the employment relationship: Outsourcing and labour substitution among French manufacturing firms, 1984–2003

AbstractUsing a comprehensive data set for French manufacturing firms with over 20 employees, the authors quantify the use of outsourcing and show how it has spread since the mid‐1980s, leading to the substitution of external labour for in‐house labour. Empirical analysis suggests that firms outsource in order to bypass the effects of the employment relationship and circumvent their labour law obligations.

Horticultural exports, female wage employment and primary school enrolment: Theory and evidence from Senegal

In this paper we analyse the indirect effects of the boom in horticultural exports in Senegal on child schooling. The export boom has caused a dramatic increase in female off-farm wage employment, which led to increased female bargaining power in the household. We investigate the causal effect of female wage income on primary school enrolment. We develop a collective household model with endogenous bargaining power to show that, if women have higher preferences for schooling than men, the impact of female wage income on school enrolment will be the result of a positive income effect, a negative labour substitution effect and a positive empowerment effect. We address the question empirically using original household survey data from Senegal. We use different econometric techniques and show that female off-farm wage income has a positive effect on primary school enrolment for both boys and girls, and that female empowerment is specifically important for the schooling of girls. Our results imply that the horticultural export boom in Senegal has indirectly contributed to the second and third Millennium Development Goals of universal primary education and elimination of gender disparities in primary education.