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Automation in Labor Could Worsen Income Inequality, BoC Official Warns

04/19/2017

Governments in the developed world will need to focus on mitigating income equality that could be made worse by advances in industries’ automation, a senior Bank of Canada official said Tuesday.

Automation has the potential to lift living standards and productivity in Canada and across the developed world, said Carolyn Wilkins, senior deputy governor at Bank of Canada. This is salient for Canada, she said in remarks prepared for delivery in Toronto, as productivity growth has slowed in the country since the turn of the millennium.

Still, Wilkins said, the rise of automation will lead to some job losses, although they could be offset by new jobs as demand for other services grow. More worrisome, she said, was the impact on income inequality.

“While gains in productivity will increase the size of the [income] pie, there is no guarantee that these gains will be evenly distributed,” she said.

During the first wave of information-technology advances in the 1980s and 1990s, Ms. Wilkins said, scientists and architects were allowed to use their skill sets more productively while bank tellers and travel agents lost their jobs. This led to bigger shares of employment for the high- and low-skilled jobs at the expense of the middle class, and a “modest” increase in income inequality in Canada, she said.

The comments come amid a debate in the US on the impact automation has had and will have on economic growth. President Donald Trump came to power on a promise to bring back jobs to the US that were lost as a result of globalization, as companies relocated their production facilities abroad to take advantage of cheaper labor. Some economists, however, argue automation has played a bigger role in the decline of manufacturing employment. A recent study from Ball State University indicated US manufacturing has thrived in the post-crisis period, due in part to increased productivity as firms benefited from industrial adoption of information technology.

Wilkins said governments have taxation and other fiscal tools at their disposal to smooth out the income gap that arises from automation. She said this would involve “difficult trade-offs” related to preserving incentives to invest while avoiding increased income polarization. She added it’s crucial for central banks that lawmakers address these issues.

“Worsening income inequality can lead to weaker macroeconomic outcomes and financial instability,” she said. “If we see a growing proportion of people at the lower end of the income distribution, recessions and other negative effects could result in more financial stress.”

WSJ 4/18

   


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