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As the pace of robotics adoption quickens, policy-makers will be faced with a dilemma: while robots enable growth, they exacerbate income inequality. Automation will continue to drive regional polarisation in many of the world’s advanced economies, unevenly distributing the benefits and costs across the population

The robotics revolution is rapidly accelerating, as fast paced technological advances in automation, engineering, energy storage, artificial intelligence, and machine learning converge. The result will transform the capabilities of robots and their ability to take over tasks once carried out by humans.

The number of robots in use worldwide multiplied threefold over the past two decades, to 2.25 million. Trends suggest the global stock of robots will multiply even faster in the next 20 years, reaching as many as 20 million by 2030, with 14 million in China alone. The implications are immense, and the emerging challenges for governments and policymakers are equally daunting in their scale.

The rise of the robots will boost productivity and economic growth. It will lead, too, to the creation of new jobs in yet-to-exist industries, in a process of ‘creative destruction.’ But existing business models across many sectors will be seriously disrupted. And tens of millions of existing jobs will be lost, with human workers displaced by robots at an increasing rate as robots become steadily more sophisticated.

For both people and businesses, the effects of these job losses will vary greatly across countries and regions, with a disproportionate toll on lower-skilled workers and on poorer local economies. In many places, the impact will aggravate social and economic stresses from unemployment and income inequality in times when increasing political polarisation is already a worrying trend.

At Oxford Economics their mission is to help our clients better understand an evermore complex and fast changing world economy, in all its dimensions—and how to successfully operate in it. Their clients look to them to explain the forces shaping their economic environment, help them anticipate the future, and plan for its uncertainties.

That is why Oxford Economics brought together a team of their economists, econometricians, modellers and technology experts from across their worldwide network of over 250 analysts to conduct an extensive research study to analyse the robotics phenomenon. They are pleased to share their findings not only with their clients but with all who want to understand the implications of one of the most profound shifts the world economy will experience this century.

Over the past decade, a robotics revolution has captured the world’s imagination. As their capabilities expand, so does the rate at which industries purchase and install these increasingly intelligent machines. Since 2010, the global stock of industrial robots has more than doubled—and innovations in engineering and machine learning portend an accelerated adoption of robots in service sector occupations over the next five years.

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This report sheds new light on both the current impact of robots on manufacturing jobs around the world and the potential for robots to transform the much larger (but as-yet far less automated) global services sector. To evaluate the implications of this ongoing robot revolution, Oxford Econmics have brought together the combined expertise of Oxford Economics’ economists, econometricians, modellers, and subject-matter experts.

The rise of robots has already had a profound effect on industrial employment around the world: today, approximately one of every three new manufacturing robots is being installed in China, the world’s great workshop. Their econometric modelling finds that on average each newly installed robot displaces 1.6 manufacturing workers.1 By 2030, they estimate that as many as 20 million additional manufacturing jobs worldwide could be displaced due to robotization.

Lower-income regions are more at risk

This great displacement will not be evenly distributed around the world, or within countries. Their research shows that the negative effects of robotization are disproportionately felt in the lower-income regions of the globe’s major economies—on average, a new robot displaces nearly twice as many jobs in lower-income regions compared with higher-income regions of the same country. At a time of worldwide concern about growing levels of economic inequality and political polarisation, this finding has important social and political implications.

Given the stakes, policy-makers need an early warning system to help them mitigate the risks of automation on employment. As part of their study, Oxford Economics have developed a Robot Vulnerability Index that ranks every region of seven developed economies in terms of how susceptible their respective workforces are to the installation of industrial robots

In many cases, theit Index highlights that the most vulnerable regions are somewhat removed from the wealthier districts of their home countries—such as Cumbria in the UK, FrancheComté in France, and the high desert of Eastern Oregon in the US. These rural regions often include towns or cities with strong manufacturing heritages that play a surprisingly large part in the regional economy. In contrast, regions that surround knowledge intensive cities, such as Toulouse and Grenoble in France, or Munich and Stuttgart in Germany, typically show much lower levels of vulnerability to the rise of the robots. This is also true of capital cities such as London, Paris, Seoul, and Tokyo.


The $5 trillion robotics dividend

While regional impacts vary, fears about permanent global job destruction generated by robots appear somewhat exaggerated. This study shows that the current wave of robotization tends to boost productivity and economic growth, generating new employment opportunities at a rate comparable to the pace of job destruction. Oxford Economics estimate that a 1% increase in the stock of robots per worker in the manufacturing sector leads to 0.1% boost to output per worker across the wider workforce. These increases are large enough to drive meaningful growth.

Using Oxford Economics’ Global Economic Model (GEM), they calculated how changes in the rate of installation of industrial robots could affect the global economy. Overall, we found that a faster adoption of robots has a positive impact on both short- and medium-term growth. For example, boosting robot installations to 30% above the baseline forecast by 2030 would lead to an estimated 5.3% boost in global GDP that year. This equates to adding an extra $4.9 trillion per year to the global economy by 2030 (in today’s prices)—equivalent to an economy greater than the projected size of Germany’s.

The future of service robots

Robots are steadily gaining traction in specific segments of the service economy, from baggage handling in airports to loading inventory in warehouses. In this report, Oxford Economics assess the likely impact (and timeframe) of service robot roll-outs in five key sectors: healthcare, retail, hospitality, transport, and construction and farming. For the purposes of this study they are considering robots only as physical machines, and not including the already-popular service-industry software like robotic process automation (RPA) that can speak, hear, read, conduct transactions, automate processes, and so on.

One key consideration for anticipating the pace of robot deployment in service industries is the environment in which these robots may be asked to operate—in particular, the extent to which service jobs include repetitive functions. Jobs like warehouse work are in imminent danger, while other jobs in less structured environments will likely be carried out by humans for decades to come.

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It will be difficult for machines to replace humans in service sector occupations that demand compassion, creativity, and social intelligence. Physical therapists, dog trainers, and social workers are likely to remain secure in their jobs, for instance, even if truckers and warehouse workers see the future of their jobs jeopardised.

Policy implications

As the pace of robotics adoption quickens, policy-makers will be faced with a dilemma: while robots enable growth, they exacerbate income inequality. Automation will continue to drive regional polarisation in many of the world’s advanced economies, unevenly distributing the benefits and costs across the population. This trend will intensify as the impact of automation on jobs spreads from manufacturing to the services sector, making questions about how to deal with displaced workers increasingly critical.

The challenges will be daunting.

The analysis of the job moves of more than 35,000 US individuals over the course of their careers shows that more than half the workers who left production jobs in the past two decades were absorbed into just three occupational categories: transport, construction and maintenance, and office and administration work. Ominously, Oxford Economic’s analysis found that these three occupational areas are among the most vulnerable to automation over the next decade. These findings, however, should not lead policy-makers and other stakeholders to seek to frustrate the adoption of robot technology. Instead the challenge should be to distribute the robotics dividend more evenly by helping vulnerable workers prepare for and adapt to the upheaval it will bring. Policymakers, business leaders, technology companies, educators, and workers all have a role to play. Oxford Economics conclude the report with a framework for action for each of these groups to navigate the challenges and opportunities that robotization will bring.
Robots are on the rise as never before. Preparing for and responding to the social impacts of automation will be a defining challenge of the next decade.