Worker pay is stagnant — economists blame robots
- American workers' paychecks haven't matched gains in productivity, puzzling economists.
- The culprit could be robots and automation, which are weakening human workers' bargaining power to ask for higher wages, according to new research.
American workers are more productive than ever, but their paychecks haven't kept pace. Researchers with the Federal Reserve Bank of San Francisco have a culprit: robots.
Economists Sylvain Leduc and Zheng Liu theorize that automation is sapping employees' bargaining power, making it harder for them to demand higher wages. Companies across a range of industries increasingly have the option of using technology to handle work formerly done by people, giving employers the upper hand in setting pay. The result — a widening gulf between wages and productivity.
The research may bolster proposals for universal basic income, which is a government cash stipend that typically doesn't come with requirements. Andrew Yang, a Democratic presidential candidate who's running on a platform of giving every American adult $1,000 per month in basic income, tweeted about the economic findings, writing that automation is "making it hard for workers to ask for more."
"We should just give Americans a raise," he wrote.
To be sure, automation is leading to massive changes in work that are hitting some industries and workers especially hard, such as lower and middle-skilled workers. For instance, the ranks of office assistants and clerical workers is expected to shrink by 5% through 2026 as offices shift tasks to artificial intelligence and other software, according to the Bureau of Labor Statistics. This could result in a loss of 200,000 jobs.
Rising productivity, the economic thinking goes, should result in wages rising nearly in tandem —a sign that workers are benefiting in proportion to their skills. Take a shoemaker who learns a new skill and can now make two pairs of $100 shoes in an hour instead of only one pair. By increasing her productivity, she's able to double her income, which helps boost her standard of living.
And that's the way the U.S. economy worked for decades — until the late 1970s, when productivity and wages began diverging.
More red flags have emerged in recent decades. The so-called labor share — or portion of national income that workers earn—has declined steeply, dropping 7 percentage points since the early 2000s. Despite the economic recovery and rising productivity, the San Francisco Fed economists note, "The labor share has stayed around 56%, near the historical low in our sample."
If real wages were keeping up with productivity, the labor share wouldn't be falling, they said.
The culprit, they say, could be automation, partly because workers could be fearful of asking for a raise out of concern their boss might turn to technology to replace them.
"The steady decline in the relative prices of robots and automation equipment over the past few decades have made it increasingly profitable to automate," the economists said. "In this environment, workers may be reluctant to ask for significant pay raises out of fear that an employer will replace their jobs with robots."
