A social media meme that has been doing the rounds in recent months that urges people to not use supermarket self-service check outs, as it costs people jobs. Of course, as with most memes that are full of economic fallacy born out of ignorance and a lack of understanding for economics, I tend to silently chuckle to myself and scroll on. However, in this instance I have decided to look at that this fallacy and explain, when using critical thinking and logic, that the belief that automation creates a net balance of unemployment simply isn’t true.
As an advocate of Austrian economics, I am able to distinguish the difference between formulated theories and actual observational logic based on the action of human beings. Austrian economics IS economics, it’s how things work in reality, actual fact based observations. This however is a different tangent to the point I wish to make here in this instance. I simply am highlighting the ethos of Austrian economics, the use of critical thinking and cold hard logic, is what we will be applying here to dispel the myths of automation.
First, let us remember what our great economists in history teach us about economics: every action has consequences that are both seen and unseen. There are long term affects as well as short term effects, and how those actions not only affect one specific group, but how they may affect all groups. It is a lack of appreciation for this baseline that leads to so many economic fallacies the mainstream subscribes to today.
Stemming from Frederic Bastiat’s broken window fallacy, I am reminded of this quote by Bastiat recently published on the London Libertarians Facebook page:
“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”
So how does that apply to the concept of automation? The belief that machines are taking our jobs? The visible effect that we immediately see is that the cashier working on the checkout at your local supermarket will be losing work as the use of self-service checkouts become more prominent. Of course, if we were to just look at this purely on what appeals to emotions and feelings, it is easy just based upon what we can see to believe that the introduction of machinery causes greater loss of employment. When we actually apply critical thinking over emotional reaction however, a very different result comes to light. So let us see.
For example, the head manager of a supermarket learns that by installing self-service checkout machines, they can double the amount of customers passing through checkout in the same time it would take cashier based services. This also means that they can sustain an increase in the productivity of the service even if they drop around a third of their labour force. So on the surface there appears to be an obvious loss of employment. However let us consider all the employment that would not have existed otherwise if the self-service machines weren’t introduced.
The manufacturing of the machines required labour to make them. This may originally offset the original appearance of loss of employment. However, the self-service machines would only be manufactured if they were capable of greater productivity for less labour or the same level of productivity at a lower cost. (We cannot assume though, that if it were at a lower cost to produce the same level of service, that the cost of labour to manufacture the machines was particularly high in comparison to what the supermarket hopes to save in the long term by utilizing the machines, as this would be nothing more than a false economy.)
Not only is there employment in the actual physical production of the machines, but what about the employment gained in the designers, engineers, the transportation and installation too?
As a side note before we go any further, when considering the manufacturing of the machines, we need only to refer to the classic and brilliant essay written by Leonard Read in 1958, “I, Pencil”. When we understand the huge market forces involved, the amount of labour required just to manufacture a mere pencil, through the sourcing of raw materials, the tools required, the methods of production, etc, it is mind blowing. I cannot even begin to comprehend all the origins of the thousands of small parts, the raw materials, every nut, bolt and screw, the metals, the plastics, the electronic components that are used in the manufacture of a single self-service machine, and the whole process involved in sourcing and producing each single one of them. All creating an abundance of employment in and of themselves. It is truly incredible. If you have never read Leonard Read’s masterpiece, do yourself a favour and check it out here: https://fee.org/resources/i-pencil/
So moving on, with the falsely perceived loss of net employment, only the evil, greedy capitalist supermarket owners and machine manufacturers gain any benefit in the form of profits, we are lead to believe. However, as Henry Hazlitt explained in his 1946 seminal works “Economics In One Lesson”, it is exactly from these profits that the social benefits will come.
The extra profits can only be used in three ways, either in the singular or any combination of all three. The first option is the extra profits will be invested in more machines to expand the service. Second, the extra profits could be invested in another industry. Third, the extra profits would be spent on increasing their own consumption. Whichever option is taken here, all three will result in increased employment.
Money saved on wages paid directly to a labour force at the manned checkouts, will either be paid out as wages indirectly to manufacturers of the new machines, or another industry, or the producers, merchants and traders in which they may wish to spend for their own consumption – be it buying new cars, houses, TVs, etc. So what was a direct cutting of costs on employment in the beginning at the supermarket checkouts, is indirectly allocated to as many other jobs elsewhere.
Naturally, in the spirit of competition, the supermarket’s competitors will see that the store using self-service machines is now able to serve far superior numbers of customers in a quicker time frame. They will need to keep up, or eventually notice a loss in their profits. So they too would invest in machines, thus creating the whole employment cycle over again.
As with any industry, competition always benefits the consumer. In this instance, if a consumer knows he can spare himself the tedious wait in a checkout line at all the supermarkets now, and the self-service system is no longer an added advantage over the competition, then the supermarkets would need to adopt other ways to entice customers to their particular store. Competition will force down prices for the consumer.
As supermarket goods become more competitive (cheaper), more customers would shop at them. With more customers shopping at supermarkets, then more people may be employed to meet the consumer demand, as history has already shown us with the introduction of labour-saving machinery in the textile industry. Contrary to popular belief, labour reducing machinery actually increased employment.
Also the balance extends further when we consider that consumers who are making purchases that are competitively priced are benefitting from saving money. If a pound of butter cost £2.00, but due to market forces is now only £1.50, that is 50p saved. The cumulative quantity of consumer savings made, wherever it is eventually spent, will ultimately be resulting in increased employment elsewhere.
So it is a myth that automation results in the loss of over-all employment. Advancements and improvements in technology and economic efficiency are not some evil capitalist scheme to create unemployment. Not only do they serve to increase the quality of production and be more cost effective, but they also create entire new industries. Automation creates a wealth of employment (again, consider the employment involved in the production of a mere pencil in Leonard Read’s essay, and imagine how much that is increased in far more complex products).
The creation of employment is actually a side benefit to the purpose of automation. The primary intent is to increase production. This in turn results in an increase in the standards of living. Indeed it is the capitalist approach that has resulted in people being able to afford to work less hours, and ultimately saw the phasing out of child labour.
Why do we need people spending long, hard back-breaking hours digging the soil or ploughing the land when so much more can be achieved in a fraction of the time thanks to machinery? Instead of working 12 or 14 hours toiling in the fields, an employee now only has to work maybe 8. And because production is increased many times over, profits are up too, thus the employee can still be paid an agreeable sum, despite having to work less.
As Hazlitt wrote: “What machines do is to bring an increase in production and an increase in the standard of living. They may do this in either of two ways. They do it by making goods cheaper for consumers, or they do it by increasing wages because they increase the productivity of the workers. In other words, they either increase money wages or, by reducing prices, they increase the goods and services that the same money wages will buy. Sometimes they do both. What actually happens will depend in large part upon the monetary policy pursued in a country. But in any case, machines, inventions and discoveries increase real wages.”
Would you stop driving a car because it puts taxi drivers out of work? Stop using the internet as it puts book manufacturers, libraries and high street retailers out of work? Using electricity to light your home puts candle makers out of business. Coal miners losing employment because we now use central heating in our homes. The point is, technological advancements raise the standard of living and give birth to more employment, and as mentioned can even create entire new industries.
So next time you see that social media meme, or someone says to not use self-service as it puts people out of work, maybe stop and reconsider your thoughts. As Bastiat says, there is always an unseen effect that may not appear quite so obvious to our primary perspective.
By guest writer – Gareth Seward