The Rise of the Robot Reserve Army: Automation and the Future of Economic Development, Work, and Wages in Developing Countries

Abstract

Employment generation is crucial to spreading the benefits of economic growth broadly and to reducing global poverty. And yet, emerging economies face a contemporary challenge to traditional pathways to employment generation: automation, digitalization, and labor-saving technologies. 1.8 billion jobs—or two-thirds of the current labor force of developing countries—are estimated to be susceptible to automation from today’s technological standpoint. Cumulative advances in industrial automation and labor-saving technologies could further exacerbate this trend. Or will they? In this paper we: (i) discuss the literature on automation; and in doing so (ii) discuss definitions and determinants of automation in the context of theories of economic development; (iii) assess the empirical estimates of employment-related impacts of automation; (iv) characterize the potential public policy responses to automation; and (v) highlight areas for further exploration in terms of employment and economic development strategies in developing countries. In an adaption of the Lewis model of economic development, the paper uses a simple framework in which the potential for automation creates “unlimited supplies of artificial labor” particularly in the agricultural and industrial sectors due to technological feasibility. This is likely to create a push force for labor to move into the service sector, leading to a bloating of service-sector employment and wage stagnation but not to mass unemployment, at least in the short-to-medium term.