Lecture 5 - Automation anxiety Flashcards
Briefly explain the census of automation anxiety
Automation anxiety refers to the notion that in both economics and society, technological change will destroy jobs and create unemployment
Give some examples of automation anxiety through history
- The knitting frame in the late 16th century
- Luddites in the early 19th century
- President Johnson’s commission in 1964
- The Second Machine Age in the 2000s
When was the mechanical knitting machine invented and why was it denied a patent by Queen Elizabeth?
- The mechanical knitting machine was invented by William Lee in Calverton in 1589
- Queen Elizabeth stated: “Consider thou what the invention could do to my poor subjects. It would assuredly bring them to ruin by depriving them of employment thus making them beggars”
Explain President Johnson’s commission on Technology and Automation
- In 1964 President Johnson asked for an expert inquiry into technology, automation and economic progress
- This was to confront the “productivity problem” of that period—specifically, the problem that productivity was rising so fast it might outstrip demand for labour
What was the conclusion made as a result of President Johnson’s commission on technology and automation?
- The commission ultimately concluded that automation did not threaten
employment - It was concluded that the general level of demand for goods and services was by far the most important factor determining how hard it is for new entrants to the labour market to find jobs
Explain the phenomenon of the The Second Machine Age
- “Technological progress is going to leave behind some people, perhaps even a lot of people as it races ahead”
- “There has never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer a computers, robots and other digital technologies are acquiring these skills and abilities at an extraordinary rate”
What conclusion was made as a result of Frey and Osborne’s investigation into which jobs are most susceptible to computerisation?
It was found that around 47% of total US employment is in the high risk category which means that we can expect these jobs to become automated relatively soon, perhaps over the next decade or two
What are the two types of technological change which might affect the labour market?
1- Product demand shifts caused by the invention of new products
2- Changes in the production process caused by the invention of new processes or new inputs
What is the general production function used to model automation?
Y = f(L,K)
- Y is output
- L is labour
- K is capital
What is an isoquant and what is its relationship with production functions?
An isoquant describes all combinations of production function variables which produce the same level of output
What are the properties of isoquants?
1- Isoquants slope downwards
2- Isoquants do not intersect
3- Higher isoquants have higher Y
4- Isoquants are convex to the origin
State the formula used to calculate the gradient of an isoquant
The gradient of an isoquant is given by:
∆K/∆L = -MPL/MPK
What is the absolute value of the gradient of an isoquant called?
The absolute value of the gradient of an isoquant is called the marginal technical rate of substitution
What do convex isoquants imply in terms of MRS?
Convex isoquants imply a diminishing MRS between L and K
On the general isoquant and isocost used to model automation given by the production function Y = f(L, K) what goes on each axis?
- K goes on the y axis
- L goes on the x axis
What does a high marginal technical rate of substitution mean in context and what would this mean for the shape of the isoquant?
- A high MRS means that a firm finds it very easy to switch between its two inputs
- The isoquant for a firm with a high MRS would be a straight line
What shape is an isocost?
Isocosts are straight lines
State the formula which gives a firm’s costs of production
C = wL + rK
- w is the wage rate
- r is the rental rate of capital
What is an isocost?
An isocost is a line connecting all points with equal cost
What is the rearranged version of a firm’s cost function (isocost equation)?
K = C/r - (w/r)L
- The y-intercept is C/r
- The gradient is -w/r
What is the gradient of the isocost equal to in context?
The gradient of the isocost line is the ratio of input prices
On an isoquant and isocost diagram, what is the point of production at which costs are minimised and the level of output demonstrated by the isoquant is produced for the lowest cost?
Costs are minimised at the point where the isocost is tangent to the isoquant
At the point of tangency between the isoquant and the isocost, what is the relationship between the gradients of the two?
- At the point of tangency the gradient of the isoquant is equal to the gradient of the isocost
- MPL/MPK = w/r
What is the mathematical condition that needs to be satisfied for cost minimisation?
- Cost minimisation requires that the last £ spent on labour is as valuable as the last £ spent on capital
- MPL/w = MPK/r
What does a profit maximising firm do in terms of its costs?
A profit maximising firm will minimise its costs but this does not imply profit maximisation as profit maximisation is determined whether MR=MC
What does this automation model actually tell us?
The model tells us how many workers and how much capital the firm uses given:
1- The available technology (the production function)
2- The prices of workers and capital
How does technological change affect the automation model?
- Technological change does not change the production function itself, but instead changes the price of factors of production
- For example technological change makes K cheaper
