The future of automation and its effects on labour

Abstract

In this literary review, I examine the nature of technological change, specifically automation, and its effects on employment and wages. My goal is to examine the question: “Will automation inevitably lead to labour becoming obsolete as a means of production?” I begin by introducing recent empirical observations that are mainly believed to be caused by increased automation, such as the decline in the labour share of income and the polarization of employment by skill-level. Following this I attempt to acquire a better understanding of the matter through the relatively recently introduced economic theory of task-based models. These models have replaced the Canonical model, which was based on factor-augmenting technological change, and are currently able to best approximate the empirical observations. In this thesis I conclude, that although automation has a detrimental effect on employment, the effects of strong market forces likely mean that human labour will not be made obsolete. However, we may still face increased unemployment and lower wages in the future, especially as short-term effects of periods of increased automation.