HOW ROBOTS CHANGE THE WORLD WHAT AUTOMATION REALL Y MEANS FOR JOBS AND PRODUCTIVITY JUNE 20191 How Robots Change the World TABLE OF CONTENTS Foreword Executive summary Introduction What drives the robot rise? Three reasons for the robot surge The impact of robots on manufacturing jobs Global impacts Regional impacts The Robot Vulnerability Index United States Germany United Kingdom France Japan South Korea Australia The robotics dividend Reshaping the labour market Robots are coming to the service sector The future impact of robots on five key service industries Where service robots go from here How to respond to the rise of robots A framework for action Appendix: econometric analysis 3 4 11 13 16 19 19 22 25 27 28 29 30 31 32 33 35 37 40 43 49 51 53 56Fieldwork Robotics trialling a robot raspberry harvesting system on a British farm, 2019.3 How Robots Change the World FOREWORD: THE SHApE OF THINgS TO COmE Adrian Cooper CEO and Chief Economist Oxford Economics The robotics revolution is rapidly accelerating, as fast- paced technological advances in automation, engineering, energy storage, artificial intelligence, and machine learning converge. The result will transform the capabilities of robots and their ability to take over tasks once carried out by humans. The number of robots in use worldwide multiplied three-fold over the past two decades, to 2.25 million. Trends suggest the global stock of robots will multiply even faster in the next 20 years, reaching as many as 20 million by 2030, with 14 million in China alone. The implications are immense, and the emerging challenges for governments and policy- makers are equally daunting in their scale. The rise of the robots will boost productivity and economic growth. It will lead, too, to the creation of new jobs in yet-to-exist industries, in a process of creative destruction. But existing business models across many sectors will be seriously disrupted. And tens of millions of existing jobs will be lost, with human workers displaced by robots at an increasing rate as robots become steadily more sophisticated. For both people and businesses, the effects of these job losses will vary greatly across countries and regions, with a disproportionate toll on lower-skilled workers and on poorer local economies. In many places, the impact will aggravate social and economic stresses from unemployment and income inequality in times when increasing political polarisation is already a worrying trend. At Oxford Economics our mission is to help our clients better understand an ever- more complex and fast- changing world economy, in all its dimensionsand how to successfully operate in it. Our clients look to us to explain the forces shaping their economic environment, help them anticipate the future, and plan for its uncertainties. That is why we brought together a team of our economists, econometricians, modellers and technology experts from across our worldwide network of over 250 analysts to conduct an extensive research study to analyse the robotics phenomenon. We are pleased to share our findings not only with our clients but with all who want to understand the implications of one of the most profound shifts the world economy will experience this century.4 How Robots Change the World Over the past decade, a robotics revolution has captured the worlds imagination. As their capabilities expand, so does the rate at which industries purchase and install these increasingly intelligent machines. Since 2010, the global stock of industrial robots has more than doubledand innovations in engineering and machine learning portend an accelerated adoption of robots in service sector occupations over the next five years. This report sheds new light on both the current impact of robots on manufacturing jobs around the world and the potential for robots to transform the much larger (but as-yet far less automated) global services sector. To evaluate the implications of this ongoing robot revolution, we have brought together the combined expertise of Oxford Economics economists, econometricians, modellers, and subject-matter experts. The rise of robots has already had a profound effect on industrial employment around the world: today, approximately one of every three new manufacturing robots is being installed in China, the worlds great workshop. Our econometric modelling finds that on average each newly installed robot displaces 1.6 manufacturing workers. 1By 2030, we estimate that as many as 20 million additional manufacturing jobs worldwide could be displaced due to robotization. 2Lower-income regions are more at risk This great displacement will not be evenly distributed around the world, or within countries. Our research shows that the negative effects of robotization are disproportionately felt in the lower-income regions of the globes major economieson average, a new robot displaces nearly twice as many jobs in lower-income regions compared with higher-income regions of the same country. 3At a time of worldwide concern about growing levels of economic inequality and political polarisation, this finding has important social and political implications. Given the stakes, policy-makers need an early warning system to help them mitigate the risks of automation on employment. As part of this study, we have developed a Robot Vulnerability Index that ranks every region of seven developed economies in terms of how susceptible their respective workforces are to the installation of industrial robots (see page 25). EXECUTIVE SUmmARY 20m Number of manufacturing jobs that could be displaced by industrial robots by 20308.5% of the global manufacturing workforce. 1This finding is based on an analysis of a large, regional panel-dataset of robot stock, and other labour market indicators, over a 11 year timeframe, for 24 EU countries (minus Croatia, Cyprus, Luxembourg and Malta), along with Norway, the United States, Japan, and South Korea. 2Countries included in this estimate account for more than 90% of industrial robot installations: EU 28, US, Japan, South Korea, Australia, China, Taiwan, Thailand, Mexico, India, Canada, Singapore, Brazil, Turkey, Malaysia. We assume the rate of robot installations in manufacturing up to 2030 follows the latest projections by the International Federation of Robotics, and we also account for long-term depreciation of existing robot stock. 3Throughout this report, higher- and lower-income regions are defined as those with average household income levels above and below the national average, respectively.5 How Robots Change the World In many cases, our Index highlights that the most vulnerable regions are somewhat removed from the wealthier districts of their home countriessuch as Cumbria in the UK, Franche- Comté in France, and the high desert of Eastern Oregon in the US. These rural regions often include towns or cities with strong manufacturing heritages that play a surprisingly large part in the regional economy. In contrast, regions that surround knowledge- intensive cities, such as Toulouse and Grenoble in France, or Munich and Stuttgart in Germany, typically show much lower levels of vulnerability to the rise of the robots. This is also true of capital cities such as London, Paris, Seoul, and Tokyo. Fig.1: Job losses from robots hit lower-income regions harder 4 4Our modelling differentiates between a “short-term” effect, within the year of a robot installation, and a longer-term effect that builds over 10 to 15 years. Source: Oxford Economics Our research shows the negative effects of robotization are disproportionately felt in the lower-income regions of major economies.6 How Robots Change the World The $5 trillion robotics dividend While regional impacts vary, fears about permanent global job destruction generated by robots appear somewhat exaggerated. Our study shows that the current wave of robotization tends to boost productivity and economic growth, generating new employment opportunities at a rate comparable to the pace of job destruction. We estimate that a 1% increase in the stock of robots per worker in the manufacturing sector leads to 0.1% boost to output per worker across the wider workforce. These increases are large enough to drive meaningful growth. Using Oxford Economics Global Economic Model (GEM), we calculated how changes in the rate of installation of industrial robots could affect the global economy. Overall, we found that a faster adoption of robots has a positive impact on both short- and medium-term growth. For example, boosting robot installations to 30% above the baseline forecast by 2030 would lead to an estimated 5.3% boost in global GDP that year. This equates to adding an extra $4.9 trillion per year to the global economy by 2030 (in todays prices)equivalent to an economy greater than the projected size of Germanys. The future of service robots Robots are steadily gaining traction in specific segments of the service economy, from baggage handling in airports to loading inventory in warehouses. In this report, we assess the likely impact (and timeframe) of service robot roll-outs in five key sectors: healthcare, retail, hospitality, transport, and construction and farming. For the purposes of this study we are considering robots only as physical machines, and not including the already-popular service-industry software like robotic process automation (RPA) that can speak, hear, read, conduct transactions, automate processes, and so on. One key consideration for anticipating the pace of robot deployment in service industries is the environment in which these robots may be asked to operatein particular, the extent to which service jobs include repetitive functions. Jobs like warehouse work are in imminent danger, while other jobs in less structured environments will likely be carried out by humans for decades to come. As the pace of robotics adoption quickens, policy-makers will be faced with a dilemma: while robots enable growth, they exacerbate income inequality.7 How Robots Change the World It will be difficult for machines to replace humans in service sector occupations that demand compassion, creativity, and social intelligence. Physical therapists, dog trainers, and social workers are likely to remain secure in their jobs, for instance, even if truckers and warehouse workers see the future of their jobs jeopardised. policy implications As the pace of robotics adoption quickens, policy-makers will be faced with a dilemma: while robots enable growth, they exacerbate income inequality. Automation will continue to drive regional polarisation in many of the worlds advanced economies, unevenly distributing the benefits and costs across the population. This trend will intensify as the impact of automation on jobs spreads from manufacturing to the services sector, making questions about how to deal with displaced workers increasingly critical. The challenges will be daunting. Our analysis of the job moves of more than 35,000 US individuals over the course of their careers shows that more than half the workers who left production jobs in the past two decades were absorbed into just three occupational categories: transport, construction and maintenance, and office and administration work. Ominously, our analysis found that these three occupational areas are among the most vulnerable to automation over the next decade. These findings, however, should not lead policy-makers and other stakeholders to seek to frustrate the adoption of robot technology. Instead the challenge should be to distribute the robotics dividend more evenly by helping vulnerable workers prepare for and adapt to the upheaval it will bring. Policy- makers, business leaders, technology companies, educators, and workers all have a role to play. We conclude the report with a framework for action for each of these groups to navigate the challenges and opportunities that robotization will bring. Robots are on the rise as never before. Preparing for and responding to the social impacts of automation will be a defining challenge of the next decade.It will be difficult for machines to replace humans in service sector occupations that demand compassion, creativity, and social intelligence. A vision of human-free production in Italy. 11 How Robots Change the World INTRODUCTION This multi-disciplinary approach enables us to construct a set of questions for policy-makers about the impact of increased robotizationas well as other processes of automation on economies and societies around the world. Greater understanding of these issues will be key to making the most of robot-driven gains in the future while supporting and protecting those who stand to lose out from this era of dramatic technological change. Over the past decade, the global stock of industrial robots has risen dramatically, and is projected to grow even faster in the next 10 years, led by Chinas record pace of installation. The robotics industry has experienced exponential investment growth, upending decades-long trends of gradual and steady expansion. A convergence of innovations in digital technologies (e.g., artificial intelligence and machine learning) along with advances in robotics engineering and energy storage, is dramatically transforming the capabilities of robots. New breeds of “cobots”small, highly mobile, and dextrous machines that can readily collaborate with humansare entering the manufacturing and logistics arenas, and can be easily “trained” to work with humans to optimise productivity.This era of automation presents significant opportunities for businesses to boost productivity. But there will be winners and losers in the labour market as these opportunities are seized. Millions of workers around the world, across all sectors of the economy, will see many of the functions they were once paid to perform handled instead by new technology. Millions more will see the nature of their jobs altered significantly as they are required to master new skills to collaborate with intelligent machines. In autumn 2018, Andy Haldane, the Bank of Englands chief economist, warned the disruption caused by the automation of cognitive skills could have “as wrenching and lengthy an impact on the jobs market” as Britains industrial revolution. 5He urged policy-makers to learn the “lessons of history,” with governments stepping up to train workers for the new world of work while providing a welfare state to cushion the blow from technolog