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In today’s world of automation, automated
systems match and are sometimes able to perform better than humans in a number of
activities. With the growing popularity of artificial intelligence, this also
holds true for those tasks that require cognitive abilities. The replacement of
low cost labour with automation in industries is likely to have a profound
impact on the global economy.

Employment of labour leads to a number of challenges for any organization like
absenteeism, workers leaving the organization, etc. When the workers leave the
organization, the organization has to incur additional expenses on hiring and
training the new workforce. Not only this, it also affects the quality in the
short run as the new workers have their own learning curve and it takes time to
get acquainted with the standard operating procedures. Lower productivity and
employee morale are some of the other drawbacks.

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With the use of automation, productivity and reliability increase, errors reduce,
quality improves, variability and wastage decreases and so do the operating
costs. One of the most important benefits of automation is safety. For example,
more than 90% of the accidents in hazardous industries occur due to human
errors. This can be considerably reduced with the help of automation. Moreover,
since human abilities differ from one another there is variation in the
characteristics of the final product of a given type produced by different
workers. An organization can overcome this problem by automation. It is
estimated that by adopting automation the productivity at a global level can
increase by 0.8% to 1.4% annually.

Automation in different sectors

With the state
of the art technologies, complete automation can be achieved in less than 5% of
all the occupations. There are about 60% of occupations in which up to 30% of
the work can be automated. Due to the repetitive nature of activities in the
manufacturing sector, food service, accommodation and retail trade they are highly
susceptible to automation. As per the McKinsey Global Institute Analysis,
activities in food services and accommodation have the maximum potential to be
automated (73%) and educational services have the least (27%). The automation
potential for other sectors are 60% in manufacturing, 57% in transportation and
warehousing, 53% in retail trade and 43% in finance and insurance. It is
important to understand that within different sectors there is a huge amount of
variation in the percentage of the activities that can be automated. For
example, the degree of automation that can be achieved in activities like
welding, soldering and cutting in the manufacturing sector is more than 90%
while it is less than 30% in activities involving customer service. This means
that the demand for cheap labour will continue to exist even in those
industries that are highly prone to automation.

 

 

 

 

 

Automation
in Supply Chain

 

There are many
activities in supply chain that are repetitive and monotonous. Firms can employ
automated systems instead of manual labour to carry out these activities more
quickly and efficiently. For example, in a warehouse, movement of goods from
one place to another requires very little skill and can be automated. Amazon
primarily has automated warehouses. Besides warehousing, transportation of
goods can be done by using drones as well as automated trucks. The advantage of
using drones is that they can be used to deliver goods to remote areas. Robotic
Process Automation can be used in carrying out administrative tasks in
procurement as they consume a lot of time when done manually.

Factors that affect automation in different economies

As per the report published by McKinsey if all the technically feasible
activities were automated at a global level, it would replace 1.1 billion
workforce that is paid wages worth $15.8 trillion. Over half of these total
wages and employees are accounted for by four big economies namely China,
India, Japan and the United States. The degree of automation in different
countries depends on which sectors have dominant presence in the economy, either
agriculture, manufacturing or service sector and what percentage of workforce
is engaged in activities that can be automated in these sectors.

Factors affecting replacement of low cost labour with automation 

The rate at which automation will replace cheap labour depends on technical
feasibility and technical know-how of firms in the economy. Though once
automation is adopted it leads to lower operating costs but developing
automated systems at the first place takes considerable capital. Hence,
adoption of automated systems depends on the ability of the country to invest
in the capital intensive technologies. Over a period of time, as the costs of
hardware and software decline, automated solutions will become competitive with
human labour for many activities. The rate at which manual labour will be
replaced by automation also depends on the wage rate. In developing countries
like India where the wage rate is low automation will be adopted at a slower
pace in comparison to developed countries like the USA, where the wage rates
are high. Moreover, it is believed that most of the occupations will initially
be only partially automated and it will take considerable time for complete
automation. Advanced as well as developing economies with aging workforce are
likely to be more inclined towards adopting automation as fast as possible for
economic growth. For sustaining economic growth in developing countries like
India which has abundant young working-age population the focus should be on
both automation as well as additional productivity raising measures.

 

Automation lowers the operating costs of an organization and
increases the profits in the long run. Hence the increased profits would be
either paid as dividend to the shareholders or invested by the company. Automation
would lead to concentration of wealth in the hands of a few as the firms would
be employing considerably less workforce. Though there is no doubt that
automation leads to loss of employment for the labour class but it is important
to realize that transition from manual labour to complete automation will take
place gradually and policy makers and managers must take measures to raise
skills of the workforce and at the same time promote job creation. Although in
the short run it will lead to unemployment of the workforce but in the long run it can be anticipated that
there will be a gradual shift in the nature of work with the creation of new
employment opportunities. This shift is likely to be similar to the shift in
the share of employment from agriculture and manufacturing sectors to service
sector, observed in the developed countries like the United States of America
few decades ago. But in a country like India where the population is growing,
generation of new jobs may be difficult in the short run. But as automation
reduces the cost of manufacturing at a global level, low cost labour may lose
its edge as a tool for development of emerging economies.

 

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