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Robots and the Demographic Crisis

Tuesday, 31 December 2013 12:42

Do you remember back when we were worried that robots will take all of the jobs? There will be no work for any of us because we will have all been replaced by robots.

It turns out that we have even more to worry about. AP says that because of declining birth rates and increasing life expectancies, we face a huge demographic crunch. We will have hordes of retirees and no one to to do the work. Now that sounds really scary, at the same time we have no jobs because the robots took them we must also struggle with the fact that we have no one to do the work because everyone is old and retired.

Yes, these are the complete opposite arguments. It is possible for one or the other to be true, but only in Washington can both be problems simultaneously. In this case, I happen to be a good moderate and say that neither is true. There is no plausible story in which robots are going to make us all unemployed any time in the foreseeable future. Nor is there a case that the demographic will impoverish us.

The basic story is that we have a rising ratio of retirees to workers, which should promote outraged cries of "so what?" Yes folks, we have had rising ratios of retirees to workers for a long time. In 1960 there was just one retiree for every five workers. Today there is one retiree for every 2.8 workers, and the Social Security trustees tell us that in 2035 there will be one retiree for every 2.1 workers.


Source: Social Security Trustees Report.


Just as the fall in the ratio of workers to retirees between 1960 and 2013 did not prevent both workers and retirees from enjoying substantially higher living standards, there is no reason to expect the further decline in the ratio to 2035 to lead to a fall in living standards.

This point can be seen by comparing the average wage in 2013 with the average wage projected for 2035. The chart also includes the after-Social Security tax wage. The figure for 2035 assumes a 4.0 percentage point rise in the Social Security tax, an increase that is far larger than would be needed to keep the program fully funded under almost any conceivable circumstances. Even in this case, the average after tax wage would more than 38 percent higher than it is today.

ss-average wage

Source: Social Security Trustees Report.

There is of course an issue of distribution. Most workers have not seen much benefit from the growth in average wages over the last three decades as most of the gains have gone to those at the top. But this points out yet again the urgency of addressing wage inequality. A continuing upward redistribution of income could make our children poor. Social Security and Medicare will not.

Finally, this AP article warns of the demographic nightmare facing China. Really?

China has seen incredible economic growth over the last three decades. As a result it is hugely richer today than it was in 1980. The chart below shows the ratio of real per capita income projected by the IMF for China in 2018 compared to its 1980 level. The projection for 2018 is more than 22 times as high as the 1980 level. The chart shows average wages under the assumption that wages grew in step with per capita income and a hypothetical after Social Security tax wage. The latter is calculated under the assumption that there was zero tax in 1980 and a 30 percent tax in 2018. (These are intended to be extreme assumptions.) Even in this case the average after-Social Security tax wage in 2018 would still be 15 times as high as the wage in 1980.


wages- china-ss

Source: International Monetary Fund.

Of course in China, as with the United States, there has been an upward redistribution of income associated with a huge shift from wages to profits. As a result workers have not fully shared in the gains from growth over this period. But the limit in the gains to workers is clearly this distributional shift, not a deterioration in the country's demographic picture.

In short, we have a seriously flawed scare story. The upward redistribution of income does pose a serious threat to the well-being of future generations of workers in the United States and elsewhere. The rise in the ratio of retirees to workers is not even an issue by comparison. 


Comments (7)Add Comment
written by djb, December 31, 2013 12:35

"The rise in the ratio of retirees to workers is not even an issue by comparison. "

and especially since the workers will be mostly robots

we will easily be able to care for our elderly in the future

we produce more goods and services with less labor than ever before in the history of mankind

Viewer II
written by Viewer, December 31, 2013 12:54
That's funny, captains of enterprise, as well as Simpson and Bowles, suggest we have only one option to reducing eventual bankruptcy - increase government revenue and drastically cut spending - especially targeting "entitlements". We can't grow our way out of this one, they insist. Could it be, captains of industry, with the help of folks like Simpson and Bowles are a good part of the reason we have large deficits and income inequality/lack of jobs/high health care cost, etc...?
written by Tom, December 31, 2013 12:57
of course the easy solution in the USA is to do away with the FICA cap. Interesting that nowhere in this story is that even mentioned. Nor are record profits ever mentioned now that many companies have done away with pensions for their future retirees. This is nothing but another story on the horrors in the income disparity between the haves and the have nots.
written by Ron Alley, December 31, 2013 12:58
Bravo, love your analysis and consistency.
The "robot apocalypse" is the complement of the "Arcadia of solid folks"
written by Sandwichman, December 31, 2013 2:16
Harold Rosenberg had a lot to say about the fear of robots and the American Dream back in the 1950s and 60s. It's not as if one is true and the other is false. It is the falsehood of the wish-dream that keeps generating the nightmare. In our fantasy, we dwell in the small-town "idyll of neighborliness, naturalness, individuality and face-to-face dealing." Hey, look! We're back on grandpa and grandma's farm in the country. Except grandpa and grandma never had a farm. That was a Little Golden Book we read in our childhood, not our childhood.

Nostalgia is neurotic; nostalgia for what never was is delusional. The "robots" that we fear are not external machines but the uncanny loss of identity through the internal robotization of the self. Karl Marx had another word for this robotism: the proletariat. The spectre that is haunting the AP is neither demographic nor mechanical. The spectre is class struggle. Rosenberg concluded his 1949 essay, "The Pathos of the Proletariat" with an observation that remains relevant today:

"Whatever the flaws in the theory of history as an epic of class struggle, the potent effects of the likelihood of class struggle cannot be denied. On the one hand, existing social orders are permanently menaced by the workers' tremendous potential power; on the other, the fact that this power rests with an anonymous category, an historical 'nothing,' tempts modern mythmakers to seize upon the working class as raw material for fictitious new collectivities by which society can be subjugated. Cannot the traditionless proletariat be converted into anything as readily as into itself? Keeping the drama in suspense between revolution for the working class on its own behalf and revolution as a tool for others, the pathos of the proletariat dominates modern history."
The Coming Free Lunch Society of America: Stifled in 2013
written by Last Mover, December 31, 2013 6:48

The real fear is that robots will be so efficient, and produce so much to go around, that scarcity itself will be eradicated and the 99% will rise up the income and wealth ladder to join the 1%.

No more monopoly rent extraction. No more class warfare. No more trade offs. The marginal cost of everything will be zero. Even land expanded vertically by the robots.

Imagine that. Capitalism expanded through robot productivity creates a utopia of socialist free lunch for all. It's not like the 1% would grab it all for themselves you know.

Oh wait. Not so fast. Here, take this fast food job good through 2014. We were just kidding about replacing it with a robot. You might get carried away and think you deserve some of the added value through lower fast food prices.
Why is this NPR guy a lier about Social Security contributing to the deficit??
written by jumpinjezebel, January 02, 2014 10:58
Larry Kotlikoff: The deficit, which references the change in outstanding federal borrowing, reflects what Congress decides to call borrowing (i.e., what liabilities it decides to put on the books.) Successive administrations and Congresses from both parties have taken money from us and promised us Social Security benefits in the future in exchange and have kept those promises off the books. If you look at table IVB6 of the Social Security Trustees Report, you'll find that the system is 32 percent underfunded and has a present value debt of $23 trillion (net of the Trust Fund, by the way) that is not on the books. Social Security's present value debt (what we economists call its fiscal gap) rose by $1.7 trillion last year. This is over twice the size of last year's official deficit.

So Social Security has and is contributing to our true deficit -- the annual increase in the country's overall fiscal gap. This is a not a right wing versus left wing issue. This is an issue of older generations taking from their kids decade after decade. It's called pay as you go, but it's really take as you go. And you didn't hear this from a right winger. You heard this from an economist and a father.

For more about Social Security's fiscal concerns, read my June column, "How the Government is Fooling Us About the Solvency of Social Security." And for a different perspective, read Paul Solman's response: "Are Social Security's Fiscal Concerns Overblown?"

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.