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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

Where are the robots when we need them?

Herb Emery

New Brunswick, along with the three other Atlantic provinces, has experienced more rapid population aging than much of Canada. Our workforce is older and we have slower growth in the younger population who could replenish the region’s labour supply.

According to the experience of international jurisdictions with population aging, New Brunswick manufacturers should be more advanced in terms of automation than provinces to our west. But we are not. As a sector overall, we have seen little investment in machinery and equipment relative to other provinces and in comparison to historical levels. Many of our producers continue to grow the number of workers they employ, rather than the productivity of workers they have.

Recent research by economists Deron Acemoglu of MIT and Pascual Restrapo of Boston University demonstrates that population aging has been a driver of automation in manufacturing in advanced economies. The more rapidly and advanced the aging of a nation’s population, the more its industries have moved to automation. 

So where are the robots when we need them?

In most economies with an aging population, a scarcity of workers between the ages of 21 and 55 has prompted firms to spend on industrial robots and other automation technologies. Where much of the pre-occupation with automation has been with the displacement of workers by machines, in an aging population that is not as valid a concern. For these economies, automation is a response to labour scarcity rather than a driver of unemployment. 

Acemoglu and Restrapo demonstrate that in aging populations, there are two effects of automation in production. Firstly, the machines reduce labour demand for a given level of output, as there are fewer tasks in the production process for humans to perform. 

But secondly, the productivity effect of automation results in reduced costs for producers and expanded output, which then increases the demand for workers who can perform the non-automated production tasks. When one considers an exporting economy with an aging population like New Brunswick, the productivity effect also improves the competitiveness of exporting firms. Driving greater size and scale of production would increase the demand for labour overall.

In short, automation could driver higher levels of employment, rather than less.

Now let’s consider what this all means for New Brunswick, which has a rapidly aging workforce and labour shortages.

Investment in new machinery and equipment in New Brunswick today would have less of a labour-displacement effect than 20 years ago and would generate productivity growth that the province has not had for 20 years. Higher productivity of workers who perform non-machine tasks would mean higher capacity of employers to raise wages. 

Higher wages means that having a smaller number of workers support a larger elderly population is less of a problem. With their higher incomes, the tax base increases.

The real dividend to an investment-driven increase in labour productivity, however, is that the output and export expansion would increase the scale of production, stimulating growth in the size of the population through immigration and less out-migration. 

So why aren’t our manufacturers leading the provinces in Canada in terms of automation? Our manufacturing sector continues to maintain a lower level of labour productivity and addresses sales opportunities by increasing employment. This strategy does little to improve their costs and competitive positions over the long run.

Indeed, the reason labour supply-focused strategies are doomed to fail is that in the absence of productivity increase, population aging creates costs disadvantages through pressure to pay higher wages for the same, low output. 

Even if we could fully replace the workers withdrawing from the labour force and meet the small increase in expanded demand for labour, the best we could hope for is a restraint of wage costs with no improvement in producer competitiveness.

Now consider the alternative policy focus of encouraging automation through more investment in machinery and equipment. If implemented, there would be a positive impact on labour productivity that not only reduces the costs of production, but also creates the capacity to pay higher wages.

Automation improves competitiveness and expands production for export-growing GDP. Automation raises wages in the investing firms and frees up labour for producers in sectors that can’t automate. And higher wages will attract immigrants and retain young New Brunswickers, growing the population. 

Or to summarize it another way: Government policies aimed at addressing population aging by bringing in more people are unlikely to even maintain our standard of living. In contrast, policies aimed at driving investment in automation will grow GDP, population and our standard of living. 

Both strategies are in effect pro-immigration, but where the former uses immigration to try to maintain the status quo, the latter induces immigration by productivity-driven increases in the standard of living.

New Brunswick’s motto is “Spem Reduxit”, or “Hope Restored.” Investment in automation technology for our region’s manufacturers is a “Spem Reduxit” growth strategy.

Herb Emery is a Brunswick News columnist and the Vaughan Chair in Regional Economics at the University of New Brunswick. 

This article first appeared in Brunswick News publications – June 5, 2019

The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.