3 Ways Robots Affect the Economy

Robots are increasingly being used in every industry and are here to stay, and robotics usage has both positive and negative impacts on business and employees. The following are a variety of ways that robots affect the economy.

Key Takeaways

  • Robots are taking your jobs!
  • They have been encroaching in manufacturing work for decades and now making literal inroads into tasks like driving, logistics, and inventory management.
  • While there may be a negative effect on some labor segments, robots and automation increase productivity, lower production costs, and can create new jobs in the tech sector.

The Rise of the Machines

Technology has played a role in making work more efficient for thousands of years, from simple farming tools to current-day assembly-line robots in factories. Robots are becoming present in more and more situations in business. They work right alongside human workers or completely replace them. For example, Amazon.com Inc. (NASDAQ: AMZN) uses a variety of robots in its warehouses to stock inventory, and retrieve and package items. Tesla Motors Inc. (NASDAQ: TSLA) boasts robotic and automated assembly lines for its electric cars and batteries. Robots are even being used in therapy sessions for children. While it is certainly true that robots are replacing jobs and are a significant threat to low-skilled workers and somewhat of a threat to middle-skilled workers, there are many positive effects that robots have on the economy.

Productivity Growth

Higher living standards can come about through higher wages, lower pricing of goods and services, and an overall greater variety of products and services. Labor productivity growth, as measured as output per hour, is what leads these things to occur. Growth results from one or a mixture of three things: increases in the quality of labor, increases in capital and total factory productivity (TFP), also known as multi-factor productivity.

Increases in the quality of labor come from more and better education and training of employees. Capital drives productivity growth via investments in machines, computers, robotics and other items that produce output. TFP, often cited as the most important source of productivity growth, comes from the synergies of labor and capital working together as efficiently as possible. As an example, keeping the education and productivity of the workforce constant, if the machines they use increase in productivity, the TFP still rises. Robots are unquestionably making the "machine" aspect of production facilities more efficient. Even if the human component of factories remains constant, increased efficiencies from robotics inevitably leads to more productivity growth.

Gross Domestic Product Growth

Not surprisingly, with increased productivity comes an increase in gross domestic product (GDP). In December 2018, a paper by Georg Graetz of Uppsala University and Guy Michaels of the London School of Economics titled "Robots at Work" studied the effects of robots in the economy. They looked at the United States and 16 other countries, and analyzed a variety of data for a 15-year period ending in 2007. Graetz and Michaels found that, on average, across the 17 countries, the increasing use of industrial robots over the time period raised the annual growth of GDP by 0.36%. They compared this substantial growth to the boosts in productivity that occurred at the turn of the 20th century from steam technology.

Job Creation

Many people fail to realize that robots are actually creating new, high-paying jobs that require skilled workers. While it is true that robots are replacing low-skilled workers and automating the tasks that they perform, robots and automation are requiring jobs that focus workers on higher-value work. For example, in manufacturing, robots can perform menial tasks such as raw materials sorting, transporting and stocking, while higher-skilled roles such as quality-related tasks, which humans are more suitable for, can be completed by higher-skilled workers.

While it is true that robots and automation are taking away entire categories of jobs across a multitude of industries, it has never been a better time for workers to get higher-skilled, higher-paying jobs as long as they become skilled and educated enough themselves to fill those roles.

Article Sources
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  1. Amazon. "What Robots Do (and Don’t Do) at Amazon Fulfillment Centers."

  2. Bloomberg. "Inside Tesla's Model 3 Factory."

  3. American Psychological Association. "Robo Therapy."

  4. The Century Foundation. "How Robots Are Beginning to Affect Workers and Their Wages."

  5. Economic Policy Institute. "The Link Between Productivity Growth and Living Standards."

  6. Federal Reserve Bank of St. Louis. "How Capital Deepening Affects Labor Productivity."

  7. Congressional Budget Office. "Total Factor Productivity Growth in Historical Perspective," Page 1.

  8. MIT Press Journals. "The Review of Economics and Statistics," Page 753.

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