Fear of robots? Machines are already replacing unskilled manual workers in Romania, IMF study suggests

Romania ranks among the European countries where technology is destroying jobs mainly in those sectors with a high prevalence of unskilled manual workers like construction or agriculture, according to an International Monetary Fund (IMF) study.

The study, called “The Structural Determinants of the Labor Share in Europe”, suggest that some European countries perform much better than others in terms of labor share to GDP.

According to IMF, the value-added share accrued to labor commonly known as the labor share – the ratio of labor compensation (wages and benefits) to national income – has been on a downward trend in the EU in the last couple of decades.

“In New Member States (NMS), Estonia, Hungary, Latvia and Lithuania experienced a decline in 2009–15 and are on the rebound. Other NMS economies such as Croatia, Poland and Romania have yet to return to their 2002 levels. The positive exception is Bulgaria whose labor share has been on an upward trend due to an economic deepening from relatively low levels,” the study indicates.

The labor share in agriculture, communication and finance saw a modest decline, with only the trade sector experiencing shaper fluctuations across the EU.

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Machines replacing field workers

The prevalence of temporary contracts in agriculture depressed the labor share in a host of countries. Import penetration and competition from low-cost non-EU producers is a close second source of labor share loss, according to the IMF study.

“Automation (proxied by the relative price of investment goods) augmented the labor share in agriculture with picking and sorting machines increasing the productivity of workers. The effect is most prominent in NMS agricultural producers but some countries like Romania lost from technology likely due to machines replacing low skilled field workers. A decline in self-employment rates dampen the labor share decline, most notably in Cyprus and Romania,” the study points out.

“The predictive power of structural indicators particularly in Romania underperforms in explaining the largest decline despite the contraction of self-employment suggesting that other factors contributed as well,” the experts added.

In the EU, mid-skilled workers experienced the largest erosion of compensation share that partially was absorbed by high-skilled employees. The drop was high in Austria, Luxembourg, Slovakia and Romania (4–8 percentage points) and moderate in most other EU economies.

“Croatia, Greece, Poland and Romania experienced a decline across all three categories, while Bulgaria, Estonia, Italy and Lithuania are at the other end of the spectrum. The majority of AE and some NMS economies saw a loss in low- and mid-skilled labor share that far outstripped the gain accrued to high-skilled jobs,” the study says.

A number of advanced economies have experienced labor reallocation from industries with relatively high labor shares, most notably manufacturing, to expanding industries with lower labor shares, such as service sectors.

“Economy-wide indicators show that the labor share shrank in a sizeable share of EU countries, notably some recession-hit economies (Ireland and Portugal) as well as some NMS countries (Croatia, Poland and Romania) but rose in other fast-growing NMS economies such as Bulgaria and the Baltics,” the IMF indicates.

“The labor share in industry sectors (excluding construction) declined across the EU with Malta and Romania the starkest examples,” the experts added.

Manual workers replaced by technology

Across the EU, labor share in construction experienced a drag mainly driven by an increase in part-time employment and a reduction in unemployment benefits.

Technology as proxied by a fall in the relative price of investment goods contributes positively to the labor share likely by raising the productivity of skilled workers rather than displacing them.

“The notable exception is Romania where technology had the opposite effect likely due to likely prevalence of unskilled manual workers that experience replacement by technology. Self-employment contracted and to some extent offset the labor share decline,” the study says.