Technical change, EMPloyment & Inequality. A Spatial analysis of households & plant data

According to the London Futures Deloitte report (Frey and Osborne, 2014), 35 per cent of the current workforce in the UK is at risk of being made redundant over the next two decades as a result of the introduction of digital robots that will replace their tasks. For those that manage to remain employed, it is difficult to predict whether and how they are able to adapt their skills to the changing demand for occupational tasks. One emerging trend is that, after the introduction of new digital capital, firms dismiss large shares of medium-skilled workers, while seeking either low skilled workers to perform highly routinised tasks, or very high skilled people who provide creative ideas and apply sophisticated knowledge to maximise the benefits of digital capital.

The polarisation of demand for tasks and the skills required to perform them is likely to be reflected in a similar polarisation of wages. This will depend on how firms decide to increase digital mechanisation, for instance what type of hardware and software services they purchase, and what types of new occupations this new capital requires. Also, as pointed out by Piketty (2014), rising share of capital in production goes hand in hand with decreasing share of labour, favouring top income concentration. Overall, innovative firms might be responsible for increasing income inequality, both through higher concentration of capital returns in the hands of a few creative CEOs and a higher proportion of the wage bill going to a proportionally smaller share of very high-skilled workers.

This research aims to provide comparative evidence on the core mechanisms behind the effects of technical change on income inequality, by looking at the actors directly involved in their occurrence: firms investing in tangible, digital capital and R&D, and households providing skilled and unskilled workforce respectively employed in un-routinised and routinised tasks, and the associated distribution of wage and non-wage income.

The novel contribution of this research compared to the extant literature is in the following aspects. First, we will uniquely combine, at the spatial level, plant-level data on tangible, digital and R&D investments of firms located in a certain area, defined as Travel-To-Work-Area (TTWA) and data on occupational categories, wage and non-wage earnings of household living in the same TTWA. TTWAs are defined by the Office for National Statistics as self-contained local labour markets. Second, we will study how technical change, through creative destruction, changes top income shares, wage distribution, and capital income distribution, at the level of TTWA. Third, we will analyse the temporal and spatial associations between the level and composition of investments in tangible, digital capital and R&D in firms and (i) changes in individual's occupational choice across job categories, and (ii) changes in wages at different quantiles of the wage distribution.

This research adds to a debate on pressing social and policy issues: income inequality and unemployment. It is therefore particularly relevant not only for the academic community, but also for policy makers, innovative employers, public, social and private enterprises, trade unions, training institutions and young and old members of the workforce that seek and use information on employment and investment decisions. Our dissemination plan ensures that the findings of our research reach all the above stakeholders to inform their decision-making processes.

WIDER BENEFICIARIES
The findings are of direct relevance for national and local governments required to foster innovation and social policies (including the Department of Education, BIS, DWP, the Parliamentary Office of Science and Technology (POST) and the Government Equalities Office (GEO), the Welsh Government and Leeds City Council), employers, including the CBI, civil society pressure groups, the third sector, including major funders with a focus on poverty and inequality such as the Joseph Rowntree Foundation and donor organisations such as Oxfam, trade unions, including TUC, and social innovators, including NESTA.
The results from the project will support all these stakeholders to articulate responses to the economic and social pressures induced by the increasing income inequality and the employment impacts of the future growth in robotisation. This research will inform evidence-based innovation policy to fine-tune incentives for firms to innovate, fuelling economic growth, while at the same time increasing inclusion, improving employment, and reducing income inequality.

ENGAGING WITH USERS THROUGH DISSEMINATION, COLLABORATION AND CAPACITY BUILDING
The project team is well constituted to ensure wide academic and non-academic impact through three engagement workshops across the UK, a dissemination workshop, and two policy reports, and informal interactions with the above stakeholders throughout the project activities. The project team is well constituted to ensure impact, having been engaged as consultants, advisers and members of committees in government, INGOs, and other organisations such as NESTA, EC, CEPR, and DFID.
The collaboration with the Young Foundation (YF) will be crucial to maximise the benefits of the results for users outside the academic community. YF has a long track record of influencing policy and a network of contacts in this area in several locations across the UK. Both the SPRU and the YF teams have substantial experience of writing for a non-academic audience and will produce policy reports that digests and summarises the main findings of the project for non-academic stakeholders.

RELEVANCE
The topic addressed by this research is at the frontline in both the UK and international debate, following the recent publication of the Deloitte Report (London Futures) on the effect of robotisation causing the loss of 35% of the jobs in the UK in the next two decades. The project will produce high quality academic research, based on the use of ESRC data, on the fundamental micro-level mechanisms responsible for the effects of technical change on employment and income distribution.
Decision makers will be able to formulate medium term policies on inequality and firm investments with a better knowledge on specific leverages and incentives that, while promoting innovations, reduces its impact on unemployment, underemployment, and inequality, driving a more inclusive growth and fair society.
Findings will allow the engaged stakeholders to increase awareness about the relevant aspects of current inequalities, intervene in defence of the least represented and weakest groups in society, and lobby for a more equal and just society targeting the main effects of innovation on employment dynamics.
For similar reasons the findings will definitely benefit the actions of trade unions, particularly with reference to those dimensions of inequality more directly related to employment, earnings, and job security, such as education, skills, benefits.
While the stakeholders mentioned above will benefit from the research directly, our purpose is to have a wider impact on the society. We hope that a clearer understanding of the different competing mechanisms of innovation and inequality will inform policies to lower inequalities in the mid to long term. We hope to stimulate further research and data analysis and collection, which will further inform decision making beyond the national level.