Scary headlines belie the complexity—and the potential opportunities—of technological shocks in the labour marketby George Magnus / November 17, 2014 / Leave a comment
It has been hailed as the biggest change in the way the world works since the Industrial Revolution. While the latter allowed us to transcend the limitations of muscles, digital technologies are allegedly doing the same to the limitations of our minds. New technologies in manufacturing, the application of robotics in the provision of both goods and services, 3D printing, and artificial intelligence are not only developing rapidly, but also outstripping our expectations in many ways. They lead to greater efficiencies in everything from manufacturing to medicine, lower costs and prices, and more sophisticated and diverse products. So what’s not to like?
In a nutshell, they are extraordinarily disruptive, as new technologies always are. But this time, something is different. Instead of complementing or supplementing human endeavour, technology is displacing or substituting for it. In other words, instead of man exploiting machines and becoming more productive in new jobs as a result, machines are making us and many occupations permanently redundant. This is because machines can now do things that even a decade ago were thought to be the sole preserve of humans, notably pattern matching and complex communications. Just think about the development of driverless cars, modern pathology, in-home elderly care, report-writing, research and data tasks that have even displaced bankers,lawyers and accountants, on-line education and teaching, and simultaneous translation.
A recent report, for example, argues a third of UK jobs may disappear over the next 20 years. Instead of scary headlines though, we need to understand more about the nature of the current technological shock. The most visible example of this phenomenon is the difference between the benefits enjoyed by capital and its owners, and the weakness of labour incomes and, for many, poor quality of employment. There has been a breakdown in the relationship between wages and family incomes, which have stagnated in recent years, and GDP, output, profits, and employment, which have recovered from the 2008/09 crisis and continue to advance. It is, of course, wrong to attribute this dichotomy entirely to technological change. The fingerprints of globalisation, the lingering consequences of the financial crisis, demographics and public policy are all visible. Nevertheless, the digital technology revolution is playing a significant role.
In the labour market, even in the UK and US where unemployment rates are close to what we used to term “full employment” levels—i.e. there is a job for everyone who wants one—there is much disquiet and uncertainty among employees. Technology is destroying the middle, defined as middle wage, middle skill, occupations. Our occupational structure is being torpedoed by the redundancy of many repetitive and information-gathering functions, and also of middle level positions associated with book-keeping, clerical, monitoring, supervisory, and even some technical and managerial occupations. Those who are made unemployed or with limited skill levels find they have to compete at the low end of the wage/skill spectrum because they can’t do so at the high end—they don’t have the skills.
To demonstrate that these changes didn’t all start with the financial crisis, MIT professor David Autor found in a recently published paper that between 1993-2010, changes in the structure of UK jobs were marked by an 11 per cent drop in middle wage occupations, and an increase of just over 3 per cent in low wage jobs and 6 per cent in high wage jobs. This pattern was common for the 16 European countries in the study. The net effect of these changes on wages and salaries has been negative. Looking at more specific occupations in the US since 1979, those that shrank—especially since 2007—included operators and labourers, production and office admin workers, and those in sales and management. Beneficiaries included those involved with personal care, food and cleaning services, technicians and those labelled “professionals.”
The substitution of machines for labour has huge implications for Macroeconomics, and in particular for the distribution of income. Capitalism rewards scarcity. New technologies are helping to create a new “reserve army” of low- and semi-skilled labour, in contrast to the relative scarcity of the most skilled and best trained. They are also driving a wedge between the returns accruing to the owners and providers of traditional capital on the one hand, and those who provide ideas, innovation, new products, new services and skills needed to support advanced manufacturing, patents, and brands on the other. Lumped together, these are what we call nowadays, “intangible capital.”
The nature of new technologies means that there is little chance that they will confer benefits equally through society for the time being. In general, the dispersion of wage incomes between people with the best university degrees and postgraduate qualifications and those with limited tertiary or only secondary educational attainment is growing wider. In the former group, you could also include those who proved the most adept in exploiting new technologies, whether or not they have great academic credentials. We already know, not least thanks to Thomas Piketty, much about the outsized rewards earned by those in industry, finance, law, sport or entertainment. In the US, for example, the top 0.01 per cent of the population now account for 6 per cent of national income, pretty much back to where it was before World War 1, before a long slide down to 2 per cent in the 1960s.
It would be nice if we could move on and predict that in the next 10 or 25 years, the new jobs will be found in this or that sector. Unfortunately, it is no easier to make that forecast today than it would have been for our ancestors to foretell the consequences of the internal combustion engine’s destruction of a horse-driven transportation system. Even 25 years ago, no one had a clue what an app designer or social media consultant was or might be. We can’t imagine what kind of jobs will be around in 20 years or more at a time of great technological change.
The unsatisfactory conclusion is that we can know that technological progress is surprising and rapid, but without knowing much about whether it will spawn a plethora of new occupations or entrench existing structural divisions in the labour market and income distribution. It behoves us therefore to find coping mechanisms for the transition. Demand management initiatives such as physical, energy and technological infrastructure, which can be financed cheaply nowadays, are closely correlated with income per head and longer-term economic progress. Higher education attainment and training levels are essential to boosting the quality of the labour supply in the future, and are also similarly correlated. Given the rise in the number of people in low- or minimum-wage occupations and contracts, we should consider a meaningful rise in or new formula for the minimum wage. There’s no question that our progeny will be learning, and doing things in work that we can’t even imagine. In the meantime, we can no more turn our backs on new technologies than the Luddites could.