The Myth of America's Unprecedented Technological Job Disruption
It has become an "article of faith" that workers in advanced industrial nations are experiencing unprecedented levels of labor-market disruption.
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It has recently become an "article of faith" that workers in
advanced industrial nations are experiencing unprecedented levels of
labor-market disruption and insecurity. From taxi drivers being displaced by
Uber, to lawyers losing their jobs to artificial intelligence-enabled
legal-document review, to robotic automation putting blue-collar manufacturing
workers on unemployment, popular opinion is that technology is driving a
relentless wave of Schumpeterian "creative destruction," and we are
consequently witnessing an unprecedented level of labor market "churn." One
Silicon Valley pundit even predicts that technology will eliminate 80 to 90
percent of U.S. jobs in the next 10 to 15 years.
Yet, despite popular perceptions, an objective analysis of the
data says that the U. S. labor market is not experiencing "unprecedented technological disruption." In fact, occupational churn in
the United States is at a historic low. And, as we'll show, it is time to
stop worrying and start accelerating productivity growth with more technological innovation.
Consider the facts.
The Information Technology and
Innovation Foundation (or ITIF) has documented that the grim
assessments of information technology's impact on jobs are the products of
faulty logic and erroneous empirical analysis, making them simply irrelevant to
the current policy debate. For example, techno-pessimists often assume
that robots can do most human jobs, when in fact, they can't. Or they assume
that once a job is lost, there are no second-order job-creating effects from
increased productivity and spending. But the techno-pessimists' grim
assessments also suffer from being a "misreading of history."
When we carefully examine the last 165 years of American
history, statistics show that the U.S. labor market is not currently
experiencing particularly high levels of job churn, which is defined as new
occupations being created while older occupations are destroyed. In fact, it's
the exact opposite: Levels of occupational churn in
the United States-defined as the rates at which some occupations expand while
others contract-are now at historic lows.
The average level of churn in the
last 20 years-a period including the dot-com crash, the financial crisis of
2007 to 2008, the subsequent Great Recession, and the emergence of new
technologies that are purported to be more powerfully disruptive than anything
in the past-has been just 38 percent of the average level from 1950 to 2000,
and 42 percent of the average level from 1850 to 2000.
Other than being of historical interest, why does this
matter? Because if opinion leaders continue to argue that we are in
unchartered economic territory and warn that just about anyone's occupation can
be thrown on the scrap heap of history, then the public is likely to sour on
technological progress, and society will become overly risk averse, seeking
tranquility over churn and the status quo over further innovation. Such
concerns are not theoretical: Some jurisdictions ban ride-sharing apps such as
Uber because they fear losing taxi jobs, and someone as prominent and respected
as Bill Gates has proposed taxing robots like human workers-without the notion
being roundly rejected as a terrible idea, akin to taxing tractors in the
In fact, the single biggest economic challenge facing advanced
economies today is not too much labor market churn, but too little, and thus
too little productivity growth. And that's bad, because increasing
productivity is the only way to
improve living standards, with productivity in the last decade growing at the
slowest rate in 60 years!
The full analysis by ITIF examined U.S. occupational trends from
1850 to 2015, drawing on Census data compiled by the University of Minnesota's
demographic research program and the Minnesota Population Center, to compare
the changes in occupational job levels from decade-to-decade. ITIF assigned a
code to each occupation to judge whether increases or decreases in employment
in a given decade were likely due to technological progress or other factors.
Overall, three main findings emerge from this analysis.
First, contrary to popular perception, rather than increasing over
time, the rate of occupational churn in recent decades is at the lowest level
in American history, at least as far back as 1850. Occupational churn peaked at over 50
percent in the two decades from 1850 to 1870 which means the absolute value sum
of jobs in occupations growing and occupations declining was greater than half
of total employment at the beginning of the decade.
On the other extreme,
occupational churn fell to its lowest levels in the last 15 years, at around 10
percent. When looking only at absolute job losses in occupations, the last 15
years has also been comparatively tranquil, with just 70 percent as many losses
as in the first half of the 20th century, and a bit more than half as many as
in the 1960s, 1970s, and 1990s.
Second, many believe that if innovation accelerates more,
then new jobs in new industries and occupations will make up for any
technology-created losses. But
the truth is that growth in already existing occupations
is what more than makes up the difference. In no decade has technology directly
created more jobs than it has eliminated. Yet, throughout most of the period
from 1850 to present, the U.S. economy as a whole has created jobs at a robust
rate, and unemployment has been low.
This is because most job creation that is not explained by population growth has
stemmed from productivity-driven increases in purchasing power for consumers
and businesses. Such innovation allows workers and firms to produce
more, so wages go up and prices go down, which increases spending, which in
turn creates more jobs in new occupations, though more so in existing occupations (ranging from cashiers to
nurses and doctors). There is simply NO reason to
believe that this dynamic will change in the future for the simple reason that
consumer wants are far from satisfied. And,
Third, in contrast to the popular view that technology today is
destroying more jobs than ever, ITIF's findings suggest that is not the case. The period from 2010 to 2015 saw
approximately 7 technology-related jobs created for every 10 lost, which was
the highest ratio-meaning lowest share of jobs lost to technology-of any period
since 1950 to 1960.
Many believers in the "fourth industrial revolution" argue that
this relative tranquility is just "the calm before a coming storm" of robot-
and artificial-intelligence-driven job destruction. But projections based on
this view-including from such venerable sources as the World Economic Forum and
Oxford University-are either immaterial or inaccurate.
On the other hand, there are at least a dozen reasons to move forward
aggressively with AI and robotics before the "demographic winter" we've
discussed in prior issues creates a manpower shortage:
Policymakers and managers should take away three key points from
automation is central to the process of increasing our living standards. That is because better "tools" allow us
to produce more. It is only by producing more that workers can earn more and
companies can lower prices, both of which increase living standards.
are two kinds of technologically driven productivity. The first kind, such as automatic
elevators replacing elevator operators, is when technology replaces
workers. The second kind, such as carpenters using pneumatic nail guns
instead of hammers, is when technology makes workers more productive. Both are
good, and both boost productivity and per-capita GDP.
employment impacts of automation in a particular industry depend on the nature
of the industry. Automation lets
organizations lower costs and therefore prices. In industries where lower
prices don't lead to significantly more demand for a good or service,
automation allows fewer workers to produce the same output. But in
industries where lower prices spur more demand, automation allows the same
number of workers to produce more output.
has differing effects on different occupations. Some, such as travel agents, have seen
employment declines because of new technology. Some occupations have seen gains
come from increases in standards of living: for example, more people can afford
to hire childcare workers today. Other occupations see increases come
when a new technology creates new occupations
directly, as in the case of computer scientists.
has differing effects on regions. Regions that have a higher share of employment in
industries that experience faster productivity gains, as is now the case with
manufacturing, will see slower net job growth than regions with a higher share
of industries that experience slower productivity growth, such as business
itself does not necessarily lead to net job gain. Some jobs will be created making new
tools, but the use of new tools will always eliminate more jobs. No
organization invests in automation if the net-present value costs are greater
than the savings. In other words, if it takes 100 hours of work to build a
machine that saves 90 hours of work, no company will adopt it.
does not necessarily lead to net job loss, either. Even if automation eliminates some of
the jobs in a particular industry, it does not typically reduce jobs in the
overall economy. The reason is that no organization automates unless it saves
money, and most of those savings get passed on to consumers, who in turn use
those savings to buy something else. And that spending creates jobs in other
parts of the economy.
increases net human welfare even if so-called "good" jobs are automated. Some argue that automation should only be for
the 3Ds: dumb, dirty, and dangerous jobs. Clearly, automating undesirable jobs
is a double win, because there are fewer bad jobs and overall GDP increases.
But automating "good" jobs is also a good thing, because it leads to increases
in GDP; the original output still exists, but workers are redeployed to produce
new and additional output, so society reaps the benefits of more plentiful
goods and services.
automation to protect workers would hurt economic growth and the average
standard of living. In some
industries where demand doesn't grow enough from the lower prices automation
brings, there will be employment effects. In some cases, workers may be laid
off. In other cases, companies may not hire new workers to replace those who
leave voluntarily. But either way, there can be fewer jobs in particular
industries. It is easy to succumb to the view that we should avoid this outcome
at all costs, because it can involve painful dislocation for some workers. But
those costs come at considerable benefit to everyone else who enjoys higher
living standards than they otherwise would. So, the focus instead should be on
easing displaced workers' transitions into new jobs.
ITIF argues, the rate of automation will never exceed the rate of compensating
job creation. Many fear that
the pace of change is increasing too fast, even though there is no evidence
that the current or expected rate of technological change and productivity will
be higher than historical rates. But even if the rate of automation does
increase, there is no reason to expect that concurrent job creation (from lower
prices and higher wages) will not keep up, especially if macroeconomic policy
is calibrated appropriately.
productivity benefits average workers today, just as it always has in the past. It is simply not true that wages have
stagnated over the last few decades as productivity has grown. As ITIF, the
Congressional Budget Office, and the Federal Reserve Bank of San Francisco have
all shown, productivity has translated into wage gains, albeit not as much as
they should have because income inequality has increased. But it is
simply not true that productivity gains in the last two decades have not
produced gains for workers in all income deciles. As documented in prior issues
of Trends, most job and wage losses for the bottom 60% of
American workers have been caused by a combination of off-shoring and an
oversupply of low-skilled immigrant workers. And,
of the rate of technological automation, the United States needs to do more to help
American workers make transitions between jobs and occupations. The failure to give workers the skills
and assistance to move into new jobs or occupations not only contributes to
higher structural unemployment, but also breeds resistance to innovation and
Given this trend, we offer the following forecasts for your
a deep breath, and calm down. Labor market disruption is not abnormally high; it's at a
170-year low, and predictions that human labor is just one tech "unicorn" away
from redundancy are vastly overstated, as they always have been.
there is a genuine risk to our future, it is that technological change and
resulting productivity growth will be too slow, not too fast. Therefore, rather than try to slow down
change, policymakers should do everything possible to speed up the rate of
creative destruction. Otherwise, it will be impossible to raise living
standards faster than the current snail's pace of progress. Among other things,
this means not giving in to the interests of incumbent companies or workers who
simply want to resist disruption. And,
should do more to smooth labor-market transitions for workers who lose their
jobs. That is true
regardless of the rate of churn or whether policy seeks to retard or accelerate
it. Likewise, it doesn't matter whether the losses stem from short-term
business-cycle downturns or from trends that lead to natural labor-market
First, over the next
eight to twelve years, U. S. government policy will favor maximizing
productivity and economic growth.
The Trump administration is already sowing the seeds of an
enormous automation boom in four ways.
Second, through 2035,
AI-based automation will accelerate annual U.S. growth to an amazing level as
high as 4.6% per year average; that is 40% higher than growth from 2009 to
- Regulatory burdens are
being eased raising the ROI on capital investments.
- Reducing corporate tax
rates ensures that more of the gains flow to the bottom line.
- New trade agreements
are almost certain to make off-shoring less attractive.
- Restrictions on
immigration will make maximizing the productivity of U. S. workers even more
important and ensure that wages rise along with productivity.
The analysis by Accenture supporting this forecast was
summarized in the January 2017 issue of Trends. In a
world where many experts question sustained growth at over 3%, this is
certainly encouraging. And, the policy trends cited earlier simply make
us more certain that this forecast is realistic.
Third, the deployment
of AI in the manufacturing sector will accelerate the trend toward
As productivity rises and costs plunge, American companies will
be able to afford to move their production back to the U.S., which will help to
offset any job losses in other sectors. However, according to a report
from the Pardee Center for International Futures prepared for the U.S. National
Intelligence Council, this means that developing countries will no longer be
able to simply follow the path to modernization of their economies by
developing cheap manufacturing capabilities for export markets.
it now costs the same amount to deploy a manufacturing robot as it does to
outsource a manufacturing job to the average Chinese laborer. Boston
Consulting Group found that more than one-third of companies with revenues
above $1 billion are considering reshoring. As a result, developing
countries will need to find another way to boost economic growth, and according
to the Pardee Center report, there is no clear roadmap for them to
Fourth, to minimize
job losses, employers and educators will work together to close the "skills
As long as employees have the right skills to work with AI and
robotics, their roles will expand and their jobs will become more meaningful as
they focus on activities that add value, while offloading routine tasks to machines
and software. According to The Economist, "AI will not so much replace
workers directly as require them to gain new skills to complement it."
Workers will be given opportunities to master new skills through online
learning, courses at community colleges and business schools, and on-the-job
Fifth, universal basic
income is an essentially wrong-headed solution that will never be adopted in
the United States.
In response to hypothetical fears that automation will lead to
mass joblessness, some have called for universal basic income (or UBI), where
the state provides income to all adults, working or not. This is a bad idea.
Automation does not raise unemployment rates, but UBI will, because it will
encourage people not to work and divert spending from activities that would
create more jobs for people without jobs.
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