“The economy, stupid,” was the quote hanging at President Bill Clinton’s Little Rock 1992 campaign headquarters. Although the quote has gone through many incarnations in the past decades, it really captured the zeitgeist for the President. Perhaps it has even captured every zeitgeist to ever have existed for every political candidate – this for the simple reason that the economy is something that affects each and every one of us.
When the electorate decided to vote for President Clinton based on his stance on the economy, what were they really voting for? For any political candidate to connect with their electorate, they have to find the lowest common denominator, and in terms of the economy, this invariably means jobs. Even more specifically, this usually means a job creation plan (as most people make their livelihood as economic agents by supplying labour).
But what if the notion of a job creation plan is in itself misleading? What I mean by this is that it is easy to create jobs in the short-run (through public works projects, tax incentives, etc.), but to prepare individuals for the jobs of tomorrow is an entirely different question, especially since we are not quite sure of what types of jobs will be needed or available in the future. The state of flux in the nature of work can render many politicians rather ineffectual in their efforts to counteract the prospect of future unemployment. Although the short-run unemployment problem is constantly addressed, the long term change in the nature of work – that is, the fact that certain jobs become obsolete due to the availability of technology – is often forgotten, and even ignored.
To get the idea going of how the nature of work is changing, let’s analyse this over the past few millennia. There have arguably been a few distinct forms of work in every major stage of humanity and each stage’s work has been replaced by a technologically more advanced form in the next period. The progression of humanity from its hunter-gatherer state till the Industrial Revolution follows Schumpeter’s creative destruction process as new innovations and better ideas thrived. Associated Press (AP) writer Bernard Condon gives a good run-through of this process. Whilst the Industrial Revolution has still provided menial labour a place in the economy, the current high-tech boom might prove to be less forgiving to low-skilled workers.
What epitomises the high-tech nature of work today is that instead of replacing one another, jobs are “being obliterated by technology,” as AP writers Paul Wiseman and Bernard Condon put it. In other words, low-end mechanical jobs can be emulated more cheaply by machines and hence, there is a reduction in the quantity of low-end jobs and a downward pressure on low-end wages. The argument that technology is destroying jobs is hardly new given that Luddites have been around for a good 200 years, and the counter-argument involving the lump of labour fallacy has existed for a good 100 years; but as with many arguments, this time it’s different. Messrs. Wiseman and Condon’s post provides a plethora of convincing evidence that the current shift in the nature of jobs is actually different from previous changes. Different in that previously, each successive technological stage created more new jobs than what it displaced, which might not be true any longer.
At the Open Forum Davos – the more accessible side-conference of the whole World Economic Forum (WEF) happening in Davos, Switzerland – one of the seven publicly accessible talks was about unemployment. Or perhaps more specifically, the discussion focussed mostly around the problem of matching people with the right jobs and that training programmes have to be in place in order to provide workers with the appropriate skills. Whilst the many frustrations that both the long-term unemployed and recently graduated face today were touched upon, the discussion on the changing nature of work was almost absent in its entirety.
One of the WEF attendees – Dr. Erik Brynjolfsson, professor at MIT’s Sloan School of Management – has provided some interesting insights on the temporal problems of unemployment through the many articles that he has written on the topic, in addition to co-authoring a book (with Dr. Andrew McAffee) titled “Race Against the Machine.” While the relevant take-home message can be read as excerpts from their book on The Atlantic, for the purposes of this post, the following graph summarises the argument best. It depicts which stratum of society in the U.S. has been reaping the benefits of development during the past 50 years.
Source: excerpts from Race Against the Machine reproduced in the Atlantic
Consider the trend presented in the above graph: as long as you have a completed university degree, you’ve been able to capture the lion’s share of the economic strides that have been made during the past 50 years. For the rest, they have either seen their wages stagnate or remain the same since the 1970s. What is most striking about the picture is not the development, but rather the direction that each of the trends is taking. The differing directions is the wage differential, and according to Race Against the Machine, it is primarily driven by the relative increase in the demand of skilled labour.
These wage developments relate to the displacement of low-end jobs by the fact that studies by David Autor, Lawrence Katz, and Alan Krueger, as well as Frank Levy and Richard Murnane, show that “the increase in the relative demand for skilled labour is closely correlated with advances in technology, particularly digital technologies,” as stated in Race Against the Machine. In the technical jargon of economics, this would be referred to a skill-biased technological change, as the more skilled are gaining more than the less skilled. With the previously mentioned trend, skilled labour will be even more important in the future, whilst ever-more sophisticated machines can replace larger swaths of low-skill workers, pushing the low-end line of work further into obscurity.
Two possible solutions to the aforementioned trend would be further education as well as expanding the service sector. The first would allow those with less education to gain back some of their lost share, and the second could ease the transition from non-service-sector jobs as there are still a myriad of jobs that we would rather trust to humans that could be expanded (e.g. healthcare and related services for the retiring baby boomers). Both of these solutions however lend themselves to several problems. Even if the economies in the developed countries end up focussing almost exclusively on services at some point in the future, technological development will not cease, and it will most likely eat up the less-skilled work in the service sector as well. As for education, one has to also consider individual aptitude levels instead of just considering aggregate education. Never-ending retraining and re-education programmes might not be the answer either, especially as they might become prohibitively long lasting as ever more advanced technologies require more schooling.
Continuing on the notion that education might not suit each and every individual, we can take this argument one step further and claim that an individual’s latent cognitive ability is correlated with his or her educational attainments. That is, perhaps it’s not the technical skills, but human ingenuity or cognitive ability that is lacking, something that cannot arguably be trained. With this in mind, it might become ever more difficult to try to assist low-skill workers to adjust to an environment where the need for high-skill workers is proportionally increasing. During previous periods of creative destruction, the main question has always been whether the pace of the workforce can be retrained and matched to the new jobs. During our current high-tech phase, this might be problematic as Messrs. Condon and Wiseman quote Peter Lindert – an economist at the University of California, Davis – that “the computer is more destructive than innovation in the Industrial Revolution because the pace at which it is upending industries makes it harder for people to adapt.”
With this in mind, I would like to posit that there might be an upper limit to mankind’s capacity (not the individual, but rather the aggregate capacity) that is evolving slower than what technology is developing – a perhaps more extreme form of the adaptation argument. The past 200 years has surely not shown this, but then again, there have still been plenty of menial Taylorist type jobs around. If the current technological improvements are starting to outpace human development and adaptation, then one can only imagine the situation as more and more high-skilled labour is required to make further technological strides.
A perhaps more pertinent question would be: what will the unemployment situation look like in the not too distant future? Could a 30% unemployment rate be reality? These questions are perhaps not relevant for a politician in the midst of a term or recent graduate out of a job; this does not, however, mean that they are not issues that should already be discussed today. If the discussion is not carried out in the political sphere, then perhaps the onus is on organisations such as the WEF to bring attention to the academics that have raised this point.
As far as solutions go, preventing technological change is hardly the answer. Change is a natural part of life but a deeper focus on addressing the needs of people as these changes occur might be needed. An economic system that considers the cyclical nature of an economy (i.e. my spending is your salary), that goes beyond GDP predictions should also be in the cards.
The WEF, where the average age of attendees is well above any of the Student Reporters, is not perhaps tackling the questions that are still going to be around when the current generation of leaders are gone. This is unfortunate, as the organisation is in a prime place to start the conversations that concern themselves with the longer term. H.G. Wells already explored a distant possible dystopia in the “Time Machine”, and whilst this still represents an unconceivable reality, it does serve as a stark reminder of the ramifications if we do not start considering and addressing the potential long-run change in the nature of work. The notion that the new normal might include a permanent underclass should be a terrifying enough scenario for anyone to kick-start the discussion sooner rather than later.