I recently participated in a roundtable discussion on Work and Value in the Digital Economy, convened by MIT’s Center for Digital Business. The roundtable addressed some of the most critical questions we face in our emerging digital economy, including: what is the future of jobs; where will jobs come from in the coming years?; and will the nature of work be significantly different in the digital economy?
Since the advent of the financial crisis around five years ago, we have been searching for answers to these very important questions. The US economy has gone through a number of ups and downs over the past seventy years. Unemployment went up during the down periods, but it did not last long. The economy started to improve within a relatively short time and unemployment went down once more.
But our current downturn seems to be fundamentally different from the recessions of the past decades. While US unemployment rates have now edged down below 8 percent, about 12 million people remain unemployed, with 40 percent classified as long-term unemployed, that is, jobless for 27 weeks or more. An additional 8 million are involuntary part-time workers because they have been unable to find a full-time job.
It is generally agreed that our persistent high unemployment rate, - the longest such period since the Great Depression, - is primarily caused by a fundamental reshaping of the economy. The US and other advanced nations are going through structural changes driven to a large extent, by advances in information technologies. Companies are able to do their present work with fewer people, as a result of the major improvements in IT-based labor productivity in the past two decades. At the same time, sophisticated IT infrastructures have enabled them to optimize their supply chains and shift work around the world to cut costs.
The long term impact of technology on employment, skills and wages was the subject of Race Against the Machine: How The Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. Race Against the Machine is an excellent short book published last year by Erik Brynjolfsson and Andy McAfee, who are respectively the director and principal research scientist of the Center for Digital Business, as well as the organizers of the Digital Economy roundtable.
In the introductory chapter, the authors write that “. . . computers are now doing many things that used to be the domain of people only. The pace and scale of this encroachment into human skills is relatively recent and has profound economic implications. Perhaps the most important of these is that while digital progress grows the overall economic pie, it can do so while leaving some people, or even a lot of them, worse off.”
“And computers (hardware, software, and networks) are only going to get more powerful and capable in the future, and have an ever-bigger impact on jobs, skills, and the economy. The root of our problems is not that we’re in a Great Recession, or a Great Stagnation, but rather that we are in the early throes of a Great Restructuring. Our technologies are racing ahead but many of our skills and organizations are lagging behind. So it’s urgent that we understand these phenomena, discuss their implications, and come up with strategies that allow human workers to race ahead with machines instead of racing against them.”
The employment challenges posed by this Great Restructuring were succinctly summarized by MIT economist David Autor in the roundtable’s opening talk, provocatively titled Will the Workplace of the Future Have any Workers? Using data from the Bureau of Labor Statistics, Professor Autor showed that over the last ten years, the US Labor Force participation rate has been steadily declining. Labor’s share of income has also been decreasing, as technology replaces workers and/or significantly improves their productivity.
Technology has been replacing workers and improving productivity ever since the advent of the Industrial Revolution in the second half of the 18th century. In past technology-based economic revolutions, the periods of creative destruction and high unemployment eventually worked themselves out. Over time, these same disruptive technologies and innovations led to the transformation of the economy and the creation of new industries and new jobs. While we are hopeful that this will once more be the case, there is no way of knowing. Technology is being increasingly applied to activities requiring cognitive capabilities and problem solving intelligence that not long ago were viewed as the exclusive domain of humans. These technology advances are truly pushing the boundaries between human and machines.
Many workers are learning to co-evolve with our intelligent machines, and as has been the case in the past, they will be ready for whatever new jobs are created. But, our fear is that this time is different. Technology advances are running so far ahead that large numbers of people may not be able to keep up, and the future will bring even more serious economic disruptions.
These technological advances have given rise to a sharply polarized labor market. In The Polarization of Job Opportunities in the US Labor Market, Autor examines the changing dynamics of the US labor market by looking at three different job segments: high-skill, high-wage; mid-skill, mid-wage; and low-skill, low-wage.
“[T]he structure of job opportunities in the United States has sharply polarized over the past two decades, with expanding job opportunities in both high-skill, high-wage occupations and low-skill, low-wage occupations, coupled with contracting opportunities in middle-wage, middle-skill white-collar and blue-collar jobs. Concretely, employment and earnings are rising in both high-education professional, technical, and managerial occupations and, since the late 1980s, in low-education food service, personal care, and protective service occupations.”
“Conversely, job opportunities are declining in both middle-skill, white-collar clerical, administrative, and sales occupations and in middle-skill, blue-collar production, craft, and operative occupations. The decline in middle-skill jobs has been detrimental to the earnings and labor force participation rates of workers without a four-year college education, and differentially so for males, who are increasingly concentrated in low-paying service occupations.”
How can we deal with this technology-based restructuring of the labor market in advanced economies? Our Digital Economy roundtable did not come up with any definitive answers. But, in his talk, Professor Autor presented three possible ways of framing the problem as we continue to search for potential solutions.
First, we may lack the imagination to properly perceive the future. “Technology has always displaced some work and jobs,” wrote New York Times reporter Steve Lohr in October of 2011. “Over the years, many experts have warned - mistakenly - that machines were gaining the upper hand. In 1930, the economist John Maynard Keynes warned of a new disease that he termed technological unemployment, the inability of the economy to create new jobs faster than jobs were lost to automation.” Perhaps at some point our Great Stagnation will turn into another Golden Age of Innovation, with new industries and jobs that we can barely begin to anticipate today.
On the other hand, we may be facing a serious labor demand problem. “The coming world war is an all-out global war for good jobs,” argues Gallup’s Chairman and CEO Jim Clifton in The Coming Jobs War published in October of 2011. In this Forbes interview he said:
“Gallup has discovered that having a good job is now the great global dream; it’s the number one social value for everyone. This is one of our most powerful findings ever. A good job is more important than having a family, more compelling than democracy and freedom, religion, peace and so on. Those are all very important but they are now subordinate to the almighty good job. . . According to Gallup’s World Poll, there are three billion people out of seven billion who want a good job. There are only 1.2 billion jobs to go around. So there’s a short-fall of 1.8 billion jobs. The question is who gets those new jobs as they emerge.”
If this is indeed the case, large numbers of people will have to invent their own jobs, possibly based on new types of virtual work organizations that leverage digital platforms to match job seekers with job providers. We need to become a much more entrepreneurial society. But, I believe that to support such a flexible, dynamic workforce, we must also rethink the nature of capitalism in the US. We must become less ideological and more pragmatic in our search for solutions to these tough real problems.
Telling workers that in an entrepreneurial society they should assume greater responsibility for their individual careers does not mean that governments and communities do not bear responsibilities to help them do so. But, in the US we lack a proper safety net to support the needs of an increasingly mobile, dynamic workforce. The Scandinavian countries have managed to combine both an entrepreneurial business culture with far better safety nets. The US must find its own way of doing so as well.
Finally, we cannot ignore the income distribution problems resulting from the polarization of job opportunities. In March of 2011, The Economist published a special report on The Future of the State, based on the premise that the continuing growth of government is no longer sustainable, especially in the more advanced economies with aging populations like the US and Western Europe.
The main reason why the public sector has grown so much in these affluent societies is that their citizens have continued to demand more services from their elected government officials. They want improved education, health care, safety, transportation, physical infrastructures, and so on. This is all part of becoming an advanced economy. As emerging economies become increasingly affluent, their citizens will likely demand a similar set of social services.
Productivity in the public sector, especially in fields like health and education has significantly lagged behind the private sector. The public sector should embrace many of the technologies and organizational practices that have been successfully applied in the private sector over the past twenty years. But, given our aging populations, the increasing importance of education, and the need to significantly improve our physical and digital infrastructures, it will prove very hard to make major reductions to government programs and social benefits.
In addition, as NYU economist Michael Spence and his collaborators have pointed out, these public sector jobs account for virtually all the job growth over the past decades, partly because they are nontradable, that is, they must be produced and consumed locally unlike the many private sector tradable jobs that have migrated to countries with lower labor costs. So, reducing these public sector jobs will only exacerbate our unemployment problem.
Thus, if we truly want to deal with the polarization of the labor market, we must focus on providing improved education, health care, infrastructure and other public sector programs and benefits which will help create many new jobs, especially for those in the mid- and low-skill segments. We should also provide a better safety net for all which might help us become a more entrepreneurial society. To pay for such social programs and services, we may have no choice but to increase taxes on the winners of this Great Restructuring, - the high-skill, high-wage segment of the market, whose earnings have been rising steadily over the past thirty years.
While many reject such income-redistribution-sounding solutions for what I believe are outmoded ideological reasons, there are few alternatives other than living in a more polarized, laissez-faire society. However, societies with high income inequalities tend to have higher crime rates and are generally more politically unstable. Trying to restore the American Dream feels like a much better alternative.
So, where will jobs come from in the coming years? The answer, in short, is that we truly don’t know. The main conclusion I took away from our Digital Economy roundtable is that all of us, - policymakers, business, labor and the research community, - must work together to try to come up with innovative answers to this critical societal question.