Are Robots Taking Your Job?

January 24, 2014

The Economist has the definitive read on the future of jobs in America.

Across the developed world, a number of worrying trends continue. Wages remain stagnant, for one thing, with gains mainly accruing to capital owners rather than labor. Inequality remains too high for comfort, while economic mobility is becoming less and less a reality for the poor. The number of working-age people in full-time jobs continues to fall. And the one thread that weaves these data points together is technological change. It seems that the disruptive forces of innovation are outpacing our ability to absorb them. Workers in particular are feeling the pinch.

Many economists dismiss these concerns as a naïve embrace of Luddite fallacies. Every economic revolution introduces disruption as the old ways of working are done away with. Incomes eventually rise as we become more efficient. We demand more products and services as a result, which requires new jobs to be created to fill the demand.

Yet transitioning to a new economy has never been entirely smooth, as The Economist illustrates with a walking tour of the Industrial Revolution. While productivity gains from industrialization first emerged in the 16th Century, the average wallet didn’t truly swell until the late 19th Century. Education didn’t fully adapt to the need for skilled workers until the mid-20th Century. Only after World War II did a thriving, prosperous middle class emerge. The conclusion:

The impacts of technological change take their time appearing. They also vary hugely from industry to industry. Although in many simple economic models technology pairs neatly with capital and labor to produce output, in practice technological changes do not affect all workers the same way. Some find that their skills are complementary to new technologies. Others find themselves out of work.

Technological progress is occurring at faster rates than we have ever seen. Many of the smart machines being developed boast abilities once deemed uniquely human. In today’s new machine age, an increasing share of workers will find themselves under greater competitive pressure.

Our workforce will gain tremendously from these technological advancements, but not before undergoing a period of adjustment. As MIT professors Andrew McAfee and Erik Brynjolfsson argue in their new book, “the main bottleneck on innovation is the time it takes society to sort through the many combinations and permutations of new technologies and business models.” New jobs will arise as old ones fall away at a rapid clip—society in the meantime will begin slowly processing the implications.

Absent reform, the future of jobs looks pretty mixed:

The potential for dramatic change is clear. A future of widespread technological unemployment is harder for many to accept. Every great period of innovation has produced its share of labor-market doomsayers, but technological progress has never previously failed to generate new employment opportunities. …

These jobs may look distinctly different from those they replace. Just as past mechanization freed, or forced, workers into jobs requiring more cognitive dexterity, leaps in machine intelligence could create space for people to specialize in more emotive occupations, as yet unsuited to machines: a world of artists and therapists, love counsellors and yoga instructors. …

But though growth in areas of the economy that are not easily automated provides jobs, it does not necessarily help real wages. … It is the increase in the prices of stuff that isn’t mechanized (whose supply is often under the control of the state and perhaps subject to fundamental scarcity) that means a pay packet goes no further than it used to.

So technological progress squeezes some incomes in the short term before making everyone richer in the long term, and can drive up the costs of some things even more than it eventually increases earnings.

While we should all be able to benefit from this future, it won’t be without the long, hard work of boosting the skills and earning power of most Americans. The gains from education are harder to obtain now that many have already gone to college. Moreover, welfare is likely making work unattractive to more Americans.

The future we want to avoid is the one that The Economist concludes with: “Society may find itself sorely tested if, as seems possible, growth and innovation deliver handsome gains to the skilled, while the rest cling to dwindling employment opportunities at stagnant wages.” Instead, we should be working toward bringing more opportunity to more Americans.