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LawrenceSummers

Jan18th2014| Fromtheprintedition

Thefutureofjobs

TheonrushingwavePrevioustechnologicalinnovationhasalwaysdeliveredmorelongrunemployment,notless.Butthingscanchange

IN1930,whentheworldwassufferingfromabadattackofeconomicpessimism,JohnMaynardKeyneswroteabroadlyoptimisticessay,EconomicPossibilitiesforourGrandchildren.Itimaginedamiddlewaybetweenrevolutionandstagnationthatwouldleavethesaidgrandchildrenagreatdealricherthantheirgrandparents.Butthepathwasnotwithoutdangers.

OneoftheworriesKeynesadmittedwasanewdisease:technologicalunemploymentduetoourdiscoveryofmeansofeconomisingtheuseoflabouroutrunningthepaceatwhichwecanfindnewusesforlabour.Hisreadersmightnothaveheardoftheproblem,hesuggestedbuttheywerecertaintohearalotmoreaboutitintheyearstocome.

Forthemostpart,theydidnot.Nowadays,themajorityofeconomistsconfidentlywavesuchworriesaway.Byraisingproductivity,theyargue,anyautomationwhicheconomisesontheuseoflabourwillincreaseincomes.Thatwillgeneratedemandfornewproductsandservices,whichwillinturncreatenewjobsfordisplacedworkers.TothinkotherwisehasmeantbeingtarredaLudditethenametakenby19thcenturytextileworkerswhosmashedthemachinestakingtheirjobs.

Formuchofthe20thcentury,thosearguingthattechnologybroughtevermorejobsandprosperitylookedtohavethebetterofthedebate.RealincomesinBritainscarcelydoubledbetweenthebeginningofthecommoneraand1570.Theythentripledfrom1570to1875.Andtheymorethantripledfrom1875to1975.Industrialisationdidnotendupeliminatingtheneedforhumanworkers.Onthecontrary,itcreatedemploymentopportunitiessufficienttosoakupthe20thcenturysexplodingpopulation.Keynessvisionofeveryoneinthe2030sbeingalotricherislargelyachieved.Hisbelieftheywouldworkjust15hoursorsoaweekhasnotcometopass.

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WhenthesleeperwakesYetsomenowfearthataneweraofautomationenabledbyevermorepowerfulandcapablecomputerscouldworkoutdifferently.Theystartfromtheobservationthat,acrosstherichworld,allisfarfromwellintheworldofwork.Theessenceofwhattheyseeasaworkcrisisisthatinrichcountriesthewagesofthetypicalworker,adjustedforcostofliving,arestagnant.InAmericatherealwagehashardlybudgedoverthepastfourdecades.EveninplaceslikeBritainandGermany,whereemploymentistouchingnewhighs,wageshavebeenflatforadecade.Recentresearchsuggeststhatthisisbecausesubstitutingcapitalforlabourthroughautomationisincreasinglyattractiveasaresultownersofcapitalhavecapturedevermoreoftheworldsincomesincethe1980s,whilethesharegoingtolabourhasfallen.

Atthesametime,eveninrelativelyegalitarianplaceslikeSweden,inequalityamongtheemployedhasrisensharply,withthesharegoingtothehighestearnerssoaring.Forthosenotintheelite,arguesDavidGraeber,ananthropologistattheLondonSchoolofEconomics,muchofmodernlabourconsistsofstultifyingbullshitjobslowandmidlevelscreensittingthatservessimplytooccupyworkersforwhomtheeconomynolongerhasmuchuse.Keepingthememployed,MrGraeberargues,isnotaneconomicchoiceitissomethingtherulingclassdoestokeepcontroloverthelivesofothers.

Bethatasitmay,drudgerymaysoonenoughgivewaytofrankunemployment.Thereisalreadyalongtermtrendtowardslowerlevelsofemploymentinsomerichcountries.TheproportionofAmericanadultsparticipatinginthelabourforcerecentlyhititslowestlevelsince1978,andalthoughsomeofthatisduetotheeffectsofageing,someisnot.InarecentspeechthatwasmodelledinpartonKeynessPossibilities,LarrySummers,aformerAmericantreasurysecretary,lookedatemploymenttrendsamongAmericanmenbetween25and54.Inthe1960sonlyonein20ofthosemenwasnotworking.AccordingtoMrSummerssextrapolations,intenyearsthenumbercouldbeoneinseven.

Thisisoneindication,MrSummerssays,thattechnicalchangeisincreasinglytakingtheformofcapitalthateffectivelysubstitutesforlabour.Theremaybealotmoreforsuchcapitaltodointhenearfuture.A2013paperbyCarlBenediktFreyandMichaelOsborne,oftheUniversityofOxford,arguedthatjobsareathighriskofbeingautomatedin47%oftheoccupationalcategoriesintowhichworkiscustomarilysorted.Thatincludesaccountancy,legalwork,technicalwritingandalotofotherwhitecollaroccupations.

Answeringthequestionofwhethersuchautomationcouldleadtoprolongedpainforworkersmeanstakingacloselookatpastexperience,theoryandtechnologicaltrends.Thepicturesuggestedbythisevidenceisacomplexone.Itisalsomoreworryingthanmanyeconomistsandpoliticianshavebeenpreparedtoadmit.

ThelatheofheavenEconomiststaketherelationshipbetweeninnovationandhigherlivingstandardsforgrantedinpartbecausetheybelievehistoryjustifiessuchaview.Industrialisationclearlyledtoenormousrisesinincomesandlivingstandardsoverthelongrun.Yettheroadtoricheswasrockierthanisoftenappreciated.

In1500anestimated75%oftheBritishlabourforcetoiledinagriculture.By1800thatfigurehadfallento35%.Whentheshifttomanufacturinggotunderwayduringthe18thcenturyitwasoverwhelminglydoneatsmallscale,eitherwithinthehomeorinasmallworkshopemploymentinalargefactorywasararity.Bytheendofthe19thcenturyhugeplantsinmassiveindustrialcitieswerethenorm.Thegreatshiftwasmadepossiblebyautomationandsteamengines.

Industrialfirmscombinedhumanlabourwithbig,expensivecapitalequipment.Tomaximisetheoutputofthatcostlymachinery,factoryownersreorganisedtheprocessesofproduction.Workersweregivenoneorafewrepetitivetasks,oftenmakingcomponentsoffinishedproductsratherthanwholepieces.Bossesimposedatightscheduleandstrict

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workerdisciplinetokeepuptheproductivepace.TheIndustrialRevolutionwasnotsimplyamatterofreplacingmusclewithsteamitwasamatterofreshapingjobsthemselvesintothesortofpreciselydefinedcomponentsthatsteamdrivenmachineryneededcogsinafactorysystem.

Thewayoldjobsweredonechangednewjobswerecreated.JoelMokyr,aneconomichistorianatNorthwesternUniversityinIllinois,arguesthatthemoreintricatemachines,techniquesandsupplychainsoftheperiodallrequiredcarefultending.Theworkerswhoprovidedthatcarewerewellrewarded.AsresearchbyLawrenceKatz,ofHarvardUniversity,andRobertMargo,ofBostonUniversity,shows,employmentinmanufacturinghollowedout.Asemploymentgrewforhighlyskilledworkersandunskilledworkers,craftworkerslostout.ThiswasthelosstowhichtheLuddites,understandablyifnoteffectively,tookexception.

Withthelowskilledworkersfarmorenumerous,atleasttobeginwith,thelotoftheaverageworkerduringtheearlypartofthisgreatindustrialandsocialupheavalwasnotahappyone.AsMrMokyrnotes,lifedidnotimproveallthatmuchbetween1750and1850.For60years,from1770to1830,growthinBritishwages,adjustedforinflation,wasimperceptiblebecauseproductivitygrowthwasrestrictedtoafewindustries.Notuntilthelate19thcentury,whenthegainshadspreadacrossthewholeeconomy,didwagesatlastperforminlinewithproductivity(seechart1).

Alongwithsocialreformsandnewpoliticalmovementsthatgavevoicetotheworkers,thisfasterwagegrowthhelpedspreadthebenefitsofindustrialisationacrosswidersegmentsofthepopulation.Newinvestmentsineducationprovidedasupplyofworkersforthemoreskilledjobsthatwerebythenbeingcreatedinevergreaternumbers.Thisshiftcontinuedintothe20thcenturyaspostsecondaryeducationbecameincreasinglycommon.

ClaudiaGoldin,aneconomistatHarvardUniversity,andMrKatzhavewrittenthatworkerswereinaracebetweeneducationandtechnologyduringthisperiod,andforthemostparttheywon.Evenso,itwasnotuntilthegoldenageafterthesecondworldwarthatworkersintherichworldsecuredrealprosperity,andalarge,propertyowningmiddleclasscametodominatepolitics.Atthesametimecommunism,alegacyofindustrialisationsharshearlyera,kepthundredsofmillionsofpeoplearoundtheworldinpoverty,andtheeffectsoftheimperialismdrivenbyEuropeanindustrialisationcontinuedtobefeltbybillions.

Theimpactsoftechnologicalchangetaketheirtimeappearing.Theyalsovaryhugelyfromindustrytoindustry.Althoughinmanysimpleeconomicmodelstechnologypairsneatlywithcapitalandlabourtoproduceoutput,inpracticetechnologicalchangesdonotaffectallworkersthesameway.Somefindthattheirskillsarecomplementarytonewtechnologies.Othersfindthemselvesoutofwork.

Takecomputers.Intheearly20thcenturyacomputerwasaworker,oraroomofworkers,doingmathematicalcalculationsbyhand,oftenwiththeendpointofonepersonsworkthestartingpointforthenext.Thedevelopmentofmechanicalandelectroniccomputingrenderedthesearrangementsobsolete.Butintimeitgreatlyincreasedtheproductivityofthosewhousedthenewcomputersintheirwork.

Manyothertechnicalinnovationshadsimilareffects.Newmachinerydisplacedhandicraftproducersacrossnumerousindustries,fromtextilestometalworking.Atthesametimeitenabledvastlymoreoutputperpersonthancraftproducerscouldevermanage.

PlayerpianoForatasktobereplacedbyamachine,ithelpsagreatdealif,liketheworkofhumancomputers,itisalreadyhighlyroutine.Hencethedemiseofproductionlinejobsandsomesortsofbookkeeping,losttotherobotandthespreadsheet.Meanwhileworklesseasilybrokendownintoaseriesofstereotypedtaskswhetherrewarding,asthemanagementofotherworkersandtheteachingoftoddlerscanbe,ormoreofagrind,liketidyingandcleaningmessyworkplaceshasgrownasashareoftotalemployment.

Buttheraceaspectoftechnologicalchangemeansthatsuchworkerscannotrestontheirpaypackets.Firmsareconstantlyexperimentingwithnewtechnologiesandproductionprocesses.Experimentationwithdifferenttechniquesandbusinessmodelsrequiresflexibility,whichisonecriticaladvantageofahumanworker.Yetovertime,asbestpracticesareworkedoutandthencodified,itbecomeseasiertobreakproductiondownintoroutinecomponents,thenautomatethosecomponentsastechnologyallows.

If,thatis,automationmakessense.AsDavidAutor,aneconomistattheMassachusettsInstituteofTechnology(MIT),pointsoutina2013paper,themerefactthatajobcanbeautomateddoesnotmeanthatitwillberelativecostsalsomatter.WhenNissanproducescarsinJapan,henotes,itreliesheavilyonrobots.AtplantsinIndia,bycontrast,thefirmreliesmoreheavilyoncheaplocallabour.

Evenwhenmachinecapabilitiesarerapidlyimproving,itcanmakesenseinsteadtoseekoutevercheapersuppliesofincreasinglyskilledlabour.Thussincethe1980s(atimewhen,inAmerica,thetrendtowardspostsecondaryeducationlevelledoff)workersthereandelsewherehavefoundthemselvesfacingincreasedcompetitionfrombothmachinesandcheapemergingmarketworkers.

Suchprocesseshavesteadilyandrelentlesslysqueezedlabouroutofthemanufacturingsectorinmostricheconomies.TheshareofAmericanemploymentinmanufacturinghasdeclinedsharplysincethe1950s,fromalmost30%tolessthan10%.Atthesametime,jobsinservicessoared,fromlessthan50%ofemploymenttoalmost70%(seechart2).Itwasinevitable,therefore,thatfirmswouldstarttoapplythesameexperimentationandreorganisationtoserviceindustries.

Anewwaveoftechnologicalprogressmaydramaticallyacceleratethisautomationofbrainwork.Evidenceismountingthatrapidtechnologicalprogress,whichaccountedforthelongeraofrapidproductivitygrowthfromthe19thcenturytothe1970s,isback.Thesortofadvancesthatallowpeopletoputintheirpocketacomputerthatisnotonlymorepowerfulthananyintheworld20yearsago,butalsohasfarbettersoftwareandfargreateraccesstousefuldata,aswellastootherpeopleandmachines,haveimplicationsforallsortsofwork.

ThecaseforahighlydisruptiveperiodofeconomicgrowthismadebyErikBrynjolfssonandAndrewMcAfee,professorsatMIT,inTheSecondMachineAge,abooktobepublishedlaterthismonth.Likethefirstgreateraofindustrialisation,theyargue,itshoulddeliverenormousbenefitsbutnotwithoutaperiodofdisorientinganduncomfortablechange.Theirargumentrestsonanunderappreciatedaspectoftheexponentialgrowthinchipprocessingspeed,memorycapacityandothercomputermetrics:thattheamountofprogresscomputerswillmakeinthenextfewyearsisalwaysequaltotheprogresstheyhavemadesincetheverybeginning.MrBrynjolfssonandMrMcAfeereckonthatthemainbottleneckoninnovationisthetimeittakessocietytosortthroughthemanycombinations

andpermutationsofnewtechnologiesandbusinessmodels.

Astartlingprogressionofinventionsseemstobeartheirthesisout.Tenyearsagotechnologicallymindedeconomistspointedtodrivingcarsintrafficasthesortofhumanaccomplishmentthatcomputerswerehighlyunlikelytomaster.NowGooglecarsarerollingroundCaliforniadriverfreenoonedoubtssuchmasteryispossible,thoughthespeedatwhichfullyselfdrivingcarswillcometomarketremainshardtoguess.

BravenewworldEvenaftercomputersbeatgrandmastersatchess(oncethoughthighlyunlikely),nobodythoughttheycouldtakeonpeopleatfreeformgamesplayedinnaturallanguage.ThenWatson,apatternrecognisingsupercomputerdevelopedbyIBM,bestedthebesthumancompetitorsinAmericaspopularandsyntacticallytricksygeneralknowledgequizshowJeopardy!VersionsofWatsonarebeingmarketedtofirmsacrossarangeofindustriestohelpwithallsortsofpatternrecognitionproblems.Itsacumenwillgrow,anditscostsfall,asfirmslearntoharnessitsabilities.

Themachinesarenotjustcleverer,theyalsohaveaccesstofarmoredata.Thecombinationofbigdataandsmartmachineswilltakeoversomeoccupationswholesaleinothersitwillallowfirmstodomorewithfewerworkers.Textminingprogramswilldisplaceprofessionaljobsinlegalservices.Biopsieswillbeanalysedmoreefficientlybyimageprocessingsoftwarethanlabtechnicians.Accountantsmayfollowtravelagentsandtellersintotheunemploymentlineastaxsoftwareimproves.Machinesarealreadyturningbasicsportsresultsandfinancialdataintogoodenoughnewsstories.

Jobsthatarenoteasilyautomatedmaystillbetransformed.Newdataprocessingtechnologycouldbreakcognitivejobsdownintosmallerandsmallertasks.Aswellasopeningthewaytoeventualautomationthiscouldreducethesatisfactionfromsuchwork,justasthesatisfactionofmakingthingswasreducedbydeskillingandinterchangeablepartsinthe19thcentury.Ifsuchjobspersist,theymayengageMrGraebersbullshitdetector.

Beingnewlyabletodobrainworkwillnotstopcomputersfromdoingevermoreformerlymanuallabouritwillmakethembetteratit.Thedesignersofthelatestgenerationofindustrialrobotstalkabouttheircreationsashelpingworkersratherthanreplacingthembutthereislittledoubtthatthetechnologywillbeabletodoabitofbothprobablymorethanabit.Ataxidriverwillbeararityinmanyplacesbythe2030sor2040s.Thatsoundslikebadnewsforjournalistswhorelyonthatmostreliablesourceoflocalknowledgeandprejudicebutwilltherebemanyjournalistslefttocare?Willtherebeairlinepilots?Ortrafficcops?Orsoldiers?

Therewillstillbejobs.EvenMrFreyandMrOsborne,whoseresearchspeaksof47%ofjobcategoriesbeingopentoautomationwithintwodecades,acceptthatsomejobsespeciallythosecurrentlyassociatedwithhighlevelsofeducationandhighwageswillsurvive(seetable).TylerCowen,aneconomistatGeorgeMasonUniversityandamuchreadblogger,writesinhismostrecentbook,AverageisOver,thatricheconomiesseemtobebifurcatingintoasmallgroupofworkerswithskillshighlycomplementarywithmachineintelligence,forwhomhehashighhopes,andtherest,forwhomnotsomuch.

AndalthoughMrBrynjolfssonandMrMcAfeerightlypointoutthatdevelopingthebusinessmodelswhichmakethebestuseofnewtechnologieswillinvolvetrialanderrorandhumanflexibility,itisalsothecasethatthesecondmachineagewillmakesuchtrialanderroreasier.Itwillbeshockinglyeasytolaunchastartup,bringanewproducttomarketandselltobillionsofglobalconsumers(seearticle).Thosewhocreateorinvestinblockbusterideasmayearnunprecedentedreturnsasaresult.

InaforthcomingbookThomasPiketty,aneconomistattheParisSchoolofEconomics,arguesalongsimilarlinesthatAmericamaybepioneeringahyperunequaleconomicmodel

inwhichatop1%ofcapitalownersandsupermanagersgrabagrowingshareofnationalincomeandaccumulateanincreasingconcentrationofnationalwealth.Theriseofthemiddleclassa20thcenturyinnovationwasahugelyimportantpoliticalandsocialdevelopmentacrosstheworld.Thesqueezingoutofthatclasscouldgenerateamoreantagonistic,unstableandpotentiallydangerouspolitics.

Thepotentialfordramaticchangeisclear.Afutureofwidespreadtechnologicalunemploymentisharderformanytoaccept.Everygreatperiodofinnovationhasproduceditsshareoflabourmarketdoomsayers,buttechnologicalprogresshasneverpreviouslyfailedtogeneratenewemploymentopportunities.

Theproductivitygainsfromfutureautomationwillbereal,eveniftheymostlyaccruetotheownersofthemachines.Somewillbespentongoodsandservicesgolfinstructors,householdhelpandsoonandmostoftherestinvestedinfirmsthatareseekingtoexpandandpresumablyhiremorelabour.Thoughinequalitycouldsoarinsuchaworld,unemploymentwouldnotnecessarilyspike.Thecurrentdoldruminwagesmay,likethatoftheearlyindustrialera,beatemporarymatter,withthegoodtimesabouttoroll(seechart3).

Thesejobsmaylookdistinctlydifferentfromthosetheyreplace.Justaspastmechanisationfreed,orforced,workersintojobsrequiringmorecognitivedexterity,leapsinmachineintelligencecouldcreatespaceforpeopletospecialiseinmoreemotiveoccupations,asyetunsuitedtomachines:aworldofartistsandtherapists,lovecounsellorsandyogainstructors.

Suchemotionalandrelationalworkcouldbeascriticaltothefutureasmetalbashingwasinthepast,evenifitgetslittlerespectatfirst.Culturalnormschangeslowly.Manufacturingjobsarestilloftentreatedasbetterinsomevague,nonpecuniarywaythanpaperpushingis.Tosome18thcenturyobservers,workinginthefieldswasinherentlymorenoblethanmakinggewgaws.

Butthoughgrowthinareasoftheeconomythatarenoteasilyautomatedprovidesjobs,itdoesnotnecessarilyhelprealwages.MrSummerspointsoutthatpricesofthingsmadeofwidgetshavefallenremarkablyinpastdecadesAmericasBureauofLabourStatisticsreckonsthattodayyoucouldgettheequivalentofanearly1980stelevisionforatwentiethofitsthenprice,wereitnotthatnotelevisionsthatpoorarestillmade.However,pricesofthingsnotmadeofwidgets,mostnotablycollegeeducationandhealthcare,haveshotup.Ifpeoplelivedonwidgetsalonegoodswhosecostshavefallenbecauseofbothglobalisationandtechnologytherewouldhavebeennopauseintheincreaseofrealwages.Itistheincreaseinthepricesofstuffthatisntmechanised(whosesupplyisoftenunderthecontrolofthestateandperhapssubjecttofundamentalscarcity)thatmeansa

paypacketgoesnofurtherthanitusedto.

Sotechnologicalprogresssqueezessomeincomesintheshorttermbeforemakingeveryonericherinthelongterm,andcandriveupthecostsofsomethingsevenmorethaniteventuallyincreasesearnings.Asinnovationcontinues,automationmaybringdowncostsinsomeofthosestubbornareasaswell,thoughthosedominatedbyscarcitysuchashousesindesirableplacesarelikelytoresistthetrend,asmaythosewherethestatekeepsmarketforcesatbay.Butifinnovationdoesmakehealthcareorhighereducationcheaper,itwillprobablybeatthecostofmorejobs,andgiverisetoyetmoreconcentrationofincome.

ThemachinestopsEvenifthelongtermoutlookisrosy,withthepotentialforgreaterwealthandlotsofnewjobs,itdoesnotmeanthatpolicymakersshouldsimplysitontheirhandsinthemeantime.Adaptationtopastwavesofprogressrestedonpoliticalandpolicyresponses.Themostobviousarethemassiveimprovementsineducationalattainmentbroughtonfirstbytheinstitutionofuniversalsecondaryeducationandthenbytheriseofuniversityattendance.Policiesaimedatsimilargainswouldnowseemtobeinorder.ButasMrCowenhaspointedout,thegainsofthe19thand20thcenturieswillbehardtoduplicate.

Boostingtheskillsandearningpowerofthechildrenof19thcenturyfarmersandlabourerstooklittlemorethanofferingschoolswheretheycouldlearntoread,writeanddoalgebra.Pushingalargeproportionofcollegegraduatestocompletegraduateworksuccessfullywillbeharderandmoreexpensive.Perhapscheapandinnovativeonlineeducationwillindeedmakenewattainmentpossible.ButasMrCowennotes,suchprogrammesmaytendtodeliverbiggainsonlyforthemostconscientiousstudents.

Anotherwayinwhichpreviousadaptationisnotnecessarilyagoodguidetofutureemploymentistheexistenceofwelfare.Thealternativetojoiningthe19thcenturyindustrialproletariatwasmalnourisheddeprivation.Today,becauseofmeasuresintroducedinresponseto,andtosomeextentontheproceedsof,industrialisation,peopleinthedevelopedworldareprovidedwithunemploymentbenefits,disabilityallowancesandotherformsofwelfare.Theyarealsomuchmorelikelythanabygonepeasanttohavesavings.Thismeansthatthereservationwagethewagebelowwhichaworkerwillnotacceptajobisnowhighinhistoricalterms.Ifgovernmentsrefusetoallowjoblessworkerstofalltoofarbelowtheaveragestandardofliving,thenthisreservationwagewillrisesteadily,andevermoreworkersmayfindworkunattractive.Andthehigheritrises,thegreatertheincentivetoinvestincapitalthatreplaceslabour.

Everyoneshouldbeabletobenefitfromproductivitygainsinthat,Keyneswasunitedwithhissuccessors.Hisworryabouttechnologicalunemploymentwasmainlyaworryaboutatemporaryphaseofmaladjustmentassocietyandtheeconomyadjustedtoevergreater

levelsofproductivity.Soitcouldwellprove.However,societymayfinditselfsorelytestedif,asseemspossible,growthandinnovationdeliverhandsomegainstotheskilled,whiletherestclingtodwindlingemploymentopportunitiesatstagnantwages.

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