Friday, March 25, 2016

How Technology Is Destroying Jobs

Automation is reducing the need for people in many jobs. Are we facing a future of stagnant income and worsening inequality?

by David Rotman

June 12, 2013

As you know, this blog is about organic growth through innovation so this posting is a bit out of character.

I would like to make what might appear to be a political statement about the U.S. Presidential campaign but it is strongly related to the growth of the U.S. and therefore the world. This is POLITICALLY NEUTRAL.

Both “extreme” sides of the Presidential debate chose different scapegoats to explain the demise of the U.S. middle class, the major driver of aggregate demand for the largest economy in the world:
The RIGHT claims that illegal immigration is the principle reason (scapegoat) for this demise
The LEFT claims the top 1% (scapegoat) are conspiring against the middle class
BOTH believe trade is the major culprit.

Of the above, trade has cost U.S. jobs but the rest just is not true (doesn’t mean that there are not real issues associated with the  LEFT and RIGHT issues but they are not the underpinning of the middle-class decline as portrayed by the respective candidates). Since 2000, the real culprit for U.S. job loss is technology. I have read that as much as ~60% of the job loss since 2000 is technology driven.

The following excerpts are from an MIT article that is a couple of years old but right on-point. I strongly urge you to read in its entirety.

That robots, automation, and software can replace people might seem obvious to anyone who’s worked in automotive manufacturing or as a travel agent. But Brynjolfsson and McAfee’s claim is more troubling and controversial. They believe that rapid technological change has been destroying jobs faster than it is creating them, contributing to the stagnation of median income and the growth of inequality in the United States. And, they suspect, something similar is happening in other technologically advanced countries. 
Perhaps the most damning piece of evidence, according to Brynjolfsson, is a chart that only an economist could love. In economics, productivity—the amount of economic value created for a given unit of input, such as an hour of labor—is a crucial indicator of growth and wealth creation. It is a measure of progress. On the chart Brynjolfsson likes to show, separate lines represent productivity and total employment in the United States. For years after World War II, the two lines closely tracked each other, with increases in jobs corresponding to increases in productivity. The pattern is clear: as businesses generated more value from their workers, the country as a whole became richer, which fueled more economic activity and created even more jobs. Then, beginning in 2000, the lines diverge; productivity continues to rise robustly, but employment suddenly wilts. By 2011, a significant gap appears between the two lines, showing economic growth with no parallel increase in job creation. Brynjolfsson and McAfee call it the “great decoupling.” And Brynjolfsson says he is confident that technology is behind both the healthy growth in productivity and the weak growth in jobs.

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