Many experts would have us believe that robots and other technologies are behind the job drought. That couldn’t be farther from the truth.
MIT Technology Review editor David Rotman recently wrote an article called “How Technology is Destroying Jobs.” The title not only sums up the article’s thesis, it sums up the view of many pundits seeking to explain lackluster job growth. But technology never has destroyed jobs on a net basis and it won’t in the future.
The article focuses on MIT scholars Erik Brynjolfsson and Andrew McAfee, authors of the widely cited book Race Against the Machine. For them, “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.”
But the reality is that there is no logical relationship between job growth and productivity. To see why, imagine two nations with annual productivity growth of around 2 percent. Nation A has a declining workforce because more people are retiring than are getting to prime working age. Nation B has a growing workforce because of higher fertility rates workers and immigration. As this example of real nations shows (Japan as nation A and the U.S. as nation B), an economy can have high productivity and low or high employment growth. The reason why job growth slowed after 2000 was largely demographic. The number of adults in the workforce (employed and unemployed) grew 18 percent in the 80s, 13 percent in the 90s but just 8 percent in the 2000s as baby boomers got older and women’s entrance into the workforce peaked.
The data are just as clear on the lack of a relationship between productivity and unemployment. If “robots” really are the cause of today’s sluggish job growth, then productivity growth should be higher since 2008 than before. In fact, from 2008 to 2012 productivity growth was only 1.8 percent while from 2000 to 2008 productivity grew 2.6 percent while we had close to full employment.
Brynjolfsson and McAfee’s mistake comes from considering only first order effects of automation where the machine replaces the worker. But when a machine replaces a worker, there is a second order effect: the organization using the machine saves money and that money it flows back into to the economy either through lower prices, higher wages for the remaining workers, or higher profits. In all three cases that money gets spent which stimulates demand that other companies respond to by hiring more workers.
Historically, the income-generating effects of new technologies have proved more powerful than the labor-displacing effects: technological progress has been accompanied not only by higher output and productivity, but also by higher overall employment.
In sum, the worries of machines overtaking humans are as old as machines themselves. Pitting man against machine only stokes antipathy toward technology and could have a chilling effect on the innovation and adoption of technology essential to grow the economy. As Robert D. Atkinson and Stephen J. Ezell argue in Innovation Economics: The Race for Global Advantage, far from being doomed by an excess of technology, we are actually at risk of being held back by too little technology.