Why can't we create jobs the way we used to? Despite nearly a trillion dollars' worth of tax breaks and investments in a stimulus package, interest rates as low as they can go, auto bailouts, bank bailouts, "quantitative easing," and public and private sector leaders' calls for optimism, the official unemployment rate is still flirting with nine percent two years into an economic recovery. Many experts estimate the real unemployment figure to be nearly twice that if we count the people who have either stopped looking or have taken part-time jobs far below the skill and pay levels of the full-time jobs they lost.
There are many phantom causes for slow job creation bandied about Washington these days. The left contends greedy individuals and corporations are hoarding all that wealth that has been disproportionately shifted to them over the last generation. The right points the finger at the uncertainty created by President Obama's supposed schemes to add to the tax and regulatory burden of America's job creators.
One of the new entrants in the faulty explanation sweepstakes is technology: It is man v. machine, and guess which is winning? Robots have already supposedly idled factory workers, telephone operators and bank tellers. Now, a new generation of supercomputers is threatening the livelihoods of middle-income, more skilled workers. Legal researchers, designers, even sportscasters better look out. Their obsolescence is imminent.
The frightening specter of the dawn of some kind of Terminator Age is conjured up in the title an e-book by Erik Brynjolfsson and Andrew McAfee, both professors at MIT, Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. For them, workers are, "losing the race against the machine, a fact reflected in today's employment statistics." They go on to argue that, "there's good reason to believe that ever-more powerful computers have for some time now been substituting for human skills and workers and slowing median incomes and job growth in the United States. As we head deeper into the second half of the chessboard--into the period where continuing exponential increases in computing power yield astonishing results--we expect that economic disruptions will only grow as well."
The book has drawn lavish praise and gotten too many Washington pundits convinced that, at last, we have figured out why median incomes are no longer rising, why so few people can find work and why society is becoming so unequal. Even President Obama alluded to the dark side of technology back in June when he said on NBC's Today Show, in essence, that consumers are not only observers but also contributors to the problem every time they go to an ATM instead of a live bank teller or check in for a flight using an electronic kiosk. If machines are the new threat to the American middle class, then we should rein them in, right?
Wrong! The Race Against the Machine and books like it might be good sellers (Who, after all, wants to buy a book that says "machines are making our lives better and creating jobs?). However, they are fundamentally wrong and, in fact, dangerous. The worries of machines overtaking humans are as old as machines themselves and economic disparities have many causes but technology is not the main culprit. 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 our economy. This is the last thing our economy and most workers need. The reality is that, far from being doomed by an excess of technology, we are actually at risk of being held back from too little technology. America's sluggish adaption of many technologies, worn out infrastructure and antiquated factories have left us in catch-up mode with other countries and contributed to the erosion of our manufacturing base and economic health - not to mention making us the source of derision for global air travelers .
Let's be clear. Productivity-enhancing technology does vastly more good than harm. Take ATM's and other self-service machines. The Information Technology and Innovation Foundation estimates that if self-service technology was widely-deployed, the U.S. economy would be $130 billion larger, providing an additional $1,100 to each household
Boosting technology-driven productivity is in fact the single most important economic goal any nation can pursue. But productivity's standing as a force of good has taken a bit of a hit in recent years as average people and policymakers alike have come to believe that we are able to produce more with fewer workers. The Great Recession, as all recessions, has only exacerbated this fear of productivity. However, reports of the deaths of jobs from productivity have been vastly exaggerated.
In fact, there's no relationship between productivity and unemployment rates. In the 1960s, productivity grew 3.1 percent per year while unemployment averaged 4.9 percent. However, during the 1980s productivity growth was an unimpressive 1.5 percent but unemployment rates averaged 7.3 percent. Yes, but critics will respond, today's machines are smarter and more powerful than those of a generation ago. Yet amid the rapid and dazzling innovations in information and communications technology we have seen in the last ten years, we saw relatively low rates of unemployment. As recently as 2007, before the housing bubble burst, the unemployment rate was under five percent. And in the 2000-2007 period productivity was growing at a healthy 2.7 percent per year. But from 2007 to 2011, productivity growth was only 1.8 percent yet unemployment increased.
Therefore, it is hard to argue that robust productivity is a job killer. In fact, it's just the opposite. As the OECD states in a definitive review of the studies on productivity and employment, "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 fact, we need more machines and more productivity, not less. One reason is we need to meet the growing demographic challenge. Right now, there are roughly five workers for every retiree in the United States. As early as 2030, there will be only three workers for every retiree. That means those who are working will have to be ever more productive if we want to avoid having either future workers or retirees worse off than they are now. Another reason we need to maintain high productivity growth is that it is tied to our international competitiveness. The failure to maintain our innovation-based competitiveness, especially in manufacturing, is a major reason for our economic woes. If we want to expand exports and create the direct and indirect jobs that come from it we need to expand productivity, and this means more and better machines. If we are looking to regain a competitive advantage over China, we should nurture productivity and embrace the technologies to help us in this effort. Finally, if we want to address the fiscal challenge facing Washington, economic growth is the best path The CBO estimates that an increase of just 0.1 percent in the GDP growth rate could reduce the budget deficit by as much as $310 billion cumulatively over the next decade. For example, an increase in the real rate of GDP growth from the CBO projection of 2.8 percent over the next decade to 4 percent -- the U.S. growth rate from 1993 to 2000 -- would, all else equal, cut the cumulative budget deficit in half, or by $6.8 trillion, over the next decade. And you can't get there without more and better "machines."
To be sure, economist Joseph Schumpeter's "creative destruction" is at work in technology and has been throughout history. Before electronically controlled elevators, tens of thousands of Americans spent their work days moving elevators up and down buildings. But they and we are better off with "self-service" elevators and no one wants to go back. Likewise, does anyone want to go back to a world before ATM machines? But as these examples show there are both winners and losers in the process of innovation and transformation, at least in the short run. But remember, we are all winners in the long run. The former elevator operators went on to get better jobs. Today's technology Cassandras are too focused on destruction and not enough on the creation. They ignore basic economics (higher productivity lowers prices which gives consumers more to spend which in turns creates new jobs and more economic output) or assume it somehow no longer applies to age of intelligent machines. In fact, a growing, dynamic economy benefits all workers. In this process, many in middle-income jobs will acquire new skills and retain their jobs but do them differently, and better. Some will lose their jobs. But many will migrate to higher-wage, higher-skill jobs -- jobs that do not even exist yet -- and increase economic growth. In turn, some of those in the lower third of wage earners will migrate into better jobs in the middle tier.
Those who think this time is different and that today's machines will mean the end of work opportunities need only look to history to see how fear was dispatched by innovation and growth. As we struggled to break free the Great Depression in the late 1930s Congress debated legislation to require the Secretary of Labor to create a list of all labor-saving devices and estimate how many people could be employed if these devices were eliminated. In the midst of the 1961 recession, President Kennedy created an Office of Automation and Manpower in the Department of Labor in 1961, identifying, "the major domestic challenge of the Sixties -- to maintain full employment at a time when automation, of course, is replacing men." From farm to factory to information technology and beyond, humans have shown a remarkable capacity to adapt, find new things to create, make and share.
We should be worried about job creation but recognize that technology and machines are the solution, not the cause of our stubbornly-high unemployment rate. For that we can blame a tax code that does not encourage innovation and long-term investment, the lack of a national innovation and competitiveness strategy, passivity in the face of unfair or illegal trade practices, and a failure to invest in the talents of our workers and in new technologies. It was a lack of visionary policy making that caused a too-slow response by U.S. employers to new competitive challenges and an obsession with short-term profit reports that impeded adoption of the technologies we needed -- the very technologies that might, unfortunately, be shunned if too many people see them as job killers.
Rather than rail against the machine, pundits and policy makers would do better to embrace technology-led productivity, while at the same time do much more to help workers adjust to changes, including investing more to create a 21st century skills system and shoring up a unemployment safety net that is full of holes. Fundamentally, the machines are our friends.
Rob Atkinson, is the president and founder of the Information Technology and Innovation Foundation, an economic and technology think tank based in Washington.
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