Economists Generally Don’t Take Seriously the Idea that Technology Destroys Jobs

I wish to challenge an article written by Russell Roberts entitled “Obama vs. ATMs: Why Technology Doesn’t Destroy Jobs.”

It’s not that I want to pick a fight with Roberts, whose excellent podcast Econtalk I find entertaining and informative. Rather I’ve chosen this article because it’s a good example of how economists typically respond to the claim that “technology destroys jobs.”

On the issue of improved productivity Roberts writes:

“The savings from higher productivity don’t just go to the owners of the textile factory or the mega hen house who now have lower costs of doing business. Lower costs don’t always mean higher profits. Or not for long. Those lower costs lead to lower prices as businesses compete with each other to appeal to consumers. The result is a higher standard of living for consumers… That higher standard of living comes from technology. It isn’t just the rich who get cheaper TVs and cars, plus the convenience of using an ATM at midnight.”

This argument is correct and yet in a way completely irrelevant. I don’t think any reasonable person would argue that technology doesn’t ultimately lead to higher living standards for both rich and poor. Or that we shouldn’t cheer on productivity gains as anything other than what they are: progress. However, this point has nothing to do with whether or not, objectively speaking, technology destroys jobs.

There are two parts of the quote I want to call attention to. First is the line: “or not for long”, which introduces the concept of a lag time between when a new technology appears and when markets adapt to it. If technological progress is accelerating, such a lag time could become very critical.

Another key line is: “The average worker has to work fewer and fewer hours…” which assumes job availability. Needless to say, there’s a huge gulf between having a part time job and no job at all. Or between having a small income and no income. One dollar may indeed buy a lot in the future, but that doesn’t help if you can’t get ahold of even that one dollar.

But of course the notion that there might be less jobs in the future is generally not taken seriously by economists. Roberts writes:

“Somehow, new jobs get created to replace the old ones. Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines. Why do new jobs get created? When it gets cheaper to make food and clothing, there are more resources and people available to create new products that didn’t exist before. Fifty years ago, the computer industry was tiny. It was able to expand because we no longer had to have so many workers connecting telephone calls. So many job descriptions exist today that didn’t even exist 15 or 20 years ago. That’s only possible when technology makes workers more productive.”

I fully admit history is on Roberts’s side here.  Previous claims about the coming obsolescence of human labor were highly exaggerated. However “because it hasn’t happened yet” is never a suitable argument for something not happening in the future.

I would also point to Amara’s Law which suggests that “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” It is quite possible that the early predictors of human obsolescence were not wrong but simply too early.

We have to grapple with the fact that computers are unique. As Andrew McAfee and Eric Brynjolfsson point out in their recent eBook “Race Against the Machine“, computers are a General Purpose Technology. Like steam power and electricity, computers reside in a category of innovation “so powerful that they interrupt and accelerate the normal march of economic progress.” But that is only half the story, since to compare computers to steam power and electricity may be to underestimate their disruptive power.

In the early days of personal computing it was easy to see your PC as just another household appliance. But these days it might be more appropriate to look at your PC as a black hole that swallows up other objects in your house. Your computer is insatiable. It eats binders full of CDs, shelves full of books, and libraries full of DVDs. It devours game systems, televisions, telephones, and radios. It gorges on calendars, photographs, filing cabinets, arts supplies and musical instruments. And this is just the beginning. Can we really expect to keep creating new industries faster than the computer can consume them?

Moreover, the evidence is in: the new computer industry is not employing that many people.  According to a recent article in Business Insider, “Apple, Amazon, and Google together employ 113,000 people–which is less than 1/3rd as many as a single American success-story from the prior generation, GM, employed in 1980.” Ask yourself if the businesses of the future are more likely to look like Apple or GM?

It’s time for economists to start questioning their faith that there will always be plenty of new jobs to replace the ones that technology displaces. At this point in history, increasingly the burden falls on economists to present an argument of where these new jobs are supposedly going to come from.

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  1. Pingback: Does Technology Destroy Jobs? | Smiling Dave's Blog of Psychology, Economics, and Gentle Sarcasm.