Davos 2014: Eric Schmidt, executive chairman
of Google, warned on Thursday at the annual meeting of the World Economic
Forum in Switzerland, that a large range of jobs that once seemed beyond the
reach of automation are in danger of being wiped out by technological advances.
He said that with the constant development of new
technology, more and more middle class workers would lose their jobs.
“The race is between computers and people and the
people need to win,” he said. “I am clearly on that side. In this fight, it is
very important that we find the things that humans are really good at.”
There is an enormous amount of innovation
happening, and it would be an economic mistake to delay adopting efficient new
technologies and he pointed out that, on a net basis, more jobs were created by
small companies and therefore entrepreneurs needed more support otherwise the
situation would get worse.
"It's clear to me that we can get full employment, but wages are still
depressed," Schmidt told the forum.
"As more routine tasks are automated, this will lead to much more part-time work
in caring and creative industries. The classic 9-5 job will be redefined," he
While the peril ahead for the
middle classes is an important issue to debate, a cynic might say that concern
for the middle classes when Google and other tech giants are lobbying the OECD
in Paris for
the retention of the system that enables them to pay very low corporate taxes
Governments will need to ramp up spending on
education and training in response to the anticipated society-impacting changes
Neelie Kroes, European Commission
technology commissioner, said this week: "Europe has a
jobs problem. A shortage of jobs is a pending social disaster and a brake on
Some have pointed the finger at technology, as efficient ICT systems make a
range of low-skill jobs obsolete or cheaper to perform elsewhere. But far from
being the problem, technology could be the answer we’re looking for. Overall
an economy’s investment in ICT will generate twice as many jobs as it
eliminates. Take as an example the 800,000 new jobs in the app economy - -
an entirely new industry -- in the last five years, 300,000 of them as software
These ups and downs of technology matter. There is no clearer contrast than
today’s 12% unemployment rates across the Eurozone and the hundreds of thousands
of ICT-related vacancies (among the 2m unfilled positions across Europe)."
The Reality Check for Kroes is that most
workers in the app sector are part of the freelance economy with a small few
winners and most developers scratching for a living.
As for the millions of unfilled tech jobs, she
seems to have bought the industry's hype.
According to a
Congressional Research Service Report: " Almost two-thirds of the 9.3m
people in the US labour market who had STEM (science, technology, engineering,
or mathematics) degrees in 2010 were employed in non-STEM occupations."
Google itself is engaged in developing automation
technology including a driverless car.
“There is quite a bit of research that middle
class jobs that are relatively highly skilled are being automated out,” Eric
Schmidt said. "The auto industry was an example of robots being able to produce
higher quality products," he added.
New technologies were creating “lots of part-time
work and growth in caring and creative industries . . .the problem is that the
middle class jobs are being replaced by service jobs,” he said and added that
governments needed to invest in education systems to improve skill levels and
human cognition. “It is pretty clear that work is changing and the classic
nine to five job is going to have to be redefined,” he said. “Without
significant encouragement, this will get worse and worse.”
Boom in personal care aide jobs
Occupations and industries related to healthcare are forecast to add the
most new jobs in the US between 2012 and 2022 while total employment is
projected to increase 10.8%, or 15.6m, during the decade.
The Bureau of Labor Statistics says personal-care aides requires no formal
education, but most aides have a high school diploma. Workers in the field
earned an average annual income of $19,910. “As the baby-boom population ages,
there will be an increase in the number of clients requiring assistance,” the
The most job openings, due to both growth in the sector and employee turnover,
will come for workers in retail sales and food and beverage service. Average
income in those fields is less than $20,000 per year.
Big employers are getting scarce
General Motors had over 618,000 employed in the US
in 1979 - - in well-paid jobs; today, General Electric employs 133,000 and Apple
47,000. The US needs to add about 90,000 new jobs monthly to just meet the
natural growth of the workforce.
The United States now has very few large
factories: of more than 295,000 manufacturing establishments counted by the
Census Bureau in March 2011, only 815 employed more than 1,000 workers. The
reported number increased slightly in 2011, marking the first time since at
least 1998 that the number of large plants has shown an uptick. There were 1,504
Although manufacturing has been losing importance as a share of GDP during the
last three decades, it remains an important sector of the US economy.
It accounts for about 75% of private sector R&D investment, represents more than
50% of export earnings, and provides for most high-wage jobs, especially for
Robert Samuelson, Washington Post columnist, wrote last
by jobs, the fall has been deep and persistent. From 1973 to 2010,
manufacturing’s share of total non-farm US employment has dropped from 25% to
10%. The recent decline has been particularly severe, with more than 5m jobs
disappearing since 2000..From 1973 to 2010, manufacturing’s proportion of
employment fell from 22% to 10% in Canada; from 37% to 21% in Germany; from 23%
to 9% in Australia; from 28% to 17% in Japan; and from 29% to 13% in France.
In the period 1990-2008, almost all the additional increase in US employment was
in the non-tradeable sector led by government and health care.
According to a
paper by Prof Michael Spence,
a Nobel laureate in economics, and Sandile Hlatshwayo, a researcher at the
Stern School of Business, New York University, almost all of the incremental
employment increase of 27.3m jobs was on the non-tradeable side. On the
non-tradeable side, government and health care are the largest employers and
provided the largest increments (an additional 10.4m jobs) over the past two
Ireland had a similar
experience in the period 1998-2007 when over 400,000 new jobs were added in
construction, public services, non-tradeable business services, retail and
distribution but a tiny amount was added in the tradeable goods and services
sectors, which comprise the bulk of exporting trade.
The Spence/Hlatshwayo paper
says that the US economy did not have a conspicuous unemployment problem until
the crisis of 2008 because the non-tradeable sector absorbed the bulk of the
expanding labour force. That pace of employment growth now appears
unsustainable. Fiscal weakness, a resetting of real-estate values, and lower
consumption all point to the potential for long-term structural unemployment.
The economists say that in
terms of economic value-added - - the output of the economy that is measured by
GDP and generally correlates with income - - the tradeable sector experienced a
This means that one sector was growing in terms of jobs but not income while the
other was growing income but not jobs, resulting in increasing inequality in US
The authors say that
companies in the tradeable sector, under the pressure of global competition, are
moving low- and mid-skilled work to other countries while the higher-skilled
remain in those firms share in the benefits of that shift through wages and
salaries that started higher and have been growing faster.
In the non-tradeable sector, the story is one of rapidly rising employment but a
slow rise in output, which has resulted in stagnant wages and benefits.
The economists say that "while
many goods and services are less expensive than they would be if the country
were walled off from the global economy, we cannot assume that these cost
savings necessarily compensate for diminished employment opportunities. People
might trade away cheaper goods for assurances that a wide range of productive
and rewarding employment options would be available, now and in the future."
They add that high
value-added, higher-paying jobs, especially in the tradeable sector, generally
require highly educated people. More and better education does not by itself
guarantee that the number of such jobs is significantly expandable, given the
scope of the tradeable sector. But more scientific and engineering degrees might
promote job growth and - - together with some public-sector investment in
promising technologies - - it might also expand the scope of the tradeable
sector as well.
However, they say private
incentives and social objectives are not perfectly aligned. Nor are they
diametrically opposed either. Multinational firms have access to abundant global
supplies of relatively low-cost labour in multiple skill categories, so there is
not much payoff to investments that increase labour productivity in high-income
countries’ tradeable sectors. Public-sector co-investment properly targeted,
however, could shift these incentives by lowering the cost of private technology
The paper says given the prospect of slowing employment growth
in non-tradeables and rising competitive pressure on tradeables, major
employment problems in the near future are a certainty. Even if the
non-tradeable sector is able to continue to absorb the growth in the labour
force, pressure on wages and salaries will be downward, and consequences for
income distribution unavoidable.
The authors conclude that if
employment in advanced countries like the US recovers strongly along with
growth, political support for an open global economy will be easier to sustain.
But, given adverse trends in the tradeable sector and the non-tradeable sector’s
exhaustion as a source of job creation, a more likely scenario is that
unemployment remains stubbornly high, despite a return of normal growth. In that
case, politics will become divisive and polarized, and the inclination toward
protectionist “solutions” will
increase, jeopardizing global economic openness.
They says: "It
is not a good idea to assume that markets will solve these distributional
problems by themselves; the evolution of structure and the income distribution
are largely the result of market incentives. All countries, advanced and
emerging, have to address issues of inclusiveness, distribution, and equity as
part of the core of their growth and development strategies."
The economists say that the late renowned American economist,
Paul Samuelson, once said that every good cause is worth some inefficiency.
pragmatically, and politically, he was right."
2013 forum in San Francisco,
Erik Brynjolfsson, a professor at MIT's Sloan School of Management and director
of the MIT (Massachusetts Institute of Technology) Center for Digital Business said: "Technology doesn't
automatically lift the fortunes of all people. It's something of a paradox.
Profits have never been higher, innovation is roaring along, GDP is high, but
job creation is lagging terribly, and the share of profits going to labor is at
a 60-year low. This is one of the most important issues facing our society."
Citing the work of economist Joseph Schumpeter, the
late Austrian -born economist, Brynjolfsson noted that technology has
historically provided "creative destruction" for an economy, causing some jobs
to disappear while bringing others into existence. "But the last 10 years have
been different. Technology simply hasn't been creating jobs as it did before."
It's a double-barreled effect, Brynjolfsson added.
Not only are today's technology companies creating fewer jobs, but the products
they make, notably computerized automation equipment, often lead to further job
losses in other parts of the economy. These second-effect job losses are further
encouraged by off-shoring and by the declining power of labour unions.
Enrico Moretti, an economics professor at the
University of California, Berkeley, said that the average tech position creates
five additional jobs in various support industries, from doctors to hairdressers
to dog walkers. However, the "multiplier effect" for manufacturing jobs is much
lower: 1.6 instead of 5. Much of that, he added, was simply the result of the
higher wages generally paid by tech jobs.
Working as a 'dog walker' is unlikely to be a stable full-time job and if it is, the pay would likely be low.
In 2012 at the Aspen Ideas Festival, Alan Krueger,
then chairman of the White House Council of Economic Advisers, stressed the
challenge of adding jobs in the economy:
look at the decade before the recession, the US economy was not creating
enough jobs, particularly not enough middle class jobs, and we were losing
manufacturing jobs at an alarming rate even before the recession. And I
would also put together, combined with those two problems, the polarization
of the US job market, the fact that we are getting more and more people at
the very top and the very bottom and the middle has been shrinking."
On his blog, Andrew McAfee, an MIT colleague of
Brynjolfsson, explains the
Great Recession officially ended in June of 2009 GDP, equipment investment,
and total corporate profits have rebounded, and are now at their all-time
highs. The employment ratio, meanwhile, has only shrunk and is now at its
lowest level since the early 1980s when women had not yet entered the
workforce in significant numbers. So current labor force woes are not
because the economy isn’t growing, and they’re not because companies aren’t
making money or spending money on equipment. They’re because these trends
have become increasingly decoupled from hiring — from needing more human
workers. As computers race ahead, acquiring more and more skills in pattern
matching, communication, perception, and so on, I expect that this
decoupling will continue, and maybe even accelerate."
videotaped interview on Bloomberg News, Brynjolfsson was more cautious:
I have to
be brutally honest, I don’t think Andy and I are sure whether it’s different
this time around. If you look at the data, this time it seems to be a lot
more difficult. So it’s possible we are facing a regime change, a
fundamental change in the way technology and employment interact with each
McAfee and Brynjolfsson
have authored a book 'Race
against the machine' and the Economist's
Free Exchange blog commented:
thing to understand about ICT is that it is a general purpose technology,
like electricity, with the ability to dramatically change business models
and boost productivity across many different sectors. The second critical
detail is the deceptively rapid pace of technological change. The authors
note that when technologies improve in a Moore's Law-like fashion, doubling
in power at relatively high frequencies, the huge scale of potential change
sneaks up on you. The first few doublings—1 to 2, 16 to 32—seem
unremarkable. By the 50th doubling, when you're going from 563 trillion to
1.1 quadrillion, the pace of progress seems almost magical. In this way,
developments that seemed impossible a few years ago, like fully autonomous
cars and high-quality computerized translation, are now realities, or soon
will be. And there's good reason to think that ICT is just getting warmed
does a good job describing how these developments have played out. Many
companies beginning to discover ways to exploit better technology, in ways
that often lead to displacement of existing workers (think of the growing
ubiquity of self-checkout at drug and grocery stores). A few have become
phenomenally successful. Some have done so by discovering profitable new
businesses and business models (think of Facebook and Amazon), while others
enjoy the fruits of the superstar effect, in which the digitisation of
information allows top performers to capture much larger markets than was
previously possible. (And of course, ICT also makes it easier for low-cost
labour outside the rich world to compete with rich-world workers.) What
hasn't happened swiftly enough, unfortunately, is the creation of new
businesses, at a pace fast enough to employ the people displaced by new
James Hamilton, an economist at the University of
California, San Diego, challenged the 'Race Against The Machine' thesis and told
The New York Times:
I am very skeptical of the claim that technology itself is the problem. In 2005, the
average US worker could produce what would have required 2 people to do in
1970, what would have required 4 people in 1940, and would have required 6
people in 1910. The result of this technological progress was not higher
unemployment, but instead rising real wages. The evidence from the last two
centuries is unambiguous — productivity gains lead to more wealth, not
poverty. The unemployment since 2007 was not caused by gains in productivity
or increased automation, but instead by loss of demand for the product that
the workers had been producing, for example, a plunge in the demand for new
Brynjolfsson and McAfee outline a
list of 19 proposals that they
support - - which range from massive investment in education, infrastructure and
basic research, to lowering barriers to business creation, eliminating the
mortgage interest deduction and changing copyright and patent law to encourage
new (as opposed to protecting old) innovations.
Any effort to counter the damaging consequences to
the employment marketplace stemming from technological innovation, according to
Brynjolfsson, requires substantial government action at a time when “the
political system is the most dysfunctional part of our society.”
Book Excerpts in The Atlantic:
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