Non-Technologists Agree: It’s the Technology

by Andrew McAfee on March 12, 2014

Two papers came out last year that examined important issues around jobs and wages. Both are in top journals. Both were written by first-rate researchers, none of whom specialize in studying the impact of technology. And both came to the same conclusion: that digital technologies were largely responsible for the phenomena they examined.

The first paper, by David Dorn and my MIT colleague David Autor,  is about how jobs and wages changed in America from 1980-2005. It was published last year in the American Economic Review and called “The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market,” which is an admirably informative title.

Equally admirable are the graphs the authors draw to illustrate their main findings. Here’s the one for jobs (the one for wages has a pretty similar shape). It gives the changes in employment share — which you can think of as changes in the the ‘market share’ of jobs — between 1980 and 2005. And it shows vividly that low-skill and high-skill jobs gained market share over that period, which those in the middle of the skill range lost.

Autor

Autor and Dorn are clear on what accounts for this shift:

The adoption of computers substitutes for… workers performing routine tasks—such as bookkeeping, clerical work, and repetitive production and monitoring activities—which are readily computerized because they follow precise, well-defined procedures. Importantly, occupations intensive in these tasks are most commonplace in the middle of the occupational skill and wage distribution.

and what doesn’t:

We evaluate numerous alternative explanations for the pronounced differences in wage and employment polarization… including deindustrialization, offshoring, … and growing low-skill immigration. None of these alternatives appears central to our findings.

The second paper concentrates on wages, and tries to determine what’s caused the red line in the graph below to decline so fast in recent years

profits and labor share

This line documents the labor share of GDP in the US over the post-war period — the percentage of GDP that gets paid out in compensation (wages and benefits) to workers. As the graph above shows, US labor share has  been heading down sharply just as corporate profits have reached hew heights.

Is this because of globalization? Nope, because it’s been happening around the globe. As Loukas Karabarbounis and Brent Neiman write in “The Global Decline of the Labor Share” (out in the current issue of the Quarterly Journal of Economics):

We document, however, that the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced firms to shift away from labor and toward capital.

The AER and QJE are the two top journals in the economics field, so this research is about as solid as it gets. In light of this and plenty of other work, it really is time to stop arguing about whether technology has been one of the tectonic forces reshaping work and the workforce in recent decades. The evidence is just too clear that it is, and that we see evidence of the second machine age everywhere, including in the statistics.

  • David Fuchs

    Agreed, both are responsible for the decline. Have you read the UK report on robotics, automation, and job loss yet? It does not bode well for the future of employment. It is also off in one major way, they do not really take Moore’s law into account, 20 years is 2^13 doublings in computer power. Which means far greater job loss than they predict.

    http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf

    If you wish to reach me … https://plus.google.com/+DavidFuchs/

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  • http://TechnologyAdvice.com Jordan Melson

    Really interesting stuff.

    Reminds me a lot of the Brother Small Business Survey that just came out indicating that 72% of small businesses think adopting new technologies will have a higher return on investment than hiring new staff. If small businesses have tipped the scales in favor of technology over staff, there is no doubt in my mind that technology is reshaping the workforce.

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    Please be at liberty to succeed in America on

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  • Curt Welch

    Yes, nice article. Technology is tipping the scale away from labor, and towards captial as our machines advance in power and take displace more humans from their jobs every day. A labor based economy is a fair economy where anyone willing to work can get a fair sized slice of the pie. But a captial based machine economy is unfair because it gives the rich the advantage. Investment wealth is all that matters, as human labor is phased out of the economy. As workers in a labor economy, we are born rich if we are born with average health and intelligence. We can work for a living. Our income is tied to our hours worked. But as investors, in a captial based economy, being born of average wealth is a handicap few can recover from because income is not tied to work, it’s tied to wealth. The more wealth you have, the more income you get, it’s as simple as that. And the more income you have, the faster your wealth grows. Being born of only average wealth, or below average wealth, guarantees you lose the race over time. In a labor economy, inequality is mostly a function of how hard people are willing to work and tends to remains stable. In a captial economy, inequalty is unstable and grows until the rich, own all the wealth, and receive all the income.

    A captial based economy can’t support a democratic society, unless we are willing to share enough of the wealth to keep inequality capped at a fair level. Or society is destabilizing because we are not sharing — it’s slowly but surely destabilizing because as inequalty grows, people react by trying to hoard more, which only makes the problem worse.

    Until more people are able to understand the importance of sharing the technological wealth we are creating, the economy, and society, will continue to destabilize.

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