A Blog by Jonathan Low


Dec 13, 2016

How Automation Could Lead To More Job Creation

The question is whether society is willing to invest in education and training in order to smooth the transition from the analog to the digital economy. JL

Christopher Mims reports in the Wall Street Journal:

Since the 1970s, when automated teller machines arrived, the number of bank tellers in America has more than doubled. (But) jobs are changing. The major difference is that the time of change is compressing because technology is moving exponentially. The problem is not “mass unemployment, it’s transitioning people from one job to another.”Other countries devote more resources than the U.S. to cushioning and retraining displaced workers.
Since the 1970s, when automated teller machines arrived, the number of bank tellers in America has more than doubled. James Bessen, an economist who teaches at Boston University School of Law, points to that seeming paradox amid new concerns that automation is “stealing” human jobs. To the contrary, he says, jobs and automation often grow hand in hand.
Sometimes, of course, machines really do replace humans, as in agriculture and manufacturing, says Massachusetts Institute of Technology labor economist David Autor in a succinct and illuminating TED talk, which could have served as the headline for this column. Across an entire economy, however, Dr. Autor says that’s never happened.
The threat that machines pose to workers is in the news again, after an election that turned on the frustration of working-class voters. Last week, Amazon.com Inc. introduced Amazon Go, a store without cashiers. Three days later, President-elect Donald Trump nominated Andy Puzder, chief executive of CKE Restaurants Holdings Inc., the parent company of Hardee’s and Carl’s Jr. chains, to be secretary of labor. Mr. Puzder has said that self-serve ordering kiosks, like those recently unveiled by McDonald’s Corp., will help his company eliminate workers.
Such developments are worrying. But a long trail of empirical evidence shows that the increased productivity brought about by automation and invention ultimately leads to more wealth, cheaper goods, increased consumer spending power and ultimately, more jobs.
In the case of bank tellers, the spread of ATMs meant bank branches could be smaller, and therefore, cheaper. Banks opened more branches, and in total employed more tellers, Mr. Bessen says.
Some individuals are uprooted and suffer. In 1900, 40% of U.S. workers toiled in agriculture; today, that figure is less than 2%. Manufacturing employment in industrialized countries has declined in recent decades, as fewer people make more goods. But society, on the whole, has come out ahead.
It’s true that technology alters the quality, as well as the quantity, of jobs. Ian Stewart, chief U.K. economist at Deloitte LLP in the U.K., co-wrote a paper last year that used census data as far back as the late 1700s to examine the changing nature of jobs in the U.K., cradle of the industrial revolution.
The authors found big increases in both low-paying and high-paying jobs. There are more barbers and barkeepers. But there also are more accountants and nurses, reflecting the rising complexity of the modern economy.
Paradoxically, says Mr. Stewart, many of the fields most transformed by technology have produced the biggest increases in employment, from medicine to management consulting. “What we saw was that machines and people were highly complementary,” he says.
Such bifurcated labor markets have ill effects. Disappearing factory jobs have largely been replaced by jobs in the service sector, where highly skilled workers, like doctors and computer programmers, are paid more, while many others see to the comfort and health of the affluent. In the middle, wages have stagnated, helping spawn our current age of populism.
“The era of mass manufacturing employment in the 1960s and 1970s was a good thing,” says Dr. Autor. “It created a lot of good jobs, it needed a lot of hands and eyes, and required some skills but not an enormous skill set. The work was relatively high value added.” But, he adds, that era is for the most part behind us.
That’s helped fuel arguments from pundits, technologists and armchair economists that this time is different, that the emerging combination of robotics and artificial intelligence—already spawning robot security guards and self-driving trucks—will render many people permanently unemployable.
I’m more optimistic. For all the recent advances in artificial intelligence, such techniques are largely applied to narrow areas, such as recognizing images and processing speech. Humans can do all these things and more, which allows us to transition to new kinds of work.
Some of my fellow optimists worry about the people being left behind. “The exact same thing is happening that has always happened—we’re evolving, and the jobs are changing,” says Rob Nail, CEO of Singularity University in Silicon Valley. “The one major difference, however is that the time of change is compressing because the pace of technology is moving exponentially.”
Mr. Bessen, the Boston University economist, says the problem is not “mass unemployment, it’s transitioning people from one job to another.”
Other countries devote more resources than the U.S. to cushioning and retraining displaced workers. As a share of gross domestic product, Denmark spends 25 times as much, says Dr. Autor.
He offers another historical example. Near the end of the 19th century, America’s agricultural states faced the prospect of mass unemployment as farms automated.
In response, they created the “high school movement,” which required everyone to stay in school until age 16. It was hugely expensive, both because of the new schools and teachers, but also because these young people could no longer work on the farm. But it better prepared workers for 20th century factory jobs and fueled the explosion in college attendance after World War II.
As a country, “We’re very wealthy,” says Dr. Autor. “If anyone can do anything about this transition, it’s us.”


Ken Lonyai said...

Jonathan - I appreciate your optimism and inclusion of research in your analysis, but as much as I'd like to be on your side of the fence, there are many indicators to believe otherwise.

Banking - I agree that it's been a decentralization from primary branches that has so far created more teller jobs. The process hasn't ended though, it's just been very very slow. Mobile banking is emerging as the next phase of decentralization, so you can be certain that every major bank will jump at moving everyone to digital transactions and shuttering branches as soon as possible. Completion of that process still may be 15-25 years away, so the true net effect on banking jobs is yet to be determined.

And yeah, past rounds of automation evolved very slowly and were kinda sorta one market segment at a time. Now it's multiple segments with much faster implementation. Also, the US has for the most part, already transitioned to a service economy, so there isn't much room for growth there. Plus, are you talking about new "jobs" one warm body/one job, or are you talking about new career paths with a chance for stability and meaningful income? Only the latter matters.

Good new jobs are going to require skills, creative abilities, and reasoning capabilities that many displaced workers have not developed. Government can't get primary education right after decades of trying, so it's overly optimistic to think that it will create effective skills training programs especially when there is no will and/or commitment to funding.

It would great to envision a positive outcome, but I have yet to see anyone put forth real details as to how automation's net effect will be to help displaced workers.

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