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CHAPTER 19

WILL TECHNOLOGY PUT US ALL OUT OF WORK?

Unemployment, Creative Destruction, and Quality of Life

Robots are making our cars these days. They’re stamping metal, screwing in bolts, welding, and painting. Robots also make furniture, hamburgers, and Oreo cookies. ATMs do the work of bank tellers. Travelocity.com and Orbitz.com take the place of travel agents. Grocery stores now have self-checkout lines, gas pumps now accept payment, and self-service kiosks are cropping up like weeds. Some McDonald’s restaurants have kiosks in their play areas so that customers don’t need to visit the friendly human at the counter. McDonald’s is also experimenting with kiosks that sell DVDs—who needs that sales clerk at Blockbuster? Airlines now allow travelers to bypass the check-in desk and obtain their boarding passes from a machine—if they haven’t printed them beforehand via the Internet. According to Marshall Brain, “The problem is that these systems will also eliminate jobs in massive numbers. In fact, we are about to see a seismic shift in the American workforce. As a nation, we have no way to understand or handle the level of unemployment that we will see in our economy over the next several decades.”¹ This chapter describes the sources of unemployment and the counterpoints to the argument that robots will soon eat our lunch.

¹ http://marshallbrain.com/robotic-nation.htm.

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In movies, such as After the Sunset (2004) and Office Space (1999), the happy ending finds the lead characters living the good life in a tropical paradise. Tropical islands are a great place to visit, but there’s more to utility maximization than sun and sand. If you’ve been to Haiti, the Philippines, Jamaica, or St. Lucia, you’ve seen poverty and populations with many needs. However, Aruba and Hawaii enjoy high standards of health and education, low crime rates, and nary a dirt-floored shack. The ingredient that makes these islands blissful even for those who haven’t succeeded in a Hollywood-style heist is an abundance of jobs. Hawaii has the triple bonus of flourishing agriculture, thriving tourism, and seven active military installations, among other fruitful industries. Aruba has ample jobs from tourism, retail trade, and oil refining. Good jobs are central to human satisfaction on the mainland as well. We travel far from the otherwise idyllic bliss of islands and Alps to land good jobs, and it is understandable that emotions run high when it comes to technology, outsourcing, immigration, and other perceived threats to employment.

Outsourcing and immigration are covered in Chapter 23 and Chapter 30, respectively. This chapter focuses on the threat from technology, which can cause three broad categories of unemployment. Workers who have the skills to work but are between jobs in the process of improving their work situations are experiencing frictional unemployment. This definition applies, for example, to the 5 to 10 percent of new college graduates who quit their first jobs within 1 year.² Frictional unemployment exists because there are “frictions” in the labor market that prevent an instantaneous, flawless pairing of workers and employers even when the workers have useful skills. After losing or leaving a job, completing education, or finishing a seasonal job, it takes time for workers to discover, acquire, and begin new work. This makes frictional unemployment necessary and ever present in our economy.

² See www.collegejournal.com/successwork/changingcareers/20041202-stevens.html.

Workers who are forced out of their jobs by a downturn in the cycle of business peaks and troughs are experiencing cyclical unemployment. Thus, the recession of the early 2000s caused large-scale layoffs. The job losses included 5,000 at AT&T, 22,000 at Ford, 15,000 at Merrill Lynch, and 15,000 at the U.S. Postal Service. Many laid-off workers can expect to regain employment when the economy recovers and begins to climb toward a new peak.

Through most of the twentieth century, elevators were guided not by the push of a button, but by human operators who flipped levers to send the elevator cars up and down. With self-guided elevators came the loss of jobs for people who had developed the skill of safe and accurate elevator maneuvering. This is an example of structural unemployment, which occurs when a worker lacks the skills necessary for available jobs. Technology and innovation have a long history of creating structural unemployment. The invention of the light bulb put many a candle maker out of work. The automobile was a bane to people in the horse and buggy industries. Automatic telephone exchanges have eliminated the jobs of half a million switchboard operators since the 1970s. Until the personal computer became practical in the 1980s, résumés were professionally typeset, and writers without a lot of time, patience, and correction tape would hire typists to convert their handwritten notes into typed letters, reports, and book manuscripts.

Even with all these job losses, the unemployment rate has always recovered. The average unemployment rate since World War II has been about 6 percent. In 2000, the rate dipped to below 4 percent, and in 2005, the rate was about 5 percent. The next section explains why the U.S. workforce’s history of successful adaptation to technological change is likely to be its future as well.

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Over the long sweep of American generations and waves of economic change, we simply have not experienced a net drain of jobs to advancing technology.

—Alan Greenspan, Boston College Finance Conference, March 12, 2004³

³ www.federalreserve.gov/boarddocs/speeches/2004/20040312/default.htm.

Necessity may be the mother of invention, but unemployment need not be its offspring. Former Federal Reserve chairman Alan Greenspan’s words suggest that technology creates at least as many jobs as it eliminates. The fear that technological advances will cause widespread unemployment can be countered in a number of ways. To begin with, mature industries do little for job creation; innovation is the real engine for growth in that area. Technology is the source of new industries that employ large numbers of people. In the United States, the computer and electronic product manufacturing industry employs 1,162,971 workers, chemical manufacturing employs 829,499, and plastic product manufacturing employs 762,721. Among older industries, apparel manufacturing employs 296,076, textile mills employ 247,474, and beverage and tobacco product manufacturing employs 151,253. Despite its extensive use of robots, the transportation equipment manufacturing industry employs 1,580,898 workers, making it the largest employer in the manufacturing sector.⁴

⁴ U.S. Census Bureau, Statistics for Industry Groups and Industries: 2003, April 2005. See www.census.gov/prod/ec02/am0331gs1.pdf.

Technology can increase the productivity of workers and thus the usefulness of these workers to employers and customers. An eye doctor who uses surgical lasers accomplishes more than colleagues who don’t. The same applies to a drug enforcement officer with night-vision glasses, a librarian with a bar code scanner, and a secretary with a computer. Some types of technology will increase the demand for the workers who use them. As an example, robot-assisted surgery that is less invasive and more precise than traditional surgery (watch a video of this at www.or-live.com) is likely to increase the demand for doctors.

In other cases, the increased productivity of some workers will lead to the layoff of others. A chiropractor with a robotic massage table can treat more patients in a day because she can adjust one patient’s spine while another patient is receiving a massage. Likewise, a pizza chef with an automatic mixer can make more pizza. As explained in Chapter 7, the demand for labor depends on the price of output and the additional output gained from another worker. If pizza prices remained constant, any increase in productivity would increase the demand for pizza chefs because each would make more pizzas and, therefore, contribute more to pizzeria revenues. However, the following chain of events can undermine that possibility: The increased productivity of chefs can decrease the marginal cost of producing pizzas, increase the market supply of pizzas, and lower the equilibrium price. If the price falls by more than the marginal product of labor rises, each chef’s contribution to revenues will decrease, and thus fewer will be hired. In the case of pizza, the productivity gains from automatic mixers and ovens were outpaced by increases in the demand for pizzas—from 0 to 3 billion per year since 1905, according to the Wheat Foods Council⁵—and the number of pizza chefs is still growing.

⁵ www.wheatfoods.org.

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The potential loss of jobs, as in the chiropractor and pizza chef examples, is not the end of the story. New jobs are simultaneously created in the industries that produce the technology—those new engines of job growth—for example, robotics, consumer electronics, and solar voltaic cells. And then there are the industries that technology creates. For example, two centuries ago the tourism industry was virtually nonexistent in North America, and people who traveled long distances were called explorers. In 1804, it took explorers Meriwether Lewis and William Clark 18 months to travel from St. Louis to the Pacific Ocean. Thanks to modern transportation technology that can whisk people from St. Louis to the Pacific in less than 5 hours, tourism is now among the largest industries in the United States and the world. The usual trade-offs exist; the arrival of the airplane and the family car resulted in lost jobs in the passenger rail industry; however, far more jobs were created in the airline and automobile industries than were ever lost on the railroads. Sometimes the trade-offs have minimal impact: The industries that produce spacecraft and launchers, satellites, paging devices, air conditioners, computer software, and semiconductors have displaced few, if any, workers.

Technology has enabled some industries to exist by placing within the financial reach of the masses products that otherwise would be prohibitively expensive. A handmade watch would cost a pretty penny, and a handmade car would cost a fortune. Both items are now made with the extensive use of robots. Even handmade paper costs about $2 per sheet.⁶ One can only imagine how much a textbook like this would cost if hand printed.

⁶ http://handmade-paper.us.

Technological improvements also bolster the demand for products. The addition of motors made small-boat ownership appealing to a new breed of consumer. Mechanical puppets called animatronics, such as the 289 children and 264 animals in Disney World’s “It’s a Small World” exhibit, heighten the allure of theme parks. High-tech special effects and animation make many a movie watchable. And even the self-service kiosks at McDonald’s may reduce the lines and attract more customers.

Of course, robots and other machines don’t make money; only people do. Thus, if technology creates efficiency and reduced costs, all the benefits will be passed on to humans in the form of lower prices and higher profits. If too many of the benefits go to a minority of the population, taxes and transfer payments can be used to distribute income as desired, although not without some deadweight loss, as discussed in Chapter 18. Alternatively, a dismissive stance toward technology—a prohibition of the robots that fit cookie sandwiches together, seal packages, and turn screws—would be truly detrimental to society. Such a stance would yield a large number of undesirable, low-paying jobs, far less output to go around, and painfully high prices.

The structural unemployment problem is one of too few skills, not of too many workers. Given the shortage of skilled workers in the United States, each year the H-1B nonimmigration visa program welcomes between 65,000 and 195,000 guest workers from other countries for up to 6 years to do work that no available American citizens are qualified to perform. These individuals include teachers, occupational therapists, engineers, speech pathologists, lawyers, pharmacists, registered nurses, financial consultants, and accountants. Several related immigration programs fill similar needs.

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Technology and innovation revitalize the economy and minimize cyclical unemployment. The challenge is to help the structurally unemployed gain new skills and share in the benefits. For this the U.S. Department of Labor has embraced programs such as the High Growth Job Training Initiative,⁷ which identifies needed skill sets and helps community colleges convey those skills to unemployed workers. Unemployment insurance provides a safety net of roughly two-thirds of a worker’s weekly income, up to a state-determined maximum, for at least 26 weeks. More generally, a focus on education and training would mend these problems, whereas an antitechnology focus would be counterproductive in terms of employment and the quality of life.

⁷ See www.doleta.gov/BRG/JobTrainInitiative/.

Industrial mutation . . . incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of creative destruction is the essential fact about capitalism.

—Joseph Schumpeter⁸

⁸ Capitalism, Socialism and Democracy. New York: Harper & Row, (1975), p. 83.

Innovation and what Schumpeter calls “creative destruction” are critical to the American way of life. With high-tech machinery and fertilizers, food is produced at a rate that, contrary to the expectations of doomsayers such as Thomas Malthus, has kept pace with population growth. Medical advances have doubled the life expectancy of humans since the Middle Ages. Computers inform us, entertain us, and race through computations so that we need not. The destruction that accompanies creation becomes evident when such new products and processes make some skills obsolete. In 1800, 80 percent of the U.S. workforce was engaged in agriculture. In 1900, the figure was 38 percent. Now it is about 2 percent. Without technological advances such as the mechanical cotton pickers that made handpicking skills obsolete by around 1950, there would be more jobs in the fields. However, by accepting innovation, we have relegated many of the dirty, difficult, and dangerous jobs to machines and enjoyed a steadily improving average level of real income at the same time.

The number of jobs has grown at least as fast as the workforce so far, but what if robots ran the whole manufacturing show, including the new industries? We already see expansion in the service sector, which creates jobs and increases our standard of living by putting humans at the service of other humans. Technical efficiency in manufacturing could free up money and workers to expand the benefits received from service industries, such as health care, education, entertainment, environmental cleanup, and tourism. Just as the Schwan Food Company⁹ employs 22,000 people and simplifies customers’ lives by delivering prepared food to their doors, consumers could increase their use of cleaning services, personal trainers, musicians, artists, marriage counselors, massage therapists, beauty consultants, and innumerable other service workers.

⁹ See www.schwans.com.

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Robots can also grant us more leisure time. Technology has helped to increase the productivity per labor hour at an average rate of 2.5 percent per year during the past half-century,¹⁰ meaning higher incomes with less work. After a long history of workweeks in excess of 50 hours, the Fair Labor Standards Act of 1938 shortened the workweek to 40 hours in 1940, with mandated overtime pay of 1.5 times the standard wage rate for hourly workers who exceed 40 hours. With continued advancements in technology, we may enjoy income growth along with workweeks of 35 hours or less, as is common in France and Germany already.

¹⁰ See www.bls.gov/mfp/prod3.pdf.

A steady flow of innovation since Homo sapiens first appeared has done much for our standard of living without a net loss of jobs. What’s next? The pattern is likely to continue. The high-tech horizon offers more new industries, a sampling of which involves alternative energy sources, commercial space travel, and nanotechnology—a form of molecular engineering that might allow circuits and devices to be built up from single atoms and molecules. In keeping with the themes of this chapter, Josh Wolfe writes in the Forbes/Wolfe Nanotech Weekly Insider¹¹ that “nanotech will definitively increase productivity. And it will create new jobs. And for better (or worse) it will also destroy old ones. . . . Innovation yields productivity. Productivity improves our lives.” As improvements occur, the challenge for society is to assist the hardest-hit with appropriate retraining, to reassure everyone that the sky is not falling, and to make good use of the advances that ensue.

¹¹ See www.forbesinc.com/newsletters/nanotech/public/insider/fwnwi_03262004.htm.

The understandable importance that people attach to their jobs translates into strong emotions and exaggerated fears when potential threats to careers are identified. On a more practical level, that same importance should prompt us to examine real and imagined reasons for job loss carefully. Structural employment as a result of changes in technology is a real, short-term phenomenon in some industries, as it has been for centuries. However, by encouraging technological innovation, we enrich the economy with new industries and jobs, improve the productivity of human workers, advance the quality of life, and promote growth in real wages—none of which are earned by robots. In adapting to technological change, policymakers should focus on helping those with limited job skills train for the many jobs that remain unfilled. As robots save us money and time by screwing in bolts and cleaning out test tubes, perhaps more attention can be granted to the solvable social, environmental, and health problems to which society could devote a nearly endless amount of work effort.