Blaming Technology for Job Losses

The idea that technology is a malign force that diminishes the quality of human life is nothing new. George Orwell used that theme way back in 1949 with his dystopian novel 1984.

The most recent effort at making technology out to be a monster in the service of powerful fools is a book with the racy title Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy by Erik Brynjolfsson and Andrew McAfee. Its premise is that technology is a wealth-creating tool for a small number of elite while it’s a job-destroyer for the masses. The main evidence cited in support is the fact that during the decade of the aughts job-creation was negative 1.1% while jobs were created in large numbers during the six previous decades, ranging from 37.7% in the 1940s to 19.8% in the 90s.

That thesis conveniently overlooks the fact that the 1930s too produced a net loss of jobs because of the Great Depression. There’s conflicting data on the exact number of job losses, but it was more than the 1.1% loss claimed by Brynjolfsson and McAfee for the aughts (the real number is more like a gain of 0.3%). It should come as no surprise that the financial crisis of 2008, with the attendant financial meltdown, caused the economy to shed millions of jobs.

Their book simply overlooks the fact that every age of human civilization has produced major technological advances — ranging from the wheel to the steam engine, coton gin, telephone, automobile, airplanes and transistors. Some ages have produced jobs, some have not, irrespective of the technological advances of that or the immediately preceding ages.

In support of the thesis that technology has recently become a source of disproportionate wealth for a few while destroying jobs for the many, the book cites the fact that 60% of the new wealth created between 2002 and 2007 went to the top 1% of Americans. That fact may sound impressive but is deeply misleading.

First, whatever wealth was created between 2002 and 2007 was also destroyed by the financial crisis because most of it was paper wealth which took the form of interest in stocks, commodities, real estate and other assets which, during the financial crisis, lost all the value they had gained during the preceding decade or so. It’s true that the homes, cars and other tangibles that comprise most of the wealth of the other 99% also dropped in value, but that drop is a mere abstraction for all but the most highly leveraged. So the newly created wealth that went disproportionately to the top 1% was mostly notional — and evanescent to boot.

More importantly, there is a fundamental silliness in any effort at blaming technology for putting disproportionate wealth in the hands of the elite. Wealth is always concentrated in the hands of the elite, by definition. If wealth were distributed evenly across the population, the word and concept would have no meaning. As of 2007 the top 1% of households (the upper class) owned 34.6% of all privately held wealth. The next 19% (the professional class) had 50.5%. That means the top fifth of the population owned 85% of the wealth, leaving only 15% for the bottom four-fifths (the working class).

In terms of net financial assets (total net worth minus the value of one’s home), the top 1% of households had even more, with 42.7%. So the fact that these people enjoyed a disproportionate share of new (and highly evanescent) wealth produced by over-leveraging their assets isn’t saying anything new or significant.

So unless the argument is against capitalism itself, the uneven distribution of wealth and acquisition of new wealth goes without saying — regardless of era.

But let’s look at the other part of the thesis of Brynjolfsson and McAfee, namely, that technology replaces workers with automation, and therefore costs jobs.

The first half of that statement is too obvious to bear repeating. Of course it does. The whole point of innovation and technology is to save humans from the need for do tedious or repetitive tasks. It goes without saying that the immediate impact of implementing new technologies is the displacement of some workers.

But the second part of the statement — that technology produces a net loss of jobs — suffers from the fallacy of isolating the impact of technology to a single sector and a limited span of time. A piece of technology that automates certain manufacturing tasks, for example, will cost the loss of some jobs in that sector, as it was intended to do. But new jobs are created elsewhere in the process. In the example of innovative manufacturing technology, that would include the engineers, programmers, machinists and other workers who developed and built the innovative equipment that replaced the factory workers, as well as the contractors who built the new facilities to house the new equipment, laborers who performed the installation and technicians who maintain and operate the equipment.

Equally important is the multiplier effect of any innovation, including the people who cater to those who earned new wealth by participating in the creation and implementation of the innovation — the homebuilder and landscape architect who build new homes for the entrepreneurs, inventors and financiers who invented, developed and funded the innovation, the restaurant staff that provides time-saving meals for workers behind the innovation, the school teachers, auto mechanics, beauticians and insurance agents who also cater the lifestyle of those enjoying new wealth.

What about the workers who were laid off by the innovation? Some will find similar jobs in competing businesses. Others must learn new skills to find work in other fields. The result may be a temporary net reduction in jobs but over time the innovation will lead to a net increase in both overall productivity and consumption.

To recognize the truth of this fact, compare our world of today to the world of, say, 1900. Each one of us consumes far more than even the most affluent consumers of 1900 because most of us use innovations like cars, refrigerators, air conditioners, personal computers, air travel and downloadable music. That consumption requires the efforts of tens of millions of workers who simply didn’t exist back in 1900. Of course we lost millions who once drove horse carriages, milked cows and furiously shoveled coal into the engines of steam locomotives. But to bemoan such losses would be as silly as people who argue that technology is a job-destroying evil.