Structural Unemployment and Technology

Martin Ford points us to an ongoing concern as our economy changes:

Structural Unemployment and Technology

Previously, I’ve argued here that job automation technology might someday advance to the point where most routine or repetitive jobs will be performed by machines or software, and that, as a result, we may end up with severe structural unemployment. The latest weekly report shows anincrease of 25,000 in new unemployment claims–instead of the decrease expected by economists. Clearly, the economy continues to struggle with job creation, and I think that automation is playing a significant role.

Catherine Rampell recently wrote an article in the New York Times that delves into the impact this issue is having in the lives of typical workers. As the article points out:
For the last two years, the weak economy has provided an opportunity for employers to do what they would have done anyway: dismiss millions of people — like file clerks, ticket agents and autoworkers — who were displaced by technological advances and international trade.

Rampell’s piece does an especially good job of capturing the denial that is likely to continue to be associated with this issue:

Ms. Norton is reluctant to believe that her three decades of experience and her typing talents, up to 120 words a minute, are now obsolete. So she looks for other explanations….The problem cannot be that the occupation she has devoted her life to has been largely computerized, she says.

“You can’t replace the human thought process,” she says. “I can anticipate people’s needs. Usually, I give them what they want before they even know they need it. There will never be a machine that can do that.”

The fact is that there will very soon be machines and software algorithms that can very effectively anticipate needs and perform increasingly complex (and high-paying) jobs that require higher and higher skill levels. The unwillingness to acknowledge this reality and confront its implications extends not just to impacted workers, but also to economists and policy makers—virtually all of whom are either in denial or oblivious to this issue.

Many mainstream economists are projecting that unemployment will remain high for years to come—but there is a near universal expectation that eventually, the problem will correct itself and we will gravitate back to something close to full employment. The problem with this assumption is that technology is not going to stop advancing while we are all waiting for the job market to recover.

In my book, The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (now available as a free PDF eBook), I argue that automation technology is likely to continue advancing relentlessly and result in significant and continuously increasing structural unemployment within the next 10 to 20 years.

Most economists are likely to dismiss this prediction. Many will suggest that new technology will result in the creation of new industries and new employment sectors. The problem with that assumption is that the new industries created tend to nearly always be very capital-intensive and employ relatively few workers—while at the same time making available technologies that are highly disruptive to more traditional labor intensive sectors that employ millions of people.

The worker that Rampell interviewed for her article has ended up taking what is often the job of last resort: a part-time position at Wal-Mart. But what will happen when Wal-Mart begins to employ significant automation? Is that really unthinkable? In fact, Wal-mart management was already starting to think about it back in 2005.

To see the difference in employment between a traditional industry and a new technology industry, compare Wal-Mart (over 2 million employees and revenue of about $180,000 per worker) with Google (20 thousand employees and over a million dollars per worker). In time, Wal-Mart will begin to look more like Google and new industries that spring up will employ fewer and fewer workers.

A similar story can be seen by in the DVD rental industry. How many workers are (or have been) employed by Blockbuster in its thousands of retail locations, as compared with Netflix in a few highly automated distribution centers? The inevitable migration from delivering DVDs though the mail toward to instantly available streaming video can only accelerate that trend.

The fact is that structural unemployment is here to stay. It will very likely get worse, and it will increasingly impact workers with college educations and high skill levels. Those with few skills and little education have been the first to feel the brunt, but machines are getting better and smarter. The rest of us are next.

Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (available from Amazon or as a free PDF download) and has a blog at .

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