Technology Advancement: Capital Wins Over Labor?

20 Jun

In a recent post,  Paul Krugman writes about the effect of technology on workers.  He argues that until the year 2000, disruptive technology’s effect on Labor was to displace low-skilled workers.  The beneficiaries were better-educated workers with the skills to design and to use new technology.  A handful of Netflix software engineer benefit, a large number of Blockbuster store clerks lose.  And so on and so forth.

The answer from government and business has traditionally been to emphasize education.  Go back to any presidential election from the last 15 years and you’ll see discussions of “retraining workers in high growth industries” and whatnot.  But Krugman says that the education argument is a mirage.  Highly-skilled workers are also facing displacement.

One current example of this is that many of the new business intelligence software and big data processing tools that are becoming widespread can replace functions that have traditionally been performed by teams of business/data analysts.  These are skilled, college -educated professionals that are being replaced (partially) through software.  And of course it’s not a 1-to-1 trade.  The capabilities of new types of software to analyze data and extract insights is far beyond what teams of humans were capable of performing even  recently.

You are also going to continue to see examples of technology disrupting low-level labor as we’ve traditionally believed to happen.  The implications of self-driving cards and robotics in industrial manufacturing are yet to fully be seen.  It’s not out of the question to imagine a world in 10-15 years where most of the delivery drivers, truck drivers, street sweepers, etc. are replaced through automation.  You’re already seeing it in the industrial world.

Who benefits from this?  Capital and often consumers as well.  I think this story helps to partially explain the rising income equality you’ve seen over the last 40 years.  Recent research shows that 30% of income inequality in the US can be attributed to tax policy.  Perhaps the accrual of technology benefits to capital helps to explain the other 70% of the puzzle.

Technology is great.  The iPhone, Google Maps, Wikipedia, Tableau, Kiva Systems, etc. are incredible.  They are amazingly powerful tools for improving the lives of consumers and raising the efficiency of businesses.  I also think that this “displacement effect” is less pronounced in technology areas outside of pure IT.  My sense is that technology in Energy, Medicine, etc. tends to have a less deleterious effect on Labor, though I’m interested in hearing counterexamples to this.

I would never argue that we shouldn’t pursue technological advancement.  But if workers across the spectrum are suffering short-term displacement, it only exacerbates inequality and all of the attendant problems.  I’m not sure what the solution is, but the first step is to at least to recognize the challenge.

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2 Responses to “Technology Advancement: Capital Wins Over Labor?”

  1. Amit R. June 21, 2013 at 1:04 am #

    The displacement effect outside of “pure IT” is very real. Legal industry is a great example as it has been acutely impacted by technological advancements. Software can easily handle tasks that used to require conference rooms full of associates pouring over documents. The other aspect to this is that the technological advancements and globalization feed of one another to displace workers across the skills spectrum. For example, many physicians now have the ability to dictate notes into a recording device which is in turn sent to china/india for transcription and electronically adding to patient charts. In fact, I suspect industries that have been slow to embrace new technologies (e.g., medicine, legal) will be even greater impacted by displacement because there is more “catch up” that will occur in terms of redundant/unnecessary labor.

    • adustoor June 25, 2013 at 10:27 am #

      These are good examples of higher cost, US-based workers being replaced by low-cost services/labor in emerging markets. I don’t think they are examples of new technology displacing labor. In the case of the legal process outsourcing you mention, lower value add, repetitive tasks that were previously performed by expensive, junior employees at corporate law firms have been outsourced to cheaper, English speaking workers in places like India. High-cost labor performing limited value add work is being replaced by low-cost labor performing that same work. I don’t see technology playing a role in this.

      Having said that, I think you will start to see technology and automation start to displace workers higher up the stack. I don’t know enough about the law world to know exactly how it will happen, but even industries that think they’re immune to this probably aren’t.

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