Friday, January 31, 2014

The Second Machine Age and the Future of Jobs

An article in The Economist takes on the daunting task of evaluating "the future of jobs." The concern is that we are entering a period of rapid technological change that will be as socially and economically disruptive as the (first) industrial revolution. If such a second revolution is imminent then what might we expect in terms of consequences?

This topic was apparently inspired by the predictions to be found in the book The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee. Those authors refer to the industrial revolution as the "first machine age."

"The industrial revolution ushered in humanity’s first machine age—the first time our progress was driven primarily by technological innovation—and it was the most profound time of transformation our world has ever seen."

This first period allowed greater efficiency and productivity by using machines to overcome the limitations of manual labor. The second period will do the same for mental tasks.

"Now comes the second machine age. Computers and other digital advances are doing for mental power—the ability to use our brains to understand and shape our environments—what the steam engine and its descendents did for muscle power. They’re allowing us to blow past previous limitations and taking us into new territory."

Brynjolfsson and McAfee predict that technological progress will be "astonishing" and the results will be "profoundly beneficial" to humanity. However, progress will come at a price. Such a transformation will be profoundly disruptive in terms of the impact on individuals and the nature of the resulting workforce. However, they are optimistic:

"It’s important to discuss the likely negative consequences of the second machine age and start a dialogue about how to mitigate them—we are confident they are not insurmountable. But they won’t fix themselves, either."

The author of the article in The Economist tries to evaluate the consequences of such a second revolution by reminding the reader what economists believe they know and what actually happened in the wake of the first industrial revolution.

"Nowadays, the majority of economists confidently wave such worries away. By raising productivity, they argue, any automation which economises on the use of labour will increase incomes. That will generate demand for new products and services, which will in turn create new jobs for displaced workers."

One can argue that the economists have history on their side.

"Industrialisation did not end up eliminating the need for human workers. On the contrary, it created employment opportunities sufficient to soak up the 20th century’s exploding population."

The first industrial revolution replaced jobs for semi-skilled workers with jobs for both unskilled and highly skilled workers.

"As research by Lawrence Katz, of Harvard University, and Robert Margo, of Boston University, shows, employment in manufacturing ‘hollowed out’. As employment grew for highly skilled workers and unskilled workers, craft workers lost out. This was the loss to which the Luddites, understandably if not effectively, took exception."

The creation of mostly low-skill and low-wage jobs did not produce prosperity except for the wealthy few who controlled the means of production. This chart is provided to indicate how long it took before real wages began to recover.

It took over 50 years by this reckoning before workers in Britain began to see an effective increase in wages after the first industrial revolution. The choice of 1970 for tracking US wages is presumably because that is when the industrial revolution segued into automation and globalization. Does history then tell us that in a few more decades wages will begin to rise again? That is certainly comforting! But don’t forget, the second machine age is now upon us and it will obviously cause the timer to reset to zero again and we must wait another half century for wage progress.

The article’s author remains optimistic.

"The productivity gains from future automation will be real, even if they mostly accrue to the owners of the machines. Some will be spent on goods and services—golf instructors, household help and so on—and most of the rest invested in firms that are seeking to expand and presumably hire more labour. Though inequality could soar in such a world, unemployment would not necessarily spike. The current doldrum in wages may, like that of the early industrial era, be a temporary matter, with the good times about to roll…."

But is it reasonable to depend on economic history to repeat itself? Most would attribute the ultimate gain in wages after past industrialization to the introduction of universal public schooling. In this way relatively modest academic improvements in reading, writing, and arithmetic created a cadre of workers to fill the more demanding jobs that were being created. That is not a trick that can be duplicated.

We can be grateful to The Economist for providing us here with a glimpse of what the second machine age may provide in the way of jobs.

"When Instagram, a popular photo-sharing site, was sold to Facebook for about $1 billion in 2012, it had 30m customers and employed 13 people. Kodak, which filed for bankruptcy a few months earlier, employed 145,000 people in its heyday."

And then there is this to look forward to:

"One recent study by academics at Oxford University suggests that 47% of today’s jobs could be automated in the next two decades."

Are we already in the throes of a great job contraction? Brynjolfsson and McAfee provide this graph as food for thought.

As someone once said: "May you live in interesting times."

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