Luddites Are Almost Always Wrong: Technology Rarely Destroys Jobs

from the it-might-change-markets dept

Two years ago, I wrote a long post about the "paradox of job creation" about politicians trying to take credit for creating jobs. As I noted, there's something of a paradox, because job creation often involves what looks like job destruction in the first place -- before people realize that those jobs can be shifted in a different direction. Case in point: in the 1940s, AT&T employed approximately 350,000 people as phone operators. AT&T had rapidly begun moving to automatic switched telephony systems a bit earlier, but it took until the late 1940s, until those really became common enough to move away from people having to pick up the phone and ask a human operator to connect them.

In the short-term tech-kills-jobs view, you could easily see this new "technology" as killing jobs. Indeed, it's reported that there are somewhere around 18,000 telephone operators in the US today. But... there are also about 100,000 call center operators and 290,000 telemarketers (and of course, in a globalized world, many of those jobs have moved overseas). But, more importantly, moving from having a human operator connect you to an automatic switched network was just an early step in leading to tremendous follow-on innovations that created all kinds of new jobs and economic growth. Automatic switched phone networks created all kinds of new business opportunities and convenience, but also eventually enabled easy access to the internet. And the internet has since created millions of new jobs (including mine!).

Two years ago, we wrote about how even President Obama had falsely argued that ATMs had diminished teller jobs and that automated check-ins at airports had hurt airline employees. The data said otherwise:

At the dawn of the self-service banking age in 1985, for example, the United States had 60,000 automated teller machines and 485,000 bank tellers. In 2002, the United States had 352,000 ATMs--and 527,000 bank tellers. ATMs notwithstanding, banks do a lot more than they used to and have a lot more branches than they used to.

Professor James Bessen has now written a similar piece for Slate, pointing out how the history of predicting job destruction from technology has almost always been totally incorrect:

At least since Karl Marx, people have been predicting that technology would create mass unemployment. However, these predictions were consistently wrong because they ignored the offsetting benefits of automation. For example, during the 19th century, machines took over tasks performed by weavers, eliminating 98 percent of the labor needed to weave a yard of cloth. But this mechanization also brought a benefit: It sharply reduced the price of cloth, so people consumed much more. Greater demand for cloth meant that the number of textile jobs quadrupled despite the automation.

Something similar is happening in quite a few occupations today. Because ATMs perform many teller transactions, fewer tellers are needed to operate a bank branch. But because it costs less to operate a branch office, banks dramatically increased the number of branches in order to reach a bigger market. More bank branches means more tellers, despite fewer tellers per branch.

Bessen does note that the type of work and skills may change -- tellers are more focused on more complex transactions rather than simple ones, just like call center employees have to help customers with problems, rather than just connect person A to person B. But is that such a bad thing?

Of course, for all this to work right, as Bessen notes, the technology has to generate much greater value to the economy. It's that value that gets disbursed more widely, creating new opportunities for jobs and economic growth. I'm almost surprised that Bessen -- who has done some of the most important research on the negative impact of patent trolling -- doesn't take the next step and point out that one way to make sure that the benefits of innovation do not get spread out over the economy is to lock them up, so that only one party receives all the benefits -- which is what something like a patent will do. We get economic growth because you can't contain the offshoot benefits of innovation. These are sometimes called externalities or spillover effects, but they're really the very fuel that improves the economy and overall opportunity -- and attempts to lock them up can often lead to those benefits not being able to spread as widely, limiting the opportunity and the potential for job growth.