Rise of the Robots: Technology and the Threat of a Jobless Future (9 page)

While inequality has been increasing in nearly all industrialized countries, the United States remains a clear outlier. According to the Central Intelligence Agency’s analysis, income inequality in America is roughly on a par with that of the Philippines and significantly exceeds that of Egypt, Yemen, and Tunisia.
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Studies have also found that economic mobility, a measure of the likelihood that the children of the poor will succeed in moving up the income scale, is significantly lower in the United States than in nearly all European nations.
In other words, one of the most fundamental ideas woven into the American ethos—the belief that anyone can get ahead through hard work and perseverance—really has little basis in statistical reality.

From the perspective of any one individual, inequality can be very difficult to perceive. Most people tend to focus their attention locally. They worry about how they are doing relative to the guy next door as opposed to the hedge fund manager they will, in all likelihood, never encounter. Surveys have shown that most Americans vastly underestimate the existing extent of inequality, and when asked to select an “ideal” national distribution of income, they make a choice that, in the real world, exists only in Scandinavian social democracies.
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Nonetheless, inequality has real implications that go far beyond simple frustration about your inability to keep up with the Joneses. Foremost is the fact that the overwhelming success of those at the extreme top seems to be correlated with diminishing prospects for nearly everyone else. The old adage that a rising tide lifts all boats gets pretty tired when you haven’t had a meaningful raise since the Nixon administration.

There is also an obvious risk of political capture by the financial elite. In the United States, to a greater degree than in any other advanced democracy, politics is driven almost entirely by money. Wealthy individuals and the organizations they control can mold government policy through political contributions and lobbying, often producing outcomes that are clearly at odds with what the public actually wants. As those at the apex of the income distribution become increasingly detached—living in a kind of bubble that insulates them almost entirely from the realities faced by typical Americans—there
is a real risk that they will be unwilling to support investment in the public goods and infrastructure upon which everyone else depends.

The soaring fortunes of those at the very top may ultimately represent a threat to democratic governance. However, the most immediate problem for most middle- and working-class people is that job market opportunities are broadly deteriorating.

Declining Incomes and Underemployment for Recent College Graduates

A four-year college degree has come to be almost universally viewed as an essential credential for entry into the middle class. As of 2012, average hourly wages for college graduates were more than 80 percent higher than the wages of high school graduates.
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The college wage premium is a reflection of what economists call “skill biased technological change” (SBTC).
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The general idea behind SBTC is that information technology has automated or deskilled much of the work handled by less educated workers, while simultaneously increasing the relative value of the more cognitively complex tasks typically performed by college graduates.

Graduate and professional degrees convey still higher incomes, and in fact, since the turn of the century, things are looking quite a bit less rosy for young college graduates who don’t also have an advanced degree. According to one analysis, incomes for young workers with only a bachelor’s degree declined nearly 15 percent between 2000 and 2010, and the plunge began well before the onset of the 2008 financial crisis.

Recent college graduates are also underemployed. By some accounts, fully half of new graduates are unable to find jobs that utilize their education and offer access to the crucial initial rung on the career ladder. Many of these unlucky graduates will probably find it very difficult to move up into solid middle-class trajectories.

To be sure, college graduates have, on average, maintained their income premium over workers with only a high school education, but this is largely because the prospects for these less educated workers have become genuinely dismal. As of July 2013, fewer than half of American workers who were between the ages of twenty and twenty-four and not enrolled in school had full-time jobs. Among non-students aged sixteen to nineteen only about 15 percent were working full-time.
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The return on investment for a college education may be falling, but it still nearly always beats the alternative.

Polarization and Part-Time Jobs

A further new problem is that the jobs being created during economic recoveries are generally worse than those destroyed by recessions. In a 2012 study, economists Nir Jaimovich and Henry E. Siu analyzed data from recent US recessions and found that the jobs mostly likely to permanently disappear are the good middle-class jobs, while the jobs that tend to get created during recoveries are largely concentrated in low-wage sectors like retail, hospitality, and food preparation and, to a lesser extent, in high-skill professions that require extensive training.
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This has been especially true over the course of the recovery that began in 2009.
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Many of these new low-wage jobs are also part-time. Between the start of the Great Recession in December 2007 and August 2013, about 5 million full-time jobs were vaporized, but the number of part-time jobs actually increased by approximately 3 million.
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That increase in part-time work has occurred entirely among workers who have had their hours cut or who would like a full-time job but are unable to find one.

The propensity for the economy to wipe out solid middle-skill, middle-class jobs, and then to replace them with a combination of low-wage service jobs and high-skill, professional jobs that are generally unattainable for most of the workforce, has been dubbed “job market polarization.” Occupational polarization has resulted in an hourglass-shaped job market where workers who are unable to land one of the desirable jobs at the top end up at the bottom.

This polarization phenomenon has been studied extensively by David Autor, an economist at the Massachusetts Institute of Technology. In a 2010 paper, Autor identifies four specific mid-range occupational categories that have been especially hard-hit as polarization has unfolded: sales, office/administrative, production/craft/repair, and operators/fabricators/laborers. Over the thirty years between 1979 and 2009, the percentage of the US workforce employed in these four areas declined from 57.3 percent to 45.7 percent, and there was a noticeable acceleration in the rate of job destruction between 2007 and 2009.
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Autor’s paper also makes it clear that polarization is not limited to the United States, but has been documented in most advanced, industrial economies; in particular, sixteen countries within the European Union have seen a significant decline in the percentage of the workforce engaged in mid-range occupations over the thirteen years between 1993 and 2006.
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Autor concludes that the primary driving forces behind job market polarization are “the automation of routine work and, to a smaller extent, the international integration of labor markets through trade and, more recently, offshoring.”
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In their more recent paper showing the relationship between polarization and jobless recoveries, Jaimovich and Siu point out that fully 92 percent of the job losses in mid-range occupations have occurred within a year of a recession.
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In other words, polarization is not necessarily something that happens according to a grand plan, nor is it a gradual and continuous evolution. Rather, it is an organic process that is deeply intertwined with the business cycle; routine jobs are eliminated for economic
reasons during a recession, but organizations then discover that ever-advancing information technology allows them to operate successfully without rehiring the workers once a recovery gets under way. Chrystia Freeland of Reuters puts it especially aptly, writing that “the middle-class frog isn’t being gradually boiled; it is being periodically grilled at a very high heat.”
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A Technology Narrative

It’s fairly easy to piece together a hypothetical narrative that puts advancing technology—and the resulting automation of routine work—front and center as the explanation for these seven deadly economic trends. The golden era from 1947 to 1973 was characterized by significant technological progress and strong productivity growth. This was before the age of information technology; the innovations during this period were primarily in areas like mechanical, chemical, and aerospace engineering. Think, for example, of how airplanes evolved from employing internal combustion engines driving propellers to much more reliable and better-performing jet engines. This period exemplified what is written in all those economics textbooks: innovation and soaring productivity made workers more valuable—and allowed them to command higher wages.

In the 1970s, the economy received a major shock from the oil crisis and entered an unprecedented period of high unemployment combined with high inflation. Productivity fell dramatically. The rate of innovation also plateaued as continued technological progress in many areas became more difficult. Jet aircraft changed very little. Both Apple and Microsoft were founded during this period, but the full impact of information technology was still far in the future.

The 1980s saw increased innovation, but it became more focused in the information technology sector. This type of innovation had a different impact on workers; for those with the right skill set, computers increased their value, just as the innovations in the postwar
era had done for nearly everyone. For many other workers, however, computers had a less positive effect. Some types of jobs began to be either destroyed entirely or deskilled, making workers less valuable—at least until they were able to retrain for jobs that leveraged computer technology. As information technology gained in importance, labor’s share of income gradually began to decline. Jet aircraft remained largely unchanged from the 1970s but increasingly used computers in their instrumentation and controls.

The 1990s saw IT innovation accelerate even more, and the Internet took off in the second half of the decade. The trends that began in the 1980s continued, but the decade also saw the tech bubble and the creation of millions of new jobs, especially in the IT sector. These were good jobs that often involved administering the computers and networks that were rapidly becoming critical to businesses of all sizes. As a result, wages did better in this period, but still fell well short of productivity growth. Innovation was centered even more on IT. The recession of 1990–1991 was followed by a jobless recovery as workers, many of whom had lost good mid-range jobs, struggled to find new positions. The job market gradually became more polarized. Jet aircraft were still essentially similar to the designs of the 1970s; however, they now had “fly by wire” systems, in which computers moved the control surfaces in response to the pilots’ inputs, as well as increased flight automation.

In the years following 2000, information technology continued its acceleration and productivity rose as businesses got better at taking full advantage of all the new innovations. Many of those good jobs created in the 1990s began to disappear as corporations automated or offshored jobs, or began to outsource their IT departments to centralized “cloud” computing services. Throughout the economy, computers and machines were increasingly replacing workers rather than making them more valuable, and wage increases fell far short of growth in productivity. Both the share of national income going to labor and the labor force participation rate declined dramatically.
The job market continued to polarize, and jobless recoveries became the norm. Jet aircraft still used the same basic designs and propulsion systems as in the 1970s, but computer-aided design and simulation had resulted in many incremental improvements in areas such as fuel efficiency. The information technology incorporated into aircraft became even more sophisticated and routinely included full-flight automation, which allowed the planes to take off, fly to a destination, and then land—all without human intervention.

Now, you may quite rightfully object to that story as being overly simplistic—or perhaps even completely wrong. After all, wasn’t it really globalization, or maybe Reaganomics, that led to all our problems? As I said, this was intended to be a hypothetical narrative: a simple story to help clarify the argument for the importance of technology in these seven documented economic trends. Each of these trends has been studied by teams of economists and others who have attempted to discover the underlying causes, and technology has often been implicated as a contributing, if not always the primary, factor. However, it is when all seven trends are considered together that the argument for advancing information technology as a disruptive economic force is most compelling.

Aside from advancing information technology, there are three other primary possibilities that might conceivably have contributed to all, or at least most, of our seven economic trends: globalization, the growth of the financial sector, and politics (in which I include factors like deregulation and the decline of organized labor).

Globalization

That globalization has had a dramatic impact on certain industries and regions is undeniable—just look at America’s rustbelt. But globalization, and in particular trade with China, alone could not have caused wages for most American workers to stagnate over four decades.