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Technology and Automation Create, Not Destroy, Jobs

During an interview (third minute) with Ann Curry of NBC’s Today program yesterday morning (June 14, 2011), President Obama suggested that technology and automation were in part responsible for the U.S. economy’s sluggish job growth. The President explained that,  “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.” But the President’s suggestion that technology leads to job loss is simply not the case. In fact, U.S. productivity gains were higher before the Great Recession than they are now (and productivity gains were higher still in the 1990s when job growth was booming), meaning that technological-based productivity gains are not the culprit behind recent sluggish U.S. job growth. Rather, as ITIF explains it its report Embracing the Self-Service Economy, the vast majority of economic studies show that productivity gains—including through self-service technologies such as ATMs, kiosks, and self-checkout machines—actually lead to more jobs.

Of course, President Obama is not the first to suggest that greater use of automation results in fewer jobs. When factory automation took off in the late 1950s and early 1960s, increased national concern centered on the employment effects of automation and productivity. So great was concern with automation and the rise of push button factories that Congress’s Joint Economic Committee held extended hearings on the matter in 1955. John Kennedy created an Office of Automation and Manpower in the Department of Labor in 1961, identifying, “the major domestic challenge of the Sixties: to maintain full employment at a time when automation, of course, is replacing men.” Such fears entered the popular consciousness, with one particularly telling “The Twilight Zone” episode depicting a dystopian world in which a manager replaces all his workers with robots, and in the final scene, is replaced himself by a robot.

Some, echoing Obama, suggest even greater cause for concern today: since technology is now displacing jobs not only in agriculture and manufacturing, but also in the service sector, there will be no new job-generating growth sectors to employ all those who lose their jobs. For example, Jeremy Rifkin argues that when millions of retail jobs are displaced by e-commerce and a host of other service sector jobs undergo digital automation there will be no new jobs to replace them. If we boost productivity in the retail, banking, insurance, and other service sectors that were job generators up until now, where in the world will people find work?

But this view fails to recognize that savings from a more efficient industry, for example, the grocery industry, would flow back to the economy in one or more of the following three ways: lower prices (e.g., lower cost for groceries), higher wages for the fewer remaining employers, or higher profits. In a competitive grocery retail market, most of the savings would flow back to consumers in the form of lower prices. Consumers use the savings on lower groceries to go out to dinner a few times, buy books, watch movies, or any number of other things. This economic activity stimulates demand that other companies (e.g., restaurants, book stores, movie theaters, airlines, and hotels) respond to by hiring more workers.

This common sense view is borne out by many economic studies. For example, economists at the Federal Reserve write that, “Productivity grew noticeably faster than usual in the late 1990s, while the unemployment rate fell to levels not seen for more than three decades. This inverse relationship between the two variables also can be seen on several other occasions in the postwar period and leads one to wonder whether there is a causal link between them. The empirical evidence presented here shows that a positive technology shock leads to a reduction in the unemployment rate that persists for several years.” Likewise, in a definitive review of the studies on productivity and employment, the OECD’s Jobs Study: Facts, Analysis, Strategy report stated that, “Technology both eliminates jobs and creates jobs. Generally it destroys lower wage, lower productivity jobs, while it creates jobs that are more productive, high-skill and better paid. Historically, the income-generating effects of new technologies have proved more powerful than the labor-displacing effects: technological progress has been accompanied not only by higher output and productivity, but also by higher overall employment.”

This is not to say that productivity-enhancing technologies, including self-service, don’t sometimes result in short-term job loss—or more often, occupational shifts, as companies redeploy workers to provide better services and operate their businesses more efficiently. But if economies want to create jobs over the medium- to long-run, embracing self-service technology is a key way to do so, for two key reasons. First, there are jobs created in the companies providing self-service technologies. Second, and more importantly, as consumers pay relatively less for goods and services, they have more purchasing power which stimulates a growth in other sectors, leading to a self-reinforcing economic expansion.

With unemployment at over 9 percent and the country suffering its highest average duration of unemployment since at least 1948, a focus on the best policies to boost U.S. job growth is certainly warranted. But the cause of slow job growth is not too much technology; it’s too little. As we have written in The Case for a National Manufacturing Strategy, U.S. manufacturing output is lower today than it was a decade ago. If it had grown at the rate of GDP, there would be 2 million more manufacturing jobs and 8 million more jobs total (with the multiplier effect). It’s the loss of U.S. global competitiveness, particularly in manufacturing and technology, that is real cause of anemic job growth. So what the U.S. economy needs to restore job growth is a serious national innovation and competitiveness strategy that makes investments in U.S. R&D and innovation; enforces our trade agreements and boosts our exports; lowers effective corporate tax rates, ideally through incentives to invest here; improves physical and digital infrastructure; and embraces the power of technology (particularly IT) to transform and to make more efficient entire sectors of the economy. The evidence is clear: technology is part of the job creation solution; not part of the problem.

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