A range of issues related to this question have been
discussed in a recent series of posts on this blog. My conclusions are
summarised below.
Recent trends in
productivity growth do not provide persuasive evidence that the rate of
technological advancement is slowing.
On the one hand, we have techno-pessimists such as Robert
Gordon who argues that technological progress is slowing down. On the other hand, we have techno-optimists
such as Erik Brynjolfsson and Andrew McAfee who argue that the global economy
is on the cusp of a dramatic growth spurt driven by smart machines taking
advantage of advances in computer processing, artificial intelligence,
networked communication etc.
My post discussing these issues notes that the evidence does
not support the view that there was a general slow-down in productivity growth in
high-income countries prior to the global financial crisis and great recession.
In only about half of the countries covered by the OECD data was the rate of
multifactor productivity (MFP) growth during the 2001 to 2007 lower than that
in 1995 to 2001.
It seems likely that the slow-down in measured productivity
growth in the US and some other countries may be attributable, in part, to
difficulty in measuring the outputs of the information and communications
technologies (ICT) industries - particularly free content provided on the
internet. As means are found to require
users to pay for more internet content it seems likely that will, of itself,
make the productivity numbers for ICT industries look better even though underlying
productivity will not have improved.
A post discussing recent OECD research on technological
diffusion gaps at firm level suggests that there is a technological diffusion
problem rather than a slow-down in technological advances. Productivity growth of
global frontier firms has remained relatively robust, despite the slowdown in
productivity growth in many OECD countries during the 2000s. A widening
technological diffusion gap is particularly evident for service sector firms.
Technological innovation
is likely to destroy a substantial proportion of current jobs, but it will not
necessarily be more disruptive than it has been in the past.
As discussed in my post ‘Is average over?’ there is strong evidence of job polarization in the US. Research by David Autor shows that the
occupations experiencing loss in employment are in the middle of the
distribution, with the locus of displacement of middle-skill employment moving
over time into higher skilled categories. The pace of employment gains in low wage,
manual task-intensive jobs has been increasing since the 1980s. The growth of
high-skill, high wage occupations decelerated markedly in the 2000s, with only
a modest recovery between 2007 and 2012. Autor suggests that the deceleration
of growth of high pay jobs was associated with macroeconomic events which led
to a sharp deceleration in computer investment (the bursting of the dot-com
bubble, followed by the collapse of the housing market and the ensuing
financial crisis).
Australian research, published in a recent report by CEDA
(discussed here) shows a similar pattern of job displacement. The jobs that are
disappearing involve routine tasks, not just low-skilled tasks. Researchers estimate
that over the next 10 to 15 years about 40% of jobs have a high probability of
being susceptible to technological change in Australia.
Growth in labour demand will occur in occupations that tend
to involve perception and manipulation, creative intelligence and/or social
intelligence. Many jobs will be concerned with the creative application of
technology to solving problems.
In recent years enough new jobs have been created in
Australia at a rate sufficient to replace those that have disappeared.
Some authors have suggested that the world faces a period of
extraordinary economic disruption over the next few decades. My reflection on economic
events over the last 40 years (in this post) suggest to me that perceptions of extraordinary
disruption are a product of the economic stagnation in many high-income
countries during the last decade.
During the 1970s I was under the impression that the pace of
change was quickening, but that was an illusion. The economic disruption occurring
in the wake of the first oil price shock and the emergence of stagflation
certainly involved a quickening in the rate of change relative to the abnormal
stability of the 1950s and 60s. Looking back now, however, economic change over
the last 40 years seems to have been less about quickening than about fits and
starts.
I suspect that when people look back in 40 years’ time they are
they are not likely to perceive that the first half of the 21st century
was extraordinarily disruptive. They are more likely to perceive this to have
been a period of fairly normal disruption, with the pace of change being
similar to that occurring on average since the beginning of the industrial
revolution.
There is potential for
future technological advances to lift average real wage levels in high-income
countries.
At an aggregate level, innovations that raise labour
productivity tend to increase the demand for labour because they make labour
more productive. International comparisons show that real wage levels are more
or less proportional to average productivity levels.
Real wage growth has not been quite proportional to labour
productivity growth in high-income countries where labour’s share of national
income has fallen over recent decades. As discussed in this post, average real
wages in high-income countries have typically been growing at a rate around
0.35% per annum less than the median labour productivity growth of 1.64% per
annum.
In most countries the most plausible reason for the failure
of real wages to keep pace with the growth of labour productivity is that
capital deepening (the growth of capital per unit of labour) has not been
sufficient to offset the labour augmenting (or labour saving) bias of
technological progress. (See my post discussing the elasticity of substitution
between capital and labour.) In other words, investment levels have been too
low.
A slowdown in the contribution of investment to GDP growth was evident the United States, Europe and Japan in the period 2000-07 and was
accentuated after the global financial crisis. Investment levels in Australia remained strong
until recently, mainly reflecting investment in mining to supply inputs to the
construction boom in China.
Investment in natural resource development has had a modest
direct impact on demand for labour in Australia, but the impetus it has
provided to overall economic growth in Australia had a more profound indirect
impact. The impacts on labour demand of the growth of urban centres as hubs of
highly innovative activity are similar in some respects. As discussed in
my post on the competitiveness of cities, when cities become attractive places
for location of technology-intensive activities that tends to increase demand
for many categories of labour including teachers, nurses and building workers.
Technological advances
offer the potential for ongoing improvements in the quality of life.
It is sometimes suggested that because most people in high
income countries are already highly satisfied with their lives, the additional
opportunities provided by technological advances are not worth having. However,
the benchmarks that people use when asked to evaluate the quality of their
lives tend to change with changes in their perceptions of what might be
possible. As noted in an earlier post, survey data indicates that a substantial
proportion of people who claim to be completely satisfied with their lives
(above 40% in some countries) are in complete agreement with the proposition
that “because of science and technology there will be more opportunities for
the next generation”.
In my last post I considered whether the disruptions
associated with technological innovations cause a great deal of anxiety and
unhappiness. There is a great deal of evidence many people who lose their jobs
or feel that their jobs are threatened do suffer anxiety and unhappiness. However,
these feelings are strongly associated with the state of the economy and the
prospects of obtaining alternative employment.
Discussions of technological unemployment tend to focus
unduly on potential job losses and to overlook the impact of new technology on
economic growth and the associated expansion of employment opportunities. Many people
will lose jobs as a result of technological change at some point in their lives.
Most will readily find alternative employment, but some people are likely to
have their lives severely disrupted by the high levels of unemployment that may
persist in some regions where declining industries have been major employers.
If governments want to
ensure that technological advances provide widespread opportunities they should
stop protecting narrow interests.
Recent OECD research on technology diffusion gaps (discussed here) suggests that the ability of firms to learn from the global frontier is
stronger in economies where there is less protection of domestic interests
through international trade barriers, product market regulation, employment
regulation and bankruptcy laws that that leave people with valuable skills
employed in zombie firms. The research also suggests that skill mismatches can
be exacerbated by high transactions costs in housing markets (e.g. stamp duties
on transfers).
The competitiveness of cities as locations for technology-intensive
activities is likely to be adversely affected by powerful interest groups opposed
to increases in population density and innovations that have potential to
reduce the cost of transport, including congestion costs. (See post on
competitiveness of cities.)
There is increasing recognition that excessive regulation to
protect intellectual property rights is discouraging the diffusion of new
technology and limiting the opportunities created by technological progress. As discussed in a post on this topic, the economic benefits of
copyright and patent laws derive from the incentive they provide to authors and
inventors to engage in creative activity. If granted appropriately such
monopoly rights could therefore be expected to result in more technological
progress and higher productivity growth than would otherwise occur. However, in
recent decades these regulations have been used to provide monopoly rents to
holders of rights far beyond those required to provide incentives for creative
activity.
* * *
My general conclusion is that if governments were to do no harm we could be much more confident that future technological advances
would provide widespread opportunities. That is probably too much to ask, but it might be reasonable to expect governments to do
less harm than at present. For example, if governments want to help unemployed people who live in regions of persistently high unemployment, they
should consider welfare measures designed specifically to assist those most affected (including relocation and early retirement). This is likely to be a less costly approach than the alternatives of supporting uncompetitive firms and industries through subsidies, tariffs, anti-dumping measures, government procurement policies etc. or funding uneconomic infrastructure projects.
This series of posts has focused on likely trends over the
next few decades and has not addressed longer term issues that may emerge as
robots come to play more important roles in our lives. I might have something to say about those issues after reading and thinking more. One day I might even feel able to write sensibly about the implications of the 'singularity' for individual human flourishing.
Postscript:
I think William Nordhaus may be writing sensibly about the timing of the 'singularity' and its implications for real wages in his paper: "Are We Approaching an Economic Singularity?"
