The Technology Trap: More Than Automation Is Driving Inequality


The Technology Trap: More Than Automation Is Driving Inequality

Frey argues that automation, or what he calls the third industrial revolution, is not only putting jobs at risk, but is the principal source of growing inequality within the American economy.

What made the second industrial revolution such a boon to employment was the introduction of vast new industries. These included automobiles, aircraft, electric machinery, telephones and household appliances. Citing the historian David L. Lewis, Frey notes that by 1986, the auto-industrial complex, which consists of manufacturing, services and construction, employed one out of six Americans. Many of the workers or the children of the workers who were replaced by machinery on the farm or in crafts went to work in these industries.

Now compare the third industrial revolution, which has also produced vast new industries in software, entertainment, robotics, biochemistry, personal computing and telecommunications. Some or most of these new industries are not as labor-intensive as the industries of the second industrial revolution. But there is an added factor: in the United States, many of these industries do much of their manufacturing overseas or south of the Border. MIT economist Daron Acemoglu has said, 

Many of the important products that we have created over the last several decades, over the last two decades in particular, have not added much to the bottom line employment figure. Think of Apple’s iPods and iPads and iPhones; they are amazing innovations and consumers have absolutely rewarded the company by purchasing billions of them … So, there we have an intersection of new technologies that have a very heavy design component and the division of labor can be very finely broken down, and the labor-intensive parts of those products can be manufactured abroad. So, there is a sort of a parallel process to automation that’s increasing efficiency but it’s not really adding to the bottom line employment figure.

There is an additional factor that the Manhattan Institute’s Oren Cass cites in his analysis of the effect of automation on job growth. From 1947 to 1972, as the second industrial revolution was reaching its climax, manufacturing productivity grew 3.4 percent a year and output grew 4.2 percent a year. Yet from 2000 to 2018, productivity grew 3.1 percent a year—most likely as a result of automation—but output only rose 1.3 percent a year. In this case, the real villain in job loss was not automation, but the lag in manufacturing output. If output had grown as it had in the past, there would not have been the same overall loss in jobs due to automation.

So you have automation as a secondary factor in job loss due to the lack of a corresponding increase in output. The lack of domestic output was partly due to manufacturers shifting their jobs out of the country—in North Carolina, for instance, which Trump won, its furniture industry shifted to Mexico—and to ruinous competition from subsidized industries in Asia that knocked out American firms. In one highly-quoted study, economists David Autor, David Dorn and Gordon Hanson blamed competition from Chinese exports for the loss of up to 2.4 million jobs from 1999 to 2011. The same authors, along with Kaveh Majlesi, also argued that import competition contributed to political polarization and fueled the rise of Trump. Again, it wasn’t just automation that led to the loss of jobs and the rise of right-wing populism.

My second concern with Frey’s analysis has to do with the relationship technology has to wages and rising inequality. Frey attributes rising wages and greater equality during the second revolution primarily to wages keeping in line with rising productivity and skill levels. Child labor was replaced by more skilled adults. But I would add several factors which become relevant in judging why wages haven’t kept pace with productivity during the third revolution.

During the second revolution, there was a favorable relationship between supply and demand created by the restrictions on immigration introduced in 1920 and 1924 legislation. The rise of the labor movement in the 1930s, which was particularly strong in the new industries and which, by the 1950s, accounted for a third of the non-farm labor force, buoyed wages; and during the two world wars, American administrations took measures, including progressive taxation, that increased economic equality. (In the 1920s, by contrast, when wartime taxes were repealed and regressive changes introduced, and when a corporate offensive demolished labor unions, economic inequality rose.)

If you now look at the third industrial revolution, it becomes clear that there were other factors besides automation that have contributed to growing inequality and wage stagnation. Wage stagnation has coincided with the decline of labor unions, particularly in the private sector. This decline was not directly the result of automation, but of an employer offensive aided initially by the Reagan administration. Many plants moved south or out of the country in order to avoid unionization. Corporations used strong-arm tactics, some of which were illegal—for instance, firing organizers—to block organizing drives. When unionized labor no longer makes up a significant share in an industry’s employment, unionized firms no longer set the standard for wages—they have to adjust to their competition. By the 1990s, that had become the case in many key industries.

Wage stagnation at the bottom of the income ladder also coincided with the dramatic rise of unskilled immigration, which began after the 1965 immigration bill and accelerated in the 1990s. It depressed the wages of service and construction workers and also made it more difficult to unionize. Employers used legal and illegal immigrants to bust unions in meatpacking, agriculture, construction and janitorial services. In insisting on the primary role for automation in wage stagnation and inequality, Frey acknowledges that the decline in unionization may have played a lesser role, but he denies any role to the increase in unskilled immigration.

There is, finally, the idea that 47 percent of American jobs will be in “high risk” from automation “in a decade or two.” There is no question that some jobs will be at risk. Some, like telemarketers, tax preparers, brokerage clerks and file clerks, are already on the verge of extinction. But as Cass points out in his analysis, Frey and Osborne appear to equate the replacement of certain tasks within occupations with the replacement of the occupations themselves. An Organization for Economic Cooperation and Development study of American occupations only found 9 percent that were easily automatable. A McKinsey Global Institute study found that while at least 30 percent of activities within 60 percent of jobs could be automated, less than five percent of jobs “could be automated in their entirety.” (McKinsey also cited studies showing that by 2030, 8 to 9 percent of jobs “will be ones that barely exist today.”) Self-driving cars and trucks may be decades rather than a decade or two away from displacing drivers. And other occupations on Frey and Osborne’s list—including models, bicycle repairers, tour guides, cooks and animal breeders—do not appear like obvious candidates for machine replacement.

FREY’S BOOK is an extremely useful history of the effect of technology on jobs and income inequality, but he oversells the effects of automation. If Americans want to do something about stagnant wages and rising inequality, they have to address factors that don’t directly stem from automation. These include restoring the original function of the National Labor Relations Board, which was to facilitate rather than impede unionization and collective bargaining; repealing right-to-work laws that discourage unionization; passing comprehensive immigration reform, but also restricting the numbers of unskilled immigrants who would compete with unskilled or low-skilled workers who are already here; and removing incentives for American companies to relocate their production out of the country. Pairing these kinds of measures with those that Frey recommends could turn technology from a trap into something of a blessing.

John B. Judis is the author of The Nationalist Revival: Trade, Immigration, and the Revolt against Globalization.

Image: Reuters