Is Technology Destroying Our Jobs?

Our recent jobs numbers are truly disturbing. In July 2011, the unemployment rate was 9.1%, and we were unable to create enough jobs to keep up with our population growth. The following month we created no new net jobs at all. And just the other day, we learned that 4.4 million Americans have been out of work for more than a year, which is roughly 31 percent of the total.

There are lots of theories about why hiring didn't pick up again during the recent recovery, but one of the most convincing ones relates to the role that technology has played in our employment crisis. A new e-book titled Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, written by Erik Brynjolfsson and Andrew McAfee, provides fascinating insights into this vexing issue. While technology certainly has had a negative impact on job growth in recent years, there are reasons to be hopeful about the future, according to the authors.

This time it really is different
Unlike previous recoveries, American companies didn't resume hiring after the Great Recession. According to Brynjolfsson and McAfee, investment in equipment and software had "returned to 95% of its historical peak" by 2010, which represented "the fastest recovery of equipment investment in a generation." While actual layoffs soon dropped off, companies did not bring in new people. In other words, "companies brought new machines in, but not new people."

Our technologies appear to be progressing faster than society can keep up. The authors do not find this surprising, and they provide compelling evidence on how this is happening. There used to be a time when it was just assumed that there were some things computers couldn't do. But now we have the following:

  • Google (Nasdaq: GOOG  ) announced recently that a fleet of Priuses from Toyota (NYSE: TM  ) have driven without "any human involvement at all."
  • A new technology platform called GeoFluent can effectively translate words from one language to another for business purposes.
  • Watson Labs, working with IBM (NYSE: IBM  ) , created a machine that defeated the best Jeopardy! players ever in February 2011.

According to the authors, it is precisely this sort of technological progress that led to job losses during the Great Recession. Computers are now able to do things that used to be the domain of humans, and this trend will only continue, whether we like it or not.

You mean I can sell this junk?
Fortunately, this trend doesn't necessarily have to result in net job losses in the future. Brynjolfsson and McAfee show how eBay (Nasdaq: EBAY  ) and Amazon (Nasdaq: AMZN  ) Marketplace "spurred over 600,000 people to earn their livings by dreaming up new, improved, or simply different or cheaper products for a worldwide customer base." And Apple's (Nasdaq: AAPL  ) App Store and Google's Android Marketplace, "make it easier for people with ideas for mobile applications to create and distribute them."

In order to tackle the employment crisis, we must bring "machines and humans together," according to the authors. And that can only be done by improving our organizational innovation and making sure our workers are better trained. The e-book closes by offering 19 proposals to address those areas. Among the proposals, quite a few were aimed at our woeful education system, including demands to pay teachers more and to hold students and teachers to higher standards.

John Henry won that race
Race Against the Machine is an important book, and I highly recommend it to everyone. I find the argument that technological advances have stifled new job growth to be more convincing than those arguments that are focused solely on weak demand or insufficient innovation.

And who could deny that our substandard educational system plays a part here? Recent testing of American 15-year-olds had us ranked 14th in reading, 17th in science, and 25th in math out of 34 countries. We were also 27th out of 34 when it came to high school graduation rates. If such trends were to continue, we literally might become too ignorant to solve many of the challenges facing us in the future. Sadly, this may already be the case.

The authors conclude their work by noting that we are in the midst of a third industrial revolution, which is "fuelled by computers and networks." They are confident about this digital future, though they believe that we have a lot of work to do if we are to benefit from all of its possibilities. I admire their optimism, though I worry that we don't feel enough urgency about our dysfunctional educational system.

If you'd like to read more about a company that is poised to benefit from the new technology revolution, have a look at our latest free report. You can get it right now by clicking here.

John Reeves owns shares of Google and Apple.

The Motley Fool owns shares of International Business Machines, Apple, and Google. Motley Fool newsletter services have recommended buying shares of eBay, Apple, Amazon.com, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (15) | Recommend This Article (17)

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  • Report this Comment On November 04, 2011, at 3:17 PM, kmiao1 wrote:

    Check out the book, "The End of Work", which has a similar thesis.

    Regarding innovations, how about the additive manufacturing technology where you can xerox a product? The Economist did a whole write up on that new technology. It was a good news, bad news scenario. Good news: manufacturing may end up coming back to the USA. Bad news: because this is all technology, no net new jobs would be created.

  • Report this Comment On November 04, 2011, at 4:09 PM, TMFBane wrote:

    Yes, I'll have to take a look at "The End of Work." Seems like Rifkin had a lot of foresight!

  • Report this Comment On November 04, 2011, at 4:56 PM, sheldonross wrote:

    http://en.wikipedia.org/wiki/Luddite

    Come on doomsayers.. really? We've been through all this before.

  • Report this Comment On November 04, 2011, at 5:28 PM, TMFBane wrote:

    The example of the Luddites is a good one and very appropriate to this discussion. The early days of the Industrial Revolution actually were harsh ones for workers. In England, it was only around 1840 or so that the standard of living was clearly better as a result of technological changes. And we only know that from hindsight. Chroniclers of the time show that many people experienced the movement quite negatively.

    The authors of this book also argue that in the near term workers appear to be losing out. But they are quite hopeful that in the future these changes will have a net positive effect, if we do the right things to prepare. The authors are not doom and gloomers at all. In fact, they are huge proponents of the new digital industrial revolution!

    Anyway, thanks for your comment! Comparisons with the early days of the Industrial Revolution are very helpful, I think.

  • Report this Comment On November 04, 2011, at 6:21 PM, xetn wrote:

    We had the same issue with use of equipment in early England and look what happened. The true start of the industrial revolution.

    This is just more quackery. But I am not surprised that people are looking for a scapegoat to the unemployment problem. But I believe they are looking in the wrong area (like OWS). Instead of focusing on technology, which ultimately makes every one more efficient, we should focus on taxes and regulations. Both are very complex, requiring the hiring of masses of attorneys and CPAs just to put out a financial report and comply with the regulations. This all non-productive labor.

    Does government reward this compliance? NO. It keeps adding to it.

    And how about hiring? I can cost a small fortune to go through the hiring process, keeping up with eoe rules, and betting that the new hire (after some time of training) will produce more than they cost. Oh, and least we forget, what if we guess wrong? The cost of terminating an employee can run to the thousands.

    Enter, technology. It does not get sick, require thousands in benefits and salaries. Just up-front costs, and some maintenance. And once obsolete, just recycle. The new will produce more than the old. The problem is you still need people (in many cases, highly trained/educated people) to run, maintain and upgrade the equipment.

  • Report this Comment On November 04, 2011, at 6:31 PM, whereaminow wrote:

    Echoing xetn, this same argument is rehashed every generation. And it is disproven every generation.

    Technology creates employment opportunities that did not previously exist. Those employment opportunities create a more sophisticated labor force. It is the opportunities themselves, and not education, that create the sophisticated labor force. For if the opportunities did not exist, there would be no reason for that education :)

    So technology advances the growth, diversity, and education of the labor force. This means that chronic unemployment, that particular type that is different from the usual job searching/switching type, is due to something else. Hmmm, what could that be... what could that be....

    David

  • Report this Comment On November 04, 2011, at 6:35 PM, bezzelbub wrote:

    Hiring more teachers and paying them better is not a solution, We need to shift from "student feelings" to making education challenging, thorough, and designed to creat the knowledge and skills that success in our material culture requires. Bar the Ipods, etc., from schools. Reinstute dress codes. Reestablish discipline in schools. And, make a fetish out of the idea that

    positive self images come from achieving worthwhile things. I worked for a princpal who started every year by telling students education was their job ..ltheir business and that he expected them to act like people in business.

  • Report this Comment On November 04, 2011, at 9:34 PM, MrChapel wrote:

    So, basically, what the writer is repeating is President Obama's talking point with regards to ATMs a few months ago? Yes, yes, read the whole article and you'll see that that isn't what he's saying, someone will say. No, it IS exactly what he's saying. The 'solutions' he mentions like 'pay teachers more and hold students and teachers to a higher standard" are just another talking point of the current administration.

    As I recall, in the US, spending on students (including teachers salaries) is one of the highest if not THE highest in the world. Yet, as the author notes, this massive spending only has very dismal results. Other countries, like Japan, spend far less with much, much better results, so I see no reason why more funds should be pumped into education. No, what is needed is better application of that funding. For example, California recently added Gay and Transgendered social studies to its High School curriculum. That is just one of many such frivolous studies added over the years. Children spend most of their time with such courses while basics like math, physics, economics, reading and writing are neglected. When they get to college, they choose courses like Women's Studies, Minority Studies etc. instead of going for the more demanding studies like engineering, IT, Physics etc. Is it any wonder that so many of the current crop of IT workers at US firms just happen to hail from places like India?

    I have no problem with social studies at HS level. However, it should be ONE.SINGLE.COURSE! The rest should be devoted to the basic courses one needs to get further in life. Math. Economics. Reading and Writing Comprehension. Physics. Shop Class with greater emphasis on technology and computing. Logical deduction. Challenge their minds to think for themselves, not just regurgitate whatever their teachers pump into their heads. Work with local businesses and set up yearly job fairs to show the kids what kind of jobs are out there and to interest them into going into particular fields.

    Sadly, that won't happen anytime soon. No, they need more money. Which didn't help the previous times, but don't worry, THIS time, it will, guaranteed! Isn't that what the president's new jobs bill (that even his Senate majority is slow-tracking *opposite of fast-tracking*) is all about?

  • Report this Comment On November 05, 2011, at 1:16 AM, CaptainWidget wrote:

    <<In order to tackle the employment crisis, we must bring "machines and humans together," according to the authors. And that can only be done by improving our organizational innovation and making sure our workers are better trained>>

    False. The simplest way to bring "humans and machines together" would be to reduce the insitution burden of employing a human to the same institutional burden for hiring a machine.

    Machines are a sunk cost. Buy once, divide it over X years of use. Human labor is a giant question mark, thanks to the government. If I have a business, I have no clue what payroll taxes, insurance "penalties", benefits, legal liabilities will be in X years of use.

    The current administration is hinting at the non-salary cost of employing a human being to skyrocket under their proposals...hence...no one wants to hire.

  • Report this Comment On November 05, 2011, at 10:37 AM, TMFBane wrote:

    @MrChapel,

    I agree with much of what you say. We need to refocus our efforts on teaching our students how to write; how to think critically; and how to apply advanced mathematical and scientific principles. At the moment, we appear to be failing in those key areas throughout much of the country.

    The total amount of money isn't so much the issue. It's the amount we are paying teachers that is the problem. In order to attract the most talented teachers, we need to pay them a competitive wage. Meanwhile, we have to weed out the poor performers. No one should be entitled to a lifetime teaching job, if they aren't effective.

    By the way, this isn't pie-in-the-sky, feel-good liberalism. It's something that has actually been tried in DC under Michelle Rhee (who sadly left us recently). Say what you will about the theory, but she got results and DC schools witnessed a pretty impressive turnaround! Both of my children attend DC public schools and the improvement has been tremendous.

    Thank you for your comment! I can't think of anything more important right now than jobs and education.

  • Report this Comment On November 05, 2011, at 1:06 PM, whereaminow wrote:

    ----->Human labor is a giant question mark, thanks to the government. If I have a business, I have no clue what payroll taxes, insurance "penalties", benefits, legal liabilities will be in X years of use. <-----

    This is called "Regime Uncertainty". Robert Higgs, a free market Austrian School Economist has talked about it ofter. MMTers and Keynesians like Paul Krugman think it's a fairy tale.

    Hmmm.

    David

  • Report this Comment On November 05, 2011, at 7:08 PM, Darwood11 wrote:

    There is some evidence that the recession 'weeded out' some dead wood. Many companies discovered that they can operate with fewer workers. This was accomplished by work load shifting, consolidation of tasks, and pressing existing workers to work harder. In other words, to be more efficient and effective at their jobs.

    It seems, this combination of forces did work. There is some evidence that many of the innovations of the 1990s had been improperly applied. That changed in 2008, and all of the pieces were in place.

    While improving education will help, because there is no denying that many students are not equipped to work in the 21st century, it is also true that education will become a life long responsibility. Anyone in technical fields can tell you they've had to be re-educated many, many times in the past 30 years. In some, completely new technologies have completely replaced old.

    It isn't much different than the upheaval that occurred when the internal combustion engine replaced the horse. At that time, a blacksmith could shift to becoming an assembly line worker. The shift from steam also created huge changes. There was a time when whole factories were run from "line shafts" distributing power to many smaller machines. As electricity took hold, these shafts, pulleys and belts were replaced with electrical motors. In the process, the bison were decimated for their skins, to create those belts. And with the advent of electricity and the loss of the herds, the hunters found themselves without a job.

    "The only constant is change" is the old, old expression. To succeed, we need an entire generation of citizens who have the intellectual and emotional capacity to embrace change. Currently, it seems we have politicians and citizens who can throw the word around, but who also apparently consider 'change' as a means to maintain the status quo, and paradoxically, avoid change.

  • Report this Comment On November 05, 2011, at 10:07 PM, famulla5 wrote:

    The outcome will depend on two things.

    1. What is the question?

    2. What are the consequences of voting yes or no?

    The most likely outcome in Greece will be a popular rejection of what ever the government recommends in the hope that a new government can get (or at least promise) a better deal. A taste of the prospective impact of a "no" vote (if the EU doesn't pay the next instalment of the bail out) might prompt a change of heart. Although, I doubt if the EU will want a failed state on it's doorstep.

    The game has just begun.

  • Report this Comment On November 06, 2011, at 11:08 AM, TMFBane wrote:

    Here's an interesting piece from The Economist that discusses "Race Against the Machine"

    http://www.economist.com/blogs/babbage/2011/11/artificial-in...

  • Report this Comment On November 06, 2011, at 8:11 PM, Darwood11 wrote:

    One of the problems is that modern companies don't need the thousands of workers for a "plant" or an operation, that were once required.

    A good example is Facebook. The company, which is valued at about $77 billion, supposedly employs 500.

    Most new production facilities employ a few hundred people. There was a time when similar facilities would employ thousands. Back in the early days of the Gary steel works, it was tens of thousands. Today Gary steel works looks like a ghost town.

    Apple employs about 47,000 as I recall, but many of them are working at relatively low paying jobs in "Apple Stores." Production is farmed out, and the nexus is a relatively small design and management staff.

    Companies such as McDonalds are adding significant quantities of employees at the point of contact, which is the drive-up window. But even the friendly order taker you are speaking to when you drive up may not be at the store; they may be 1,000 miles away, servicing multiple stores, and getting your order to a screen above the fryer!

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