Technology, Unemployment, and Our Children’s Future

by

Accounting Market Analyst

Got a teen playing Wii instead of doing homework? You might want to share this post.

Despite the tremendous benefits of information technology (IT), it comes at a human cost – the displacement of less-skilled employees. As software and systems automate an increasingly large portion of business processes, the displacement is affecting a wider set of workers. So despite an improving economy, 9.5% unemployment might last longer than many think.

Here we walk through a fairly simple story of man versus machine. It’s not a new story, but we went to the effort of pulling together and visualizing the relevant data.

Our conclusion? Drop the Wii-mote and hit the books.

IT spending has risen dramatically over the last 40 years…

Rise in IT Expenditures

IT spending has steadily risen since 1970. Trendlines and new opportunities like cloud computing suggest that the current dip in spending is only temporary.

…making us more productive…

Productivity on the Rise

Technology has made labor more productive. There’s a long-term upward trend in labor output rates, and it isn’t slowing down.

…which has led to rapid growth in corporate profits.

Growth in Profits

The resulting productivity has been great for business – greater productivity means higher profits. But these profits don’t benefit everyone. They accrue to the executives and shareholders.

IT is slowly replacing many functions. There’s an ever-widening divide in the labor market between skilled occupations and what one might call “low-level jobs” – simple clerical roles, plant-floor workers, and low-level support roles.

While national unemployment rates have ebbed and flowed…

National Unemployment Rate

…the uneducated are consistently left behind…

Education and Unemployment

This polarization between highly-skilled and less-skilled workers is part of what’s eroding the middle class, pushing more and more people into the low income bracket.

…and wealth has shifted toward the highest earners.

Income Gaps Over Time

The less-educated workers who manage to keep their jobs are falling further and further behind in the national income distribution as the relative value of their services declines.

Alas, high-tech industries are growing…

Tech Pulse Index

So how can you avoid being replaced by a machine? You’ll need to be one of the people who work in an advanced field that still requires highly-skilled human capital. Take the IT field, for example. The Tech Pulse Index tracks the growth of national economic activity in technology by combining data on employment, investment, production, shipments, and consumption. The Tech Pulse Index has risen sharply (with the exception of the dot-com bust around the year 2000), reflecting continued demand for high-tech workers. The same is true in other engineering disciplines, healthcare and finance.

…but an advanced education is required.

Education Enrollment Rates

Are we educating people enough to slow the widening of labor market gaps? The graph above shows the percentage of all 18- to 24-year-olds enrolled in degree-granting institutions since 1970. There’s an upward trend, but is it growing fast enough?

IT is good for society in the long term, but it’s a double-edged sword when considered together with labor market trends. Sure, the current economic despair owes its severity to many different issues – offshoring of jobs, the real estate collapse, and the national debt are just a few – but education and income disparities are long-term problems that demand attention. We must align education growth with productivity growth to close the gaps.

Will this deus ex machina lead to an age of renewed human potential, or will it harm the well-being of the majority? Leave a comment below.

 
  • John S

    It’s not so much that workers are three times more productive compared with 1970, it’s just that employers today expect you to do the work of three men at one-quarter the pay of one.

  • http://www.bontools.com/blog/ Mark Gannon

    Great post putting all the pieces together. The only thing I would add is the 30 year productivity/mean family income chart found here:
    http://voices.washingtonpost.com/ezra-klein/productivityincome.jpg

  • Mark S

    These are some interesting graphics. And I would suspect I have replaced some lower skilled workers in my computer career. But I’d also suggest just as many or more employees enhanced their career as they embraced the change with computing.

    IT is slowly replacing many functions. There’s an ever-widening divide in the labor market between skilled occupations and what one might call “low-level jobs” – simple clerical roles, plant-floor workers, and low-level support roles.

    But this conclusion is minimizing the effect of the off-shoring of jobs. That’s the big factor at this lower skill level. Think about the manual labor force that can’t be automated with robotics, or a machine. That labor went to China. Even some hi-tech jobs have gone to India. I would suggest that on the 80/20 rule, this guy is on the wrong side with his cause and effect…..Mark

  • http://globaleconomy101.blogspot.com Tim Williamson

    Hunter: Very good presentation.

    The question of off-shoring jobs raised in a post by Mark S. is not a new one however. It has been a part of the fabric of American history since the founding of the nation.

    Initially metal and textile manufacturing was located in the northeast near the bigger cities and ports. Over time these businesses found that it was cheaper to move those businesses west and south whether the cost of production was lower. What was the attitude of the people in the communities from which these businesses originated? They said, “our jobs are leaving. What will we do? How will we survive? It must be the government that caused this movement of our industries from our towns and cities.” No! Businesses were seeking lowered costs of production so that they would maintain price competition in a marketplace driven by consumer demand. They were seeking higher profits and competitive advantage.

    The same is true today. This is not new to us in America. Today, businesses move for exactly the same reasons. To deny them that is to say that the principles of capitalism only applies within our borders. The early textile states in America, and the textile states of our recent past, like North & South Carolina, would have loved a myopic rule and restraint on capitalism like that.

    Anyway, great article.

    Tim W

  • http://www.examiner.com/career-advice-5-in-palm-springs/robin-johnson Robin Johnson

    Mr. Richards,
    Great storyline with powerful graphics.

    I have seen how technology rapidly eliminates people as a Human Resources Manager in manufacturing. The technology is not necessarily computers and software. It comes from automation and lean manufacturing methods. Firms can grow sales at 15% to 30% per year without adding workers by improving these manufacturing methods.

    Decreased demand for lower skilled and less educated employees creates a surplus of workers and depresses starting pay.

    Mr. Williamson’s point about jobs leaving our US communities is well taken. Another way of thinking about why jobs leave is that capital is fluid and labor is relatively stationary. Capital responds to the slightest change in interest rates, return on investment, or any other competitive advantage.

    The article concludes by asking the public policy question of whether we are educating enough people to keep up with these trends. This is begging the question of government obligation to forecast trends in technology and prepare people for future demand. I submit several nations have tried that and failed. We are down to Cuba and Venezuela still believing economies can be planned. Supply and demand has a way of seeking an optimal outcome. Historically, demand for technical resources tends to increase pay. This usually results in an increased number of school entrants choosing technical careers. It is not the most efficient model because supply always lags demand by four or more years–the time it takes to get a degree. It is not the most efficient but it is better than any other model. Get the policy planners out of the way and let the market take care of allocating resources.

  • Blogs by Market:
  • Subscribe to the Software Advice Accounting Blog

Popular Blog Posts