My colleague, David Ignatius, is right that millions of jobs are threatened by things such as self-driving cars, voice recognition systems and intelligent software, in the same way that millions of jobs were eliminated by the mechanical reaper and precision lasers and computers. The result will certainly be a lot of economic churn and dislocation. And as with similar job losses from globalization, if we don’t find a mechanism for the winners of this process to provide a better economic safety net for the losers, there will be a populist backlash.
However, there are many who, like Ignatius, worry that this next wave of technological progress may be different — that, in the end, there won’t be enough work for everyone to earn a living and have productive lives. These skeptics have a difficult time imagining what all those displaced cab drivers and bookkeepers will do. But historical experience strongly suggests that there will be jobs for those who want them at wages in line with those in the rest of the economy.
So how would that work?
Remember, first, that these technological advances will be adopted because companies will be able to make and do things cheaper. Because of this, people will buy more of what they are selling, generating an increase in demand for those newly productive workers that will at least partly offset the initial job loss from automation.
A generation ago, for example, air travel was so expensive that only wealthy people could afford to fly. Improvements in airplane technology and computer reservation systems have changed that, and now millions more Americans fly for business or pleasure or simply to go home for the holidays. There are fewer employees per flight but more planes, pilots and flight attendants than ever.
Not all the benefit from increased productivity is captured by consumers in the form of lower prices, however. Some is captured by the workers who remain, who can now command higher wages because of the extra skills they have acquired. The rest of the benefit goes to company shareholders in the form of increased profit. And let’s not forget all those new high-paying jobs associated with designing, manufacturing and marketing all that job-destroying technology. With their higher incomes, all of these people — the remaining workers, shareholders and technology producers — will buy more goods and services of all sorts, increasing the demand for the workers who produce them.
I realize such trickle-down economics has gotten a bad name in some circles, but there is some truth in it. The winners from job-destroying technology hire more gardeners, housekeepers and day-care workers. They take more vacations and eat at more restaurants. They buy more cars and boats and bigger houses. They engage the services of more auto mechanics and personal trainers, psychologists and orthopedic surgeons.
To be sure, some of those are low-wage jobs. But in a country whose native-born labor force is likely to shrink because of lower birth rates, an aging population and a trend toward earlier retirements, even these workers’ standard of living will rise. In the same way that barbers in the United States make many times more than equally productive barbers in India, the only way companies will be able to meet the increased demand for auto mechanics and personal trainers is to pay them enough to keep them from choosing some other line of work. In case you hadn’t noticed, yoga instructors in big cities can now make upward of $30 an hour. That’s not far from what those lost manufacturing jobs paid. In a post-industrial service economy, they are the new working class.
These adjustments can take years, even decades, because there is so much “friction” in labor markets. People who lose their jobs must have the willingness and wherewithal to find new opportunities, learn new skills, move to new cities — and to the degree they do not, the economy’s ability to keep everyone employed will be frustrated.
Technology skeptics will argue that a bookkeeper displaced by intelligent software isn’t likely to become a software engineer. Fair enough — but that’s not the way you would expect labor markets to adjust. The way it might work is the bookkeeper upgrades her skills to become an accountant, an accountant becomes an actuary, an actuary becomes a math professor, and a math professor becomes a software engineer who creates even better bookkeeping software.
In a market economy, nobody plans or manages this bumping-up process — it is the natural dynamic by which market economies become richer as productivity improves. Improvements in agricultural productivity led to a wave of migration of farm workers to the cities, where they provided the manpower for an industrial economy that eventually become so productive that we could afford to buy more health care, education and, yes, government. Now we are on the cusp of another wave of “creative destruction.” The fact that nobody can say where exactly the new jobs will come from is not unusual, nor is it reason to despair.