How Will Technology Affect Employment?

Live-blogging from the IBM Watson University Symposium at Harvard Business School and MIT Sloan School of Management. Additional coverage is on the Smarter Planet Blog. .

Panel discussion: How Will Technology Affect Productivity and Employment?

Moderator: Erik Brynjolfsson – MIT Sloan, CDB

Panelists: David Autor – Economics, MIT; Irving Wladawsky-Berger, MIT, IBM Emeritus; Frank Levy, MIT

The Next Big ThingThis is one in a series of posts that explore people and technologies that are enabling small companies to innovate. The series is underwritten by IBM Midsize Business, but the content is entirely my own.
David Autor

David Autor

Autor: The idea that machines eliminate jobs is a fallacy. A century ago, 38% of the US population worked on farms. Today it’s 2%. But we don’t have 36% unemployment. We’re in a period where the scope of what can be done by machinery is expanding rapidly. If we look at 10 categories of occupation (shows a chart), there are three categories: Low-paid positions like food service work; mid-level, relatively low-paid positions like clerical jobs; and relatively highly paid jobs like professional, technical and managerial.

What we see is a decline in operative production jobs and clerical/administrative support jobs. The middle third are the jobs that are declining most quickly. Should we be worried about that? Probably, because it can lead to policies that are intended to preserve these positions instead of moving toward the jobs that are growing.

Employment Polarization, 1979-2009

Changes in Employment Share by Job Skill Tercile, 1993-2006

Wladawsky-Berger: About 80% of the job growth is in information-intensive service jobs. We’re living in a time of sustained high unemployment and this is concerning. Who will pick up the challenge of providing these jobs? People are looking to large businesses, but they are shedding these jobs along with everybody else. Others look to government, but in my experience government won’t do that.

Irving Wladawsky-Berger

The top-down approaches aren’t going to work, but neither do I want to tell people that they’re on their own and that they have to take a more entrepreneurial approach. The world is becoming more entrepreneurial.

Levy: Everything we see here is colored by the recession, but this recession doesn’t have much to do with computers, it has to do with housing bubbles. The mid-skill decline is very real. Development is very uneven. Natural language processing has improved a lot, machine vision hasn’t and technologies like judgment and practical sense really haven’t gone anywhere.

People look at the Google truck and say it’s remarkable that it’s gone 2,000 miles without an accident. What really happened was that Google made detailed maps of the infrastructure it would be traveling. Without that infrastructure, this car doesn’t have the driving ability of a 16-year-old who just got a permit. So while this technology is promising, the Teamsters shouldn’t be protesting yet.

Brynjolfsson: Is there a future for the people who have those kinds of jobs?

Wladawsky-Berger: It has to be more entrepreneurial than top-down. The kinds of jobs that MIT and Stanford graduates have don’t scale very well. Small businesses don’t tend to create many jobs.

Can we apply technologies that have traditionally been available only at the high end and make them easier to use? Can there be new retail services, trades, sustainability-oriented businesses where these skills can be applied?

Frank Levy

Frank Levy

Levy: I can give you an example of one of our graduates who is now running a business making high-end stationery. It’s a good living, but it’s a small piece of the market.

Autor: in a lot of countries there are businesses that we might call entrepreneurial but which are really people just getting by. Most people want to be employed. When the economy booms, people tend to stop working for themselves and go to work for other people. Asking people to create new jobs is asking a lot.

What are the advantages of humans? Common sense, judgment, physical flexibility, understanding. It’s solving novel problems. Positions like cleaning driving actually require  those capabilities.

Wladawsky-Berger: Will global enterprises create these jobs? they’re becoming more distributed and moving a lot of tasks to the supply chain. A lot of people in the supply chain could be these mid-skilled people.

Autor: Cleaning restrooms requires a lot of flexibility, but it’s not entrepeneurial.

Erik Brynjolfsson

Erik Brynjolfsson

Brynjolfsson: So what skills should we be training people for?

Levy: One of the problems is you’re problem-solving by analogy. In the old world, where you were problem-solving by algorithm, it was pretty simple. Now you need to understand how things are similar and how you would use analogies to make decisions.

Autor: Germany has done a good job by training for needed skills and by reducing wages and increasing flexibility. It was painful, but when the shock hit, they were able to handle it better.

The US has a very good system for elite education. We don’t have a particularly good way to handle the people who can’t go to college. The traditional feeders like unions and apprenticeships aren’t as available today. The jobs that are emerging are those that require some level of post-high-school education. We have an incredibly big for-profit post-high-school education sector, but the only guarantee you have is that you’ll come out with a lot of debt. We’re squandering a lot of mid-level talent.

Levy: When you’re talking about a lack of training for people oer 30, you also have to look at where we are in training people under 18. That’s a problem in the pipeline.

Wladawsky-Berger: For these mid-skill jobs you need post-high-school education. I’m not saying a BA in English – in fact, that might be a bad idea – and I’ve been hoping that government agencies would decide that this is better than paying welfare and unemployment.

Autor: Health care will grow and there will be opportunities. If I were asked what people should study for, I’d say a health care worker. I don’t think we’re over-investing in college, I think we’re under-investing in other areas. The high school graduation rate is falling for males in the U.S. We ought to think carefully about how we would use that talent for a set of opportunities that’s appropriate. They need skills beyond the generic skills they find in high school. They need vocational education.

Levy: In the case of medical care, the whole issue of judgment is very important. When you’re talking about eliminating unnecessary procedures, there’s quite a bit of judgment involved. These are not problems that machines can address.

Autor: Look at an example of something that’s been automated out of value: Horses used to be our main form of locomotion but now they’re hardly needed. The difference between people and horses is that horses don’t accrue wealth from the internal combustion engine and we do. We’re getting wealthier collectively but not individually.

Audience question: I’m concerned with how we communicate these changes who aren’t economists so we can avoid reactions like what happened with stem cell research?

Wladawsky-Berger: The consensus of everything I’ve read is that when we transitioned from the agriculture to the industrial age, literacy went way up. High school became the ticket to the mid-skill, mid-pay class. In today’s world you need the next level of education: information-based literacy. You need to be comfortable working with information and you need social skills. This prepares you to be much more flexible in the new working environment. People who learn to use these tools can make a good living.

Audience question: It seems that our society fails people who need to change careers. Our unemployment system doesn’t encourage people to try new things for fear that they may lose benefits. Our education system also doesn’t foster skills training.

Autor: We have very little of what other countries call activation systems for people who have lost their jobs. We have a trade-adjustment system that does a terrible job. The problem is that the Republicans hate trade adjustment and blame everything on trade, and the unions hate re-skilling. So we have trade adjustment, which does very little.

Audience question: What about the possibility of trading off standard of living for other benefits, such as fewer work hours?

Autor: There’s a societal choice to trades off work for standards of living. You can work two days a week and make less money and some people might choose that. But we want to work less and have higher standards of living. We have more and more, but the rewards are concentrated in fewer hands. Having more rewards doesn’t solve the skill problem.

Wladawsky-Berger: I think we need more collaboration between the private and public sector. So the government does more to help people while they’re training for jobs, but the jobs are provided by the private sector.

Crisis Tests IT’s Influence

From Innovations, a website published by Ziff-Davis Enterprise from mid-2006 to mid-2009. Reprinted by permission.

Between checking retirement portfolios and flipping over to or Moneywatch every hour or two, a lot of people aren’t’ getting much work done this week. Who can blame them? Between the unprecedented bankruptcies of some of Wall Street’s biggest firms, the turmoil in the stock market and dire statements from top officials in the U.S. government, it’s easy to believe that the world is caving in.

I’m nervous, too, but I’m also resisting the urge to forecast disaster because I just don’t think the Great Depression can happen again. Part of the reason is information technology.

There are two ways in which IT can make important contributions to pulling the U.S. economy out of chaos: by empowering rapid decisions and enabling communication. As evidence of the first dynamic, look at the chart below. It shows growth in U.S. gross domestic product from 1930 through 2007. You don’t have to squint much to see where the trend has been going. The huge swings in GDP performance that occurred during the Depression and war years have gradually become gentler and more predictable. Negative growth, which was a regular occurrence during much of the 20th century, has only occurred once in the last 25 years. The further right you go on the chart, the more boring economic performance becomes. That’s precisely how businesses like it. Consistency sets the stage for more confident long-term planning.

Technology’s Shadow Role

There are multiple reasons why the economy has stabilized in recent decades; globalization and the Federal Reserve are certainly two of them. But I would suggest that information technology plays a shadow role. Note that the GDP numbers show a clear smoothing trend beginning around the middle 1960s, which was when computers began to make their way into back offices on a grand scale. The trend becomes even more refined in the late 1980s, when PCs started landing on every desktop.

I think it’s no coincidence that economic cycles became less volatile when managers and regulators began deploying sophisticated models to predict the path of business. Even as the economy has been roiled by financial crises, 9/11 and the bursting of the Internet bubble over the last two decades, recessions have tended to be shallow and brief and recoveries have been smoother and more sustained than in previous cycles. One factor may be that economic plays have more sophisticated means to model the impact of their decisions than they did before. That leads to better forecasting and quicker mid-course corrections, which makes for less volatility. No one’s suggesting that we aren’t in for some difficult times, but if the past is any indication, we’re better equipped to pull out of the tailspin today than ever before.

The other potentially positive IT influence on economic cycles is the Internet, and in particular Web 2.0. Within just the last five years, businesses have embraced robust new ways to communicate with their constituencies. As new economic surprises have turned up almost daily over the past few weeks, people have flocked to their Facebook groups, Twittered their concerns and voiced their opinions on news sites like never before. Smart business leaders should be tapping in to these conversations and using them to help guide their own decisions. If you want to learn how your customers are thinking about the latest dose of bad news these days, you need only to ask them or just listen. Trends that used to take months to identify can now be discerned in a few hours. It’s too early to know what the impact this fact will have on economic performance, but it’s likely to encourage faster and more competent decision-making.

Web 2.0 also enables corporate leaders to communicate directly to their constituents to offer own perspectives on unfolding events. Unfortunately, they aren’t doing much of that yet. A quick check of blogs operated by Chrysler, Marriott, McDonald’s, Whole Foods, Accenture, Boeing, Wal-Mart and Southwest Airlines shows that none has yet departed from delivery cheery good-news fare to comment upon the economic issues that weigh most heavily on American minds. Cheers to General Motors and PriceWaterhouseCoopers for attempting to lend some of their perspective to the conversation. I only hope the others are too busy listening at the moment to make time to state their own views. America certainly wants to hear them.