Creative Destruction: The Economics of Accelerating Technology and Disappearing Jobs – Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy – Erik Brynjolfsson and Andrew McAfee
Trigger warning: luddismo – più produttivi e più poveri – stagnazione dei redditi – PIL e lavoro – saper cambiare – superstar – compensi CEO – tutti capitalisti – effetti della diseguaglianza –
We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment.
The individual technologies and the broader technological acceleration discussed in Chapter 2 are creating enormous value. There is no question that they increase productivity, and thus our collective wealth.
Note:TECNOLOGIA => PIÙ VALORE… PIÙ PRODUTTIVITÀ
the computer, like all general purpose technologies, requires parallel innovation in business models, organizational processes structures, institutions, and skills.
Note:COSA DEVE CAMBIARE
And that’s a problem. Digital technologies change rapidly, but organizations and skills aren’t keeping pace. As a result, millions of people are being left behind. Their incomes and jobs are being destroyed, leaving them worse off in absolute purchasing power than before the digital revolution.
Note:TENERE IL PASSO
While the foundation of our economic system presumes a strong link between value creation and job creation, the Great Recession reveals the weakening or breakage of that link. This is not merely an artifact of the business cycle but rather a symptom of a deeper structural change in the nature of production.
How can so much value creation and so much economic misfortune coexist?
In the long run, productivity growth is almost the only thing that matters for ensuring rising living standards. Robert Solow earned his Nobel Prize for showing that economic growth does not come from people working harder but rather from working smarter.
Note:LA PRODUTTIVITÀ È TUTTO
if it grows at 4% per year, as it did in 2010, then living standards are 16 times higher after 70 years.
Note:PICCOLI INCREMENTI… GRANDI PROGRESSI
While 4% growth is exceptional, the good news is that the past decade was a pretty good one for labor productivity growth—the best since the 1960s.
While bushels of wheat and tons of steel are relatively easy to count, the quality of a teacher’s instruction, the value of more cereal choices in a supermarket, or the ability to get money from an ATM 24 hours a day is harder to assess.
Note:QUALITÀ DIFFICILE DA QUANTIFICARE
Compounding this measurement problem is the fact that free digital goods like Facebook, Wikipedia, and YouTube are essentially invisible to productivity statistics.
Note:BENI INVISIBILI AL PIL
Furthermore, most government services are simply valued at cost, which implicitly assumes zero productivity growth for this entire sector, regardless of whether true productivity is rising at levels comparable to the rest of the economy.
Note:SERVIZI PUBBLICI SENZA MARKET TEST
Health care productivity is poorly measured and often assumed to be stagnant, yet Americans live on average about 10 years longer today than they did in 1960. This is enormously valuable, but it is not counted in our productivity data.
Note:ESEMPIO DELLA SALUTE
Earlier eras also had significant unmeasured quality components, such as the welfare gains from telephones, or disease reductions from antibiotics.
Note:L‘INCOMMENSURABILE NEL PASSATO
Stagnant Median Income
In contrast to labor productivity, median family income has risen only slowly since the 1970s (Figure 3.2) once the effects of inflation are taken into account. As discussed in Chapter 1, Tyler Cowen and others point to this fact as evidence of economy-wide stagnation.
Note:STAGNAZIONE DEI REDDITI
at the same time, GDP per person has continued to grow fairly steadily (except during recessions). The contrast with median income is striking
Note:MEDIA E MEDIANA
There have been trillions of dollars of wealth created in recent decades, but most of it went to a relatively small share of the population. In fact, economist Ed Wolff found that over 100% of all the wealth increase in America between 1983 and 2009 accrued to the top 20% of households.
Note:POCHI CREANO VALORE
This squares with the evidence from Chapter 2 of the growing performance of machines. There has been no stagnation in technological progress or aggregate wealth creation as is sometimes claimed.
Note:NESSUNA STAGNAZIONE PRODUTTIVA
Not only are income and wages—the price of labor—suffering, but so is the number of jobs or the quantity of labor demanded (Figure 3.4). The last decade was the first decade since the depths of the Great Depression that saw no net job creation.
Note:NESSUN LAVORO CREATO
Lack of hiring, rather than increases in layoffs, is what accounts for most of the current joblessness.
Note:ASSUNZIONI E LICENZIAMENTI
This reflects a pattern that was noticeable in the “jobless recovery” of the early 1990s, but that has worsened after each of the two recessions since then. Economists Menzie Chinn and Robert Gordon, in separate analyses, find that the venerable relationship between output and employment known as Okun’s Law has been amended.
The historically strong relationship between changes in GDP and changes in employment appears to have weakened as digital technology has become more pervasive and powerful.
Note:PIL E LAVORO
How Technology Can Destroy Jobs
At least since the followers of Ned Ludd smashed mechanized looms in 1811, workers have worried about automation destroying jobs. Economists have reassured them that new jobs would be created even as old ones were eliminated.
People with little economics training intuitively grasp this point. They understand that some human workers may lose out in the race against the machine.
technological progress is not a rising tide that automatically raises all incomes.
Note:LA MAREA TECNOLOGICA
If wages can freely adjust, then the losers keep their jobs in exchange for accepting ever-lower compensation as technology continues to improve. But there’s a limit to this adjustment.
David Ricardo, who initially thought that advances in technology would benefit all, developed an abstract model that showed the possibility of technological unemployment. The basic idea was that at some point, the equilibrium wages for workers might fall below the level needed for subsistence.
There was a type of employee at the beginning of the Industrial Revolution whose job and livelihood largely vanished in the early twentieth century. This was the horse. The population of working horses actually peaked in England long after the Industrial Revolution, in 1901, when 3.25 million were at work. Though they had been replaced by rail for long-distance haulage and by steam engines for driving machinery, they still plowed fields, hauled wagons and carriages short distances, pulled boats on the canals, toiled in the pits, and carried armies into battle. But the arrival of the internal combustion engine in the late nineteenth century rapidly displaced these workers, so that by 1924 there were fewer than two million. There was always a wage at which all these horses could have remained employed. But that wage was so low that it did not pay for their feed.
Note:UN LAVORATORE SFORTUNATO: IL CAVALLO
We also now understand that technological unemployment can occur even when wages are still well above subsistence if there are downward rigidities
Minimum wage laws, unemployment insurance, health benefits, prevailing wage laws,
employers will often find wage cuts damaging to morale. As the efficiency wage literature notes, such cuts can be demotivating to employees and cause companies to lose their best people.
To understand this threat, we’ll define three overlapping sets of winners and losers that technical change creates: (1) high-skilled vs. low-skilled workers, (2) superstars vs. everyone else, and (3) capital vs. labor.
Note:VINCITORI E VINTI
Ultimately, the effects of technology are an empirical question—one that is best settled by looking at the data.
Note:UNA QUESTIONE EMPIRICA
High-Skilled vs. Low-Skilled Workers
This is technical change that increases the relative demand for high-skill labor while reducing or eliminating the demand for low-skill labor. A lot of factory automation falls into this category,
Note:AUTOMAZIONE DELLA FABBRICA
Over the past 40 years, weekly wages for those with a high school degree have fallen and wages for those with a high school degree and some college have stagnated. On the other hand, college-educated workers have seen significant gains, with the biggest gains going to those who have completed graduate training …wage divergence accelerated in the digital era. As documented in careful studies by David Autor, Lawrence Katz, and Alan Krueger, as well as Frank Levy and Richard Murnane and many others, …
Skill-biased technical change has also been important in the past. For most of the 19th century, about 25% of all agriculture labor threshed grain. That job was automated in the 1860s.
Echoing the first Nobel Prize winner in economics, Jan Tinbergen, Harvard economists Claudia Goldin and Larry Katz described the resulting SBTC as a “race between education and technology.” Ever-greater investments in education, dramatically increasing the average educational level of the American workforce, helped prevent inequality from soaring as technology automated more and more unskilled work.
Studies by this book’s co-author Erik Brynjolfsson along with Timothy Bresnahan, Lorin Hitt, and Shinku Yang found that a key aspect of SBTC was not just the skills of those working with computers, but more importantly the broader changes in work organization that were made possible by information technology.
Superstars vs. Everyone
Many industries are winner-take-all or winner-take-most competitions, in which a few individuals get the lion’s share of the rewards. Think of pop music, professional athletics, and the market for CEOs. Digital technologies increase the size and scope of these markets. These technologies replicate not only information goods but increasingly business processes as well.
Note:WINNER TAKE ALL…WTA
The top 10% of the wage distribution has done much better than the rest of the labor force, but even within this group there has been growing inequality. Income has grown faster for the top 1% than the rest of the top decile. In turn, the top 0.1% and top 0.01% have seen their income grow even faster.
Sherwin Rosen, himself a superstar economist, laid out the economics of superstars in a seminal 1981 article. In many markets, consumers are willing to pay a premium for the very best.
Technology can convert an ordinary market into one that is characterized by superstars. Before the era of recorded music, the very best singer might have filled a large concert hall but at most would only be able to reach thousands of listeners over the course of a year. Each city might have its own local stars, with a few top performers touring nationally, but even the best singer in the nation could reach only a relatively small fraction of the potential listening audience. Once music could be recorded and distributed at a very low marginal cost, however, a small number of top performers could capture the majority of revenues in every market, from classical music’s Yo-Yo Ma to pop’s Lady Gaga.
digital technologies make it possible to replicate not only bits but also processes. For instance, companies like CVS have embedded processes like prescription drug ordering into their enterprise information systems. Each time CVS makes an improvement, it is propagated across 4,000 stores nationwide, amplifying its value. As a result, the reach and impact of an executive decision, like how to organize a process, is correspondingly larger.
the ratio of CEO pay to average worker pay has increased from 70 in 1990 to 300 in 2005, and much of this growth is linked to the greater use of IT, according to recent research that Erik did with his student Heekyung Kim. They found that increases in the compensation of other top executives followed a similar, if less extreme, pattern. Aided by digital technologies, entrepreneurs, CEOs, entertainment stars, and financial executives have been able to leverage their talents across global markets and capture reward that would have been unimaginable in earlier times.
financial services sector has grown dramatically as a share of GDP and even more as a share of profits and compensation, especially at the top of the income distribution. While efficient finance is essential to a modern economy, it appears that a significant share of returns to large human and technological investments in the past decade, such as those in sophisticated computerized program trading, were from rent redistribution rather than genuine wealth creation.
Note:FINANZA E IT
Capital vs. Labor
If the technology decreases the relative importance of human labor in a particular production process, the owners of capital equipment will be able to capture a bigger share of income from the goods and services produced. …In particular, if technology replaces labor, you might expect that the shares of income earned by equipment owners would rise relative to laborers—the …
Note:LA FETTA DEL CAPITALE
As noted by Kathleen Madigan, since the recession ended, real spending on equipment and software has soared by 26% while payrolls have remained essentially flat.
Note:SPESA IN PC E IN LAVORO
there is growing evidence that capital has captured a growing share of GDP in recent years. As shown in Figure 3.6, corporate profits have easily surpassed their pre-recession levels.
As noted by economists Susan Fleck, John Glaser, and Shawn Sprague, the trend line for labor’s share of GDP was essentially flat between 1974 and 1983 but has been falling since then.
Note:LA FETTA DEI SALARI
Inequality Can Affect the Overall Size of the Economy
Is this simply a zero-sum game where the losses of some are exactly offset by gains to others? Not necessarily. On the positive side of the ledger, inequality can provide beneficial incentives for skill acquisition, efforts toward superstardom, or capital accumulation.
Note:MA NON È UN GIOCO A SOMMA ZERO
one of the most basic regularities of economics is the declining marginal utility of income. A $1,000 windfall is likely to increase your happiness, or utility, less if you already have $10 million than if you only have $10,000.
Note:INCONVENIENTE DELL’ UTILITÀ MARGINALE
equality of opportunity is important to the efficiency and fairness of a society,
inequality inevitably affects politics, and this can be damaging and destabilizing.
When SBTC increases the incomes of high-skill workers and decreases the incomes and employment of low-skill workers, the net effect may be a fall in overall demand. High-skill workers, given extra income, may choose to increase their leisure and savings rather than work extra hours. Meanwhile, low-skill workers lose their jobs, go on disability, or otherwise drop out of the labor force. Both groups work less than before, so overall output falls.
Note:EFFETTO REDDITO SUI RICCHISSIMI ED EFFETTO SCORAGGIAMENTO SUI POVERI. TUTTI LAVORANO MENO
it’s easy to see how a shift in income from labor to capital would lead to a similar reduction in overall demand. Capitalists tend to save more of each marginal dollar than laborers. In the short run, a transfer from laborers to capitalists reduces total consumption, and thus total GDP.
Over time, a well-functioning economy should be able to adjust to the new consumption path required by any or all of these types of reallocations of income. For instance, about 90% of Americans worked in agriculture in 1800; by 1900 it was 41%, and by 2000 it was just 2%. As workers left farms over the course of two centuries, there were more than enough new jobs created in other sectors,
Note:AGGIUSTAMENTI… VEDI AGRICOLTURA
However, when the changes happen faster than expectations and/or institutions can adjust, the transition can be cataclysmic.
In the most recent decade, demand has fallen most for those in the middle of the skill distribution. The highest-skilled workers have done well, but interestingly those with the lowest skills have suffered less than those with average skills, reflecting a polarization of labor demand.
Note:CURIOSI: LA U DELLE SKILL… IMPREVEDIBILITÀ
It can be easier to automate the work of a bookkeeper, bank teller, or semi-skilled factory worker than a gardener, hairdresser, or home health aide. In particular, over the past 25 years, physical activities that require a degree of physical coordination and sensory perception have proven more resistant to automation than basic information processing, a phenomenon known as Moravec’s Paradox’.
RAGIONIERI E GIARDINIERI