Destroying myths about job destruction

Two common, but pervasive, myths have gained ground that adds an aura of scientific determinism to the fatalism regarding rising unemployment: the first relates to technology, the second to trade. The notion that science and technology will eventually eliminate the need and, consequently, the opportunity for human productive labour has been gaining ground since the early years of the Industrial Revolution, and, with the advent of automated production lines, computers and industrial robots, it has attained the status of accepted truth. Each generation welcomes with foreboding the advent of new technologies, attracted by their potential benefits and frightened by the immediate costs they impose. But contrary to popular conception and empirical observation, there is little evidence to support the thesis that technological development is responsible for rising levels of unemployment in the medium to long term.

In spite of widespread anxiety that machines are progressively replacing people in the workforce, historically there has been a strong positive correlation between technological development and job creation. It is certainly the case that the commercial application of each new phase of productive technologies displaces people from traditional occupations, reduces the number of workers required to carry out specific tasks, and can in the short term lead to fewer jobs in specific industries. In the process, a larger number of low-wage, unskilled jobs are replaced with a smaller number of higher-wage, more skilled jobs resulting in rising levels of worker productivity and rising personal incomes. But that is only the most direct initial impact of improved technology. Seen from a wider perspective and traced patiently along the course of its myriad consequences, the introduction of new technology acts as a catalyst that generates a positive ripple effect which, on average, results in the creation of many more jobs – more skilled, more productive and higher-wage jobs – than it destroys. The rising productivity made possible by technology reduces production costs and thereby lowers the price of products and services to customers and consumers. The lower prices result in increased demand, greater consumption, higher levels of production and even greater cost reductions due to economies of scale. This represents only the first cycle of job creation. While jobs are being eliminated in low-skilled manual or assembly operations, simultaneously they are being created in industries that manufacture and service the more sophisticated machines, as well as in Research and Development (R &D) laboratories that develop the new machines, materials and manufacturing processes. The workers who operate the improved machines require higher levels of skill, which demands more education and training, thus creating demand for jobs in the service sector. The more productive and higher-paid industrial workers utilize their enhanced purchasing power to buy more goods and services than before – spending more on travel, consumer goods, housing, leisure, health and the education of offspring, and thus creating demand for more jobs in other industries. Rising incomes generate higher standards and expectations, bringing changes in lifestyle that creates new needs and new commercial activities.

This process has led to enormous growth in new jobs. The best documented example of this process is the automotive industry. Inspired by the idea of making a car the working-class masses at the turn of the century could afford, Henry Ford adopted new manufacturing technology, the automated assembly line, to produce the first low-priced automobile. Ford’s technology increased worker productivity more than seven-fold and reduced production costs by two-thirds. As an immediate result, thousands of small manufacturers of custom-built cars and horse-drawn carriages were put out of business. But the growing demand for low-cost vehicles generated explosive growth for the industry, creating tens of thousands of new jobs in the process. Globally, production rose from less than 250,000 vehicles in 1910 to 42 million in 1980. Nine decades later, the automotive industry is still the largest manufacturing industry in the world and the single largest source of jobs in the American economy. Every job created in automotive manufacturing has spawned roughly ten more in related occupations. Thus, about 9 per cent of the USA’s entire workforce is employed in occupations directly related to automotive manufacture, sales and services, road construction and maintenance, and transport of freight and passengers. Globally, 7 to 9 million workers were employed in automotive manufacturing in 1980 and perhaps as many as 50 to 80 million in related occupations. In addition, the spread of automotive technology has had tremendous impact on the growth of other industries stimulated by the greater mobility of the public – retail trade, hotels, restaurants, tourism, recreation – and indirectly on agriculture, as well as every other service and manufacturing industry that benefits from lower cost and greater speed of passenger and freight transport.

Advances in technology provide society with greater conveniences and in the process endow the society with greater creative and productive abilities. Over time, these new abilities spur the creation of new activities in many different fields distantly related to the original point of innovation. The process results in improvements in health, which raise the level of physical energy; higher standards of education, which raise the level of mental energy and culture; and higher levels of social skills and organization, which raise the energy level of the entire society, making it ever more creative and productive. A comprehensive study of this wider process of job creation and destruction arising from technological innovation is needed to develop specific coefficients for measuring the impact of technological advances in different fields on total employment. Eventually, we may hope to dispel the widespread fear and sense of helplessness that this issue evokes.

The notion that there are a fixed or inherently limited number of jobs that can be created by the economy is a fiction. It is not just advances in technology that work in this fashion. Every major advance in social attitudes, institutions, values and lifestyles has a dual effect on employment, creating jobs in some areas and destroying them in others. Higher standards of education not only raise productivity, but also stimulate higher expectations that lead to greater consumption. Changing attitudes toward the environment have created entirely new industries and generated new jobs in every field where impact on the environment is of concern. New types of organization such as fast-food restaurants, franchising and hire purchase or leasing create new jobs by hastening the growth or expanding the activities of the society. Shifting attitudes toward marriage and the role of women create greater demand for jobs but also more opportunities for employment, because working women consume more and require additional services.

Anxiety regarding the impact of technological development on jobs has been aggravated by the belief – largely a hangover from the Industrial Age – that in the industrial nations automation is rapidly replacing high-wage manufacturing jobs with low-wage jobs in the service sector. Actually, services have had a dominant place in Western economies for most of the twentieth century. In the United States, they now account for 79 per cent of all jobs, 74 per cent of GDP, and generate a $56 billion trade surplus, compared to a $132 billion deficit for goods. Technological developments, such as advances in computers, telecommunications and medical technology, have played at least as great a role in the growth of the service sector as in manufacturing. New service jobs in banking, foreign trade, research, design and engineering, computer software, education, health, law, finance, business management, communications, transportation, media and entertainment demand higher levels of education and skills and offer higher pay. In 1992 the median manufacturing job in the US paid only $19 per week more than the median job in the service sector. The growth of technology is freeing workers from the drudgery of the production line, while providing consumers with a quality of life previously available only to the wealthiest.

The organization of production is also a major determinant of the number of jobs created. The Western pattern of mass production by monolithic corporations that emerged during the first 80 years of this century is no longer the inevitable or even the obvious pattern for either industrial or developing countries in the coming decades. Smaller, technology-intensive firms are faster at adapting new technology, more flexible in meeting specialized customer needs and generate more skilled, better-paying jobs. Recent experience, such as in the Prato region of Italy, indicates that proper blending of new technologies in existing productive sectors can be utilized to preserve a geographically decentralized, small-scale pattern of production and to enable small firms to match the competitiveness of countries with much lower labour costs. This offers an attractive alternative for preserving the small-scale decentralized pattern of production still prevalent in developing countries and for the future development of enterprises in new industries.

Each advance in attitudes, lifestyles, social institutions and forms of commercial organization has ultimately expanded the scope of economic activities and raised living standards substantially. Jobs are created by our innate human resourcefulness and ingenuity, expressed as invention, innovation and social imitation. The ultimate determinant of the number and quality of jobs in future will not be physical or even financial constraints, but – ‘science, technology, values and social organization – in a word, the human imagination’.