The stubbornly high unemployment rate has left policymakers wondering whether there's something more at work than just an unusually steep recession. Have the country, its businesses and its markets changed in some fundamental way, leaving millions of Americans with skills that are no longer needed? Economists are sharply divided on that point, but two from the Massachusetts Institute of Technology make a compelling argument that the technology revolution is vaporizing careers faster than many Americans can embark on new ones.
When productivity increases, that tends to boost wealth and economic growth. Yet even though productivity grew faster in the past decade than it has since the 1960s, job growth was slower than it has been since the Depression, even ignoring the huge job losses in 2008 and 2009. And median income — the dividing line between the top 50% of annual earnings and the bottom 50% — fell for the first time since the Bureau of Labor Statistics started tracking that figure in the 1950s.
Economist Tyler Cowan of George Mason University blames technology, or rather, the lack of major innovations of the sort that revolutionized economies in previous centuries and created entire industries in the first half of the 1900s. But that ignores the incredible leap represented by computers and the Internet, which have given rise to mini-industries on the platforms they've created. Think about the retail opportunities presented by EBay and Amazon, the applications and services made possible by Facebook, the mobile universe opened up by smartphones.
MIT economists Erik Brynjolfsson and Andrew McAfee have a different theory, which they discussed in a new e-book titled "Race Against the Machine" and at the recent Techonomy conference in Tucson. They argue that rapid technological advances have caused a structural change in the economy that many U.S. workers and institutions simply aren't prepared for.
At the root of the change is the phenomenon that microchip pioneer Gordon Moore first noted 46 years ago: the doubling of chip processing power every year to 18 months. That relentless improvement is enabling computers, which once were considered capable only of crunching numbers or following detailed instructions, to take on more complex tasks that involve recognizing patterns and responding to unanticipated events. For example, Brynjolfsson and McAfee noted that Google programmed a fleet of Toyota Priuses to drive themselves safely across California roadways last year, and software has progressed from understanding spoken words to grasping the meaning of a sentence. As processing power continues to double, those capabilities will improve dramatically and expand to more devices.
Computers still aren't very good at creative tasks, such as generating ideas or finding ways to apply lessons from one experience in a totally different context. But in Tucson, McAfee asserted that "the list of things humans are demonstrably better at than computers is shrinking pretty dramatically." Brynjolfsson observed that about 60% of U.S. workers perform "information processing tasks," and "it's hard to think of any of those that won't be profoundly affected and possibly eliminated by these technologies."
At the same time, the ability of computers to make humans more productive is growing exponentially. Jeffrey Katzenberg, chief executive of DreamWorks Animation, said at the conference that an expert animator can create only about 3 seconds' worth of a movie in a week because of the many hours spent waiting for computers to render the images in 3D. With the next generation of computers, he said, those workers will be able to animate and apply effects in real time, creating scenes 50 to 70 times as fast.
That's astounding, and it's great for DreamWorks and its animators, who can turn ideas into movies faster. The challenge for the United States — and every other country — is helping more people to take advantage of that leap in power rather than being left behind by it. The same could be said of any technology-fueled change in society, including the advent of commercial farming and the industrial revolution. What's different this time, Brynjolfsson and McAfee say, is that the changes brought about by the new technology are happening much, much faster.
The advances in productivity have generated a huge amount of wealth in the U.S. over the last three decades, but those gains have been reaped by those at the top of the income ladder. The most-educated workers' income has risen, particularly since the invention of the World Wide Web, while the wages of unskilled American workers have been trending down for more than three decades, Brynjolfsson and McAfee say. Meanwhile, as workers are replaced by technology, corporations are holding on to a greater share of the earnings.
On the bright side, the Internet and information technology are creating tremendous opportunities for entrepreneurs and for companies that adapt. So many more tools are freely available, barriers to entry are dramatically lower and the cost of marketing and distributing products globally is vanishing.
In fact, Brynjolfsson contends, the U.S. economy should be growing faster. Part of the reason the unemployment rate has stayed so high is that companies can't find employees equipped to help them expand their operations.
Brynjolfsson and McAfee offer a long list of suggested responses, but the one that matters most in the long term is to produce workers with the right set of skills. That starts with a more effective educational system for all ages, including adult retraining programs. Yet instead of investing in that system, cash-strapped states and cities are cramming more kids into classrooms and raising the cost of higher education.
If the authors are right, there's no short-term fix to the fundamental problem U.S. workers face. But as lawmakers struggle to breathe life into the moribund economy and bring down budget deficits, they need to recognize that growth over the long term depends on how well the country harnesses the technology-fueled advances in productivity. That means equipping far more Americans with skills relevant to the new era. Otherwise, the stagnating wages and employment of the past decade will become the painful new normal.