Wednesday, 29 January 2014

Does innovation destroy jobs?

In my recent Reddit session there were quite a number of questions about job destruction due to technological change:

This is a serious question, and many economists have dismissed it too easily by pointing out that in an ideal world, those who lose a job today will find another one tomorrow in a different sector. Unfortunately, life is never ideal.

But, consider these facts:
  • An unmanned air drone that replaces a F16 fighter aircraft, requires about 300 people to stay in the air for 24 hours. An airplane only requires 100 (T. Cowen, Average is over, 2013). Technological progress and mechanization does not necessarily require less jobs, but different ones, and not everyone is prepared to get these.
  • Job destruction has declined over time. Fewer workers move straight into unemployment than before. This is partly related to demographics as older workers tend to have more secure jobs. But it also has something to do with the fact that we aren’t as innovative as we think we are (ILO Global Employment Trends 2014).
  • Productivity growth has slowed over the last two decades at least in advanced economies where it barely reached half the growth rates of the 1990s. The pace of innovation has slowed as well. In itself, this is something we should worry about, because it means, collectively we are growing richer less rapidly than before. And there are still plenty of people who need to improve their standard of living, even in developed economies.....

So whether technological progress has actually accelerated or not is still a matter of debate. But even if it has, the problem is not the lack of work to be done but rather making sure workers possess the right skills to get the jobs available. Even in countries where labour markets are generating a lot of jobs, the mismatch between skills in demand and skills in supply has increased, as I have shown in another recent report (ILO GlobalEmployment Trends 2013):

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