Monday, November 21, 2011

Technology Driven Jobless Recovery

Through the previous century and into the last decade, GDP per capita has grown an average 2.5% compounded a year. This has largely resulted from the increased use of technologies to boost productivity. But the relationship between productivity and real wages has weakened. On an inflation-adjusted basis, median income today is about the same as that in 1999, at the beginning of the Internet boom. Put another way, if wages had kept up with the rate of GDP growth in the last decade, median household income would be $30k higher than they are currently.

The history of technological change can be described as an evolutionary process punctuated by discontinuous leaps in innovation. Traditionally, firms invest in innovation to increase production capacity. These investments are staged so that an organization can adapt to the introduction of new methods. The controlled rate of adoption allowed horse carriage makers to become automobile manufacturers, and retail banks to become integrated financial service providers.

Skilled jobs based on routines that can be deconstructed into discrete steps were most suited to technological augmentation. Even those jobs that involve complex routines requiring the adroit manipulation of instruments can be augmented by the combination of fine motor robotics and intelligent visual recognition systems. We see this in the development of minimally invasive surgical techniques that was largely technology (rather than practice) driven. However, the increasing complexity of innovation is outstripping the human and organizational capacity to learn on the fly. These shifts create winners and losers overnight so that the technology augmentation of work has become the technology displacement of workers.

This jobless recovery is not a temporary phenomenon. It is embedded in the type of innovation we are experiencing. Platform technologies that can compute, analyze, recognize patterns and perform increasingly complex routines with greater accuracy and speed is being introduced at an increasing rate. Moore’s Law exacerbates the scale effects, creating even more powerful incentives to speed up the invention and deployment of such technologies. They have globalized the market for services such as radiology, chronic disease consultation, psychological counseling, and college and technical instruction. In addition to companies, entire classes of work are being displaced by technology.

The prognosis of this situation is not good for social or political stability. One commonly proposed solution, wealth redistribution, is not because it does not fix the fundamental problem of a workforce unable to exploit the latest technologies or whose value added is being displaced by the same technologies they relied on. Instead, solutions should focus on the technology and work relationship.

In the short term, organizations should be encouraged to accelerate the pace of innovation, not decelerate it. Why? Job loss results from the exit of companies and the technological displacement of entire classes of work. In terms of the first, U.S. companies compete on the global stage where innovation in emerging markets mean that if they do not keep up the impact of job losses will be more severe in the relatively higher wage U.S.

In the long term, the most resilient economies are those that display high levels of entrepreneurial bias. Fostering an entrepreneurial economy requires policies that reward risk taking while buffering the community from the inevitable shocks of failure. Closing the knowledge gap can aid a culture of risk taking. We can teach individuals how to assess risk and identify business opportunities. Business and engineering programs that emphasize opportunity recognition and creation, design-centric thinking, and the commercialization of discoveries can fireproof the next generation of workers from the economic vicissitudes of technological change.

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