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That’s the strong claim made by venture capitalist and former Intel executive Bill Davidow for Harvard Business Review: “For all its economic virtues, the Internet has been long on job displacement and short on job creation. As a result, it is playing a central role in wage stagnation and the decline of the middle class.”
I took issue with Davidow in a recent piece for The Week. It’s just too much. While there is little doubt that automation has driven job polarization — bad for clerical workers and those doing repetitive factory work — one also has to acknowledge that the US economy is creating gobs of jobs right now. And there is some reason to believe wages will soon be on the upswing. Also, Davidow doesn’t offer evidence that the Internet or robots or other smart machines are behind the sharp drop in labor force participation or the employment rate vs. demographics and the aftermath of the Great Depression. Oh, and what about the nearly million app developer jobs created by the Internet? What’s more, economist David Autor argues that the “the deceleration of the U.S. labor market after 2000, and further after 2007, is more closely associated with … the bursting of the dot-com bubble, followed by the collapse of the housing market and the ensuing financial crisis … and the sharp rise of import penetration from China following its accession to the World Trade Organization in 2001.”
Along the same lines, here is Ferdinando Giugliano in the FT on some new research:
In a paper entitled “The Labour Market Consequences of Electricity Adoption”, presented this week at the Royal Economics Society meeting in Manchester, Miguel Barroso Morin, an academic at Cambridge University, takes a look at what happened in the 1930s, when a sharp fall in the cost of electricity led to its widespread adoption across US industry. … But Morin takes a close look at the cement industry during the Great Depression and, unfortunately, finds little reason to support this more optimistic theory. Cheaper electricity did not lead to any significant increase in output, while causing a 21 per cent decrease in employment. And while labour productivity jumped by 36 per cent, the share of income going to workers fell by 11 per cent. …
In a separate paper (“Robots at Work”), Georg Graetz from Uppsala University and Guy Michaels from the London School of Economics analyse the economic effects of the introduction of robots in 17 developed countries between 1993 and 2007. Their analysis mainly looks at manufacturing, though they also consider agriculture and utilities. … The good news from the study is that, on average, the increased use of robots contributed about 0.37 percentage points to yearly economic growth, which accounts for roughly a tenth of the total. It also explains around a sixth of labor productivity growth. The authors claim that this is roughly comparable to the effects that the railroads had in the 19th century.
Furthermore, unlike Morin, Graetz and Michaels find that technological development did not lead to a reduction in overall employment and, in fact, boosted wages. However, the two researchers paint a very different picture across different type of workers: their research finds robots had a detrimental effect on low- and middle-skilled workers, who saw both their employment levels and their wages fall. These effects were absent in the case of high-skilled workers.
All that said, Davidow’s policy suggestions are pretty good:
To start with those policies must be implemented with the Internet’s efficiency in mind. Raising the minimum wage, for instance, plays straight into the hands of the Internet efficiency engine. Raising the minimum wage will just drive employers to use machines to replace people. An earned income tax credit is a better approach. Low paid workers get the benefit of transfer payments and employers who will not pay hirer wages will feel less pressure to automate.
Investing in infrastructure is an excellent way to create jobs but such infrastructure should be compatible with an increasingly virtual world. Yes we should fix the roads but as more and more people work from home, as more and more of what we purchase gets delivered to our doorstep, as more and more of us go out to the movies in our living rooms, and as highway congestion grows, the chances are that more and more of us will use our cars less. … For a millennial, the infrastructure of the future will be higher bandwidth interconnections and public transportation that will take the place of his car.