Technology a lesser cause in jobs losses

18:37, Oct 08 2012

Since the dawn of the industrial age, a recurrent fear has been that technological change will spawn mass unemployment.

Neoclassical economists predicted that this would not happen, because people would find other jobs, albeit possibly after a long period of painful adjustment. By and large, that prediction has proved to be correct.

Two hundred years of breathtaking innovation since the dawn of the industrial age have produced rising living standards for ordinary people in much of the world, with no sharply rising trend in unemployment.

Yes, there have been many problems, notably bouts of huge inequality and horrific wars. On balance, however, throughout much of the world, people live longer, work fewer hours and lead generally healthier lives.

But there is no denying that technological change nowadays has accelerated, potentially leading to deeper and more profound dislocations.

In a much-cited 1983 article, economist Wassily Leontief worried that the pace of modern technological change is so rapid that many workers, unable to adjust, would simply become obsolete, like horses after the rise of the automobile.


Are millions of workers headed for the glue factory?

As Asian wages rise, factory managers are already looking for opportunities to replace employees with robots, even in China.

As the advent of cheap smartphones fuels a boom in internet access, online purchases will eliminate a vast number of retail jobs.

Back-of-the-envelope calculations suggest that technological change could lead to the loss of five million to 10 million jobs worldwide a year.

Fortunately, until now, market economies have proved flexible in absorbing the impact of these changes.

A peculiar but perhaps instructive example comes from the world of professional chess.

In the 1970s and 1980s, many feared that players would become obsolete if and when computers could play chess better than humans.

Finally, in 1997, the IBM computer Deep Blue defeated world-chess champion Gary Kasparov in a short match.

Soon, potential chess sponsors began to balk at paying millions of dollars to host championship matches between humans.

Isn't the computer world champion, they asked?

Today, the top few players still earn a very good living, but less than at the peak.

Meanwhile, in real (inflation- adjusted) terms, second-tier players earn much less money from tournaments and exhibitions than they did in the 1970s.

Nevertheless, a curious thing has happened: far more people make a living as professional chess players today than ever before. Thanks partly to the availability of computer programs and online matches, there has been a mini-boom in chess interest among young people in many countries.

Many parents see chess as an attractive alternative to mindless video games.

A few countries, such as Armenia and Moldova, have actually legislated the teaching of chess in schools.

As a result, thousands of players nowadays earn surprisingly good incomes teaching chess to children, whereas in the days before Deep Blue, only a few hundred players could truly make a living as professionals.

In many United States cities, for example, good chess teachers earn upwards of $100 to $150 an hour.

Yesterday's unemployed chess player can earn a six-figure income if he or she is willing to take on enough work.

This is one example where technology might actually have contributed to equalising incomes.

Second-tier chess players who are good teachers often earn as much as top tournament players or more.

Of course, the factors governing the market for chess incomes are complex, and I have vastly over- simplified the situation.

The basic point is that the market has a way of transforming jobs and opportunities in ways that no-one can predict.

Technological change is not all upside, and transitions can be painful. An unemployed automotive worker in Detroit may be fully capable of retraining to become a hospital technician. Yet, after years of taking pride in his work, he could be very reluctant to make the switch.

I know a chess grandmaster who, 20 years ago, prided himself on his success at winning money in tournaments.

He vowed that he would never end up teaching children "how horsey moves" (the reference is to the knight, also called the horse).

Now, however, he does exactly that, earning more from teaching "how horsey moves" than he ever did as a competitive chess player. Still, it beats being sent to the knacker's yard.

Of course, this time technological change could be different, and one should be careful in extrapolating the experience of the last two centuries to the next two.

Mankind will be confronted with more complex economic and moral questions as technology accelerates, but even as technological change accelerates, nothing suggests a massive upward shift in unemployment during the next few decades.

Some increase in unemployment as a result of more rapid technological change is certainly likely, especially in places such as Europe, where a plethora of rigidities inhibit smooth adjustment. For now, however, the high unemployment of the past several years should be mainly attributed to the financial crisis, and should ultimately retreat towards historical benchmark levels.

Humans are not horses.

* Kenneth Rogoff, a former chief economist of the IMF, is professor of economics and public policy at Harvard University.

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