TECH SPECIAL.... What can history teach us about technology and jobs?

What can history teach us about technology and jobs?

We can learn from past shifts in employment to improve the future of work.

This is not the first time the world has experienced significant shifts in employment due to new technology. History tells us that in the long run technology is a net creator of jobs. But with artificial intelligence (AI) and automation’s rapid advances, could this time be different?

For the New World of Work podcast, Peter Gumbel, senior editor at the McKinsey Global Institute, spoke with Susan Lund, partner at the McKinsey Global Institute and coauthor of the MGI report Jobs lost, jobs gained: Workforce transitions in a time of automation, and Richard N. Cooper, the Maurits C. Boas Professor of International Economics at Harvard University, about what we can learn from past employment transitions, first out of agriculture and more recently out of manufacturing.

Peter Gumbel: Welcome to the latest in our podcast series on the new world of work. This is Peter Gumbel, from the McKinsey Global Institute, and today we’re going to be talking about what history can teach us about issues of technology and employment. And here to discuss that are Richard Cooper, who is the Maurits C. Boas Professor of International Economics at Harvard University, and Susan Lund, who is a partner at the McKinsey Global Institute, based in Washington, DC. Thank you both for being here.

I will, first of all, ask Professor Cooper what the lessons really are, because it looks at least from a very superficial point of view that technology has tended to create more jobs than it destroys. Is that true? And if that’s the case, why is that?

Richard Cooper: Well first, the historical perspective. This issue, which currently preoccupies people, goes back a long way. Technology has been changing for at least seven centuries, since the horse collar in Europe. It reached a new stage with the industrial revolution, starting in the 19th century. And roughly once a generation, we have a near panic by some people because technology is destroying jobs. And it’s true that new technology often destroys existing jobs, but it also creates many new possibilities through several different channels. Think of cloth making back in the early 19th century or automobile making in the early 20th century. All kinds of supplementary industries, all kinds of new possibilities. And don’t forget demand. If goods become cheaper, speaking in general terms, people want more of them. So, there may be a much bigger demand for the output even though the productivity has gone up and, per unit output, fewer people are employed.

For all of those reasons, higher incomes, greater demand, supplementary activities to the activity that’s being focused on, we’ve discovered that total employment has increased over the years in spite of concerns, roughly once a generation, about the loss of jobs created by new technology.

Susan Lund: To put some numbers on this, we’ve looked at the productivity growth and employment growth over different time periods in a variety of different countries. And what we find is that since 1960, in the United States, for instance, both productivity and employment have grown in individual years 79 percent of the time. And in only 12 percent of the years did we see productivity growth with employment declines. And when you look over a longer time period, say three years, five years, out to ten years, you see that the number of times that employment actually falls while productivity goes down literally to zero, in the case of the US, when you look out at a ten-year period. Indeed, in a five-year period or a three-year period, 95 percent of the time you see productivity and employment growing for all the reasons that Professor Cooper just explained.

We see the same pattern in other countries as well. In China, for instance, when you look at individual years, you see employment and productivity both growing in 77 percent of the individual years since 1960, but in 98 percent of the ten-year rolling periods. In Germany and Sweden, we see the same pattern, albeit somewhat lower due to less turnover and other rigidities in their labor markets. But it’s very clear from the evidence that, in fact, as productivity grows, you don’t see fewer jobs; you see more jobs.

Peter Gumbel: Susan, in the report that you have just put out, called Jobs lost, jobs gained: Workforce transitions in a time of automation, you cite an interesting case of the Ford Model T as being an example of how this actually plays out in practice in the workplace.

Susan Lund: The Ford Model T is a good example of what Professor Cooper described. Over a six-year period, the number of Model Ts produced per worker tripled from eight to 21. So, that’s productivity. But at the same time, the price of a Model T dropped by more than half, from $950 per car in 1909 to $440 in 1915. As a result, demand to purchase automobiles just soared. And so, rather than declining, employment in the automotive industry soared and the number of people employed went up. It was because consumers demanded more of the goods.

Peter Gumbel: OK. Professor Cooper, perhaps you’d like to jump in on that. So, how actually does it happen that autos create net jobs?

Richard Cooper: Well, back up a minute. Automobiles, the internal-combustion engine, destroyed a whole industry—the carriages and horses to pull them, right? There were lots of jobs lost as a result of this new technology, an internal-combustion engine on wheels. Lots of jobs lost. And, as Susan says, even within the automobile industry in the early days, productivity went way, way up, so output per worker went way up.

Why was there no net loss of jobs? Recall that Henry Ford paid very good wages to his people. That was partly for his benefit. He did not want the high turnover that manufacturing then had. He wanted to keep good workers. But he also said he wanted his workers to be able to buy his product. So, incomes of those employed rose; demand for the product, the Model T and other automobiles, also rose. And as Susan said, because of the increase in output, despite a large increase in productivity, employment in the auto industry went up. That’s not always the case. You can imagine employment in the industry in which the technology is improving rapidly going down or, as I mentioned with carriages, whole industries being destroyed.

By the way, that did not take place at once. It took place over three decades. My grandfather still had work horses on his farm, as well as two tractors. So, it’s a gradual process. But think of the supplementary industries that were created by automobiles. Filling stations, automobile repair. And then, of course, the possibilities of living farther from work, enlarging your housing by moving out where land was cheaper than it was in the central city. And then vacations. With automobiles, you could go to many more spaces.

Peter Gumbel: So, it sounds like what you’re saying is that at least some, or even many, of the jobs that are created by technology are ones that perhaps you couldn’t even have imagined before the technology existed.

Richard Cooper: That is correct. And that’s a central problem with public discussion of this issue. The jobs that are lost are tangible. There are people in them. We can sympathize with the people who lose their jobs and so forth. There’s a human dimension. The jobs that are created or made possible have no one in them, and, in fact, we don’t even know exactly where they’re going to be until, you know, time goes on.

One example is the ski industry. Of course, skiing has been around for centuries, probably, but the ski industry is a post–World War II phenomenon in which areas of New Hampshire, Vermont, Maine, Colorado, Idaho, and Utah were opened up by the creation of the automobile and the rise of incomes that went with higher productivity. And so, there’s a whole new industry with ski instructors, people who maintain the ski slopes, snow makers, and the manufacturing of snow-making machines. None of that was foreseen until the industry started. And even after it started, it was not foreseen how big it would become. So, the recreational activities have been vastly opened up by the creation of automobiles and paved roads.

Peter Gumbel: Susan, over to you. In the report that the McKinsey Global Institute has just published, there’s also a case study of computers. And are you seeing the same things with computers that you also saw in the automotive industry?

Susan Lund: Yes. It’s a good example of the point that we’ve just made, which is that we can’t often foresee the new occupations that are going to be created from a technology. Consider the introduction of the personal computer and then, after it, the Internet, and now, mobile-phone-based computing and smartphones. In the report, we tallied up, at a very detailed level back to 1970 in the United States, the number of jobs that were destroyed. For example, we didn’t need as many typists. We didn’t need as many office-machine manufacturers. Secretaries used to take dictations of memos from executives, using shorthand, and then go type them up. That wasn’t needed with the advent of the personal computer. And increasingly, executives started writing their own memos.

We tallied up all the jobs destroyed in the US since 1980 as a result of the rise of personal computing and the Internet, and it’s about 3.5 million. We see declines in a lot of these occupations that were once large and today are very small or nonexistent.

But on the other side of the coin, we see millions more jobs created both directly for computer-hardware manufacturers and the input industries, like semiconductors. We see growth in computer-enabled industries. For instance, software developers, app developers, computer scientists employed in other industries, the whole software service industry. And then finally, we see computers have given rise to a whole range of occupations that couldn’t exist without them. Think about call centers and as a customer calling in to a call-center rep. If that person didn’t have a terminal in front of them to look up your account information, they really couldn’t tell you much. Right now, there are over three million call-center service reps in the US.

When we add up all the jobs created, we find that over 19 million jobs have been created as a result of the personal computer and Internet. We see a net gain of 15.8 million jobs in the US over the last few decades. And that’s about 10 percent of the civilian labor force today, is in an occupation or a job that’s a direct result of the introduction of this technology. Of course, this plays out over decades, but I think it’s important to remember in all the discussion of automation today that there will be growth of occupations and industries, that we can’t even imagine that over time will replace the work that’s being automated.

Peter Gumbel: OK. Both of you have sketched out very clearly this idea that sectors decline and others rise at the same time of these long-term shifts. But I’m wondering, Professor Cooper, what does this mean for people with different skills? I’m assuming that the new jobs require different types of skills from the old jobs that disappear.

Richard Cooper: Well, I think that’s right. And it can go either way. Susan mentioned, in her example, people—secretaries, we used to call them—who take dictation. And that was a specialized skill, reading what you wrote down and being able to type it up. Now, we can have people who don’t have the skills to take dictation that can produce a product in some respects even better than before. Similarly, with bar coding and scanning in grocery stores, or actually all shops, it used to be that at checkout counters, the people had to be able to make change, which means they were comfortable with numbers and quickly performing addition and subtraction in their heads. Now, we can hire people who don’t require numeric skills at checkout counters. This is a case where technology actually reduced the skill that was required for a particular class of jobs.

On the other hand, coding programs and apps requires a high degree of programming skill. And that requires new skills, which barely existed 50 years ago. We had programmable computers, but they were large, IBM-type machines. And programming has become much more common, but it is a technical skill. In medicine, now we can do things that were not possible before, but the medical equipment requires specialized skills, people who know how to use the medical equipment and how to repair it.

Training has to adapt to generate the skills that are required by the new technology. Technology changes the mix of skills. It can produce jobs that have lower skills than previously, and it can produce jobs that require new skills. Therefore, our educational system and workers have to learn the new skills in order to use the new technology, both to use it in application and to repair equipment that’s broken down.

Susan Lund: In our research in our new report, we quantify how much work could be automated for 800 occupations within countries, thereby reducing employment in that occupation, but then at different sources of potential labor demand. So, what jobs might be created in the years to 2030? And when we look at the net of those two forces, we see that some occupations may decline from today’s level, while others are going to grow.

McKinsey Global InstituteFebruary 2018

https://www.mckinsey.com/global-themes/future-of-organizations-and-work/what-can-history-teach-us-about-technology-and-jobs?cid=podcast-eml-alt-mgi-mgi-oth-1803&hlkid=418d9900fb9e4cf19b5c6858faab1a0c&hctky=1627601&hdpid=1617887b-ee0a-4cf2-8f75-d9bc57af76c3