Grand Challenges in the Study of Employment and Technological Change

Abstract

Leading economists from Paul Samuelson to Paul Krugman have labored to allay the fear that technological advances may reduce overall employment, causing mass unemployment as workers are displaced by machines. This ‘lump of labor fallacy’ - positing that there is a fixed amount of work to be done so that increased labor productivity reduces employment - is intuitively appealing and demonstrably false. Technological improvements create new products and services, shifting workers from older to newer activities. Higher productivity raises incomes, increasing demand for labor throughout the economy. Hence, in the long run technological progress affects the composition of jobs not the number of jobs.

In 1900, for example, 41 percent of the U.S. workforce worked in agriculture. After a century of astonishing agricultural productivity growth, the number stood at 2 percent in 2000. This Green Revolution transformed physical and cognitive skill demands and the fabric of American life. But it did not reduce total employment. The employment-to-population ratio rose over the twentieth century as women moved from home to market, and the unemployment rate fluctuated cyclically with no trend increase.

What is fallacious in the ‘lump of labor fallacy’ is the supposition that there is a limited quantity of jobs. It is not fallacious, however, to posit that technological advance creates winners and losers. The shift from the artisanal shop to the factory with mechanization in the nineteenth century reduced the demand for skilled craft workers and raised it for more educated workers (managers, engineers, and clerks) and for less-skilled operatives. More recent technological changes from electrification to computerization have expanded the demand for highly-educated workers but substituted for less-skilled production workers. Technological improvements raise overall living standards but may adversely affect the quality of jobs for some workers.

Two forces are rapidly shifting the quality of jobs, reshaping the earnings distribution, altering economic mobility, and redefining gender roles in OECD economies. These forces are, first, employment polarization (a demand-side force) and, second, a reversal of the gender gap in higher education (a supply-side force), reflecting women's rising educational attainment and men's stagnating educational attainment. The result has been a labor market that greatly rewards workers with college and graduate degrees but is unfavorable to the less-educated, particularly less-educated males. The economic and social repercussions are only starting to receive study.