Thoughts on Innovation, Productivity and Jobs

The basic tenant of the Gordian Views web-site is outlined on the “About Page”. Simply stated it is that Innovation is finally coming to the Development, Design and Construction Industries.

As I noted on that page, “Today, as we watch each new technology breakthrough introduce change in the development industry, we are seeing jobs disappear or diminish, which we would expect. The increased productivity is a boon to the owners and users of the facilities we build and the productivity is good for our countries as it keeps us all competitive. The negative impact is that this time, those jobs are not being replaced. ”
As I have written each successive Post, it has become clear that the premise is correct, mostly—Innovation is pervasive in our Industry and major change is underway. It is also apparent there are firms that are embracing that change and putting it to work right now, other firms are studying the tools and dipping their toes into “water”, and a third group that is opting out in some fashion. The opt-out may be to retire, or it might be to work to become a consultant in one area of specialization, or simply changing to another industry where the pace of change is not so fast.
The difficulty for those who are embracing the changing technology—me included—is to understand what level of change is really underway, on what time line and how to filter the data I receive. Do we need to be making massive investments of time and capital today, and start changing our business models, or is there another- perhaps more rational approach we should be considering. Finding a believable data set that supports any approach has been difficult– but not impossible.

In the past week I was directed to the Information Technology & Innovation Foundation website at itif.org , and have been very pleased with the quality of the research they include on the site, the quality of the writing, and the fact that full annotation and attribution is provided with the papers. The papers are catalogued and available for download.

In reading through the catalogue contents, I found a paper written by Ben Miller and Robert D. Atkinson, and published in September of 2013. It is titled “Are Robots Taking Our Jobs, or Making Them?” I encourage you to read this paper. It is lengthy and contains a robust data set.

Because of the length of the referenced paper, for this Post I have developed a very broad overview of the article with excerpts of (what I consider to be) the key findings. Consider these excerpts to be teasers, and hopefully they will draw your interest and attention to the full information. The article has been extremely helpful for me in understanding the issues that any business plan or annual plan must address to understand what changes in technology and/or productivity really mean to our country, the economy, our customers, and our families. As we understand those external impacts and what they are likely to be, we can begin to understand how we need to change our businesses. I have provided bullet points of the author’s findings and conclusions in this report and I strongly suggest reading the complete work. It contains a richness of data.

Introductory comments and sections

The authors point out early that the narrative that says technology is killing jobs is based on faulty analyses. In fact—they hold that the higher productivity that flows from embracing technological change actually leads to more jobs.
The tendency is to equate the severe downturn we are (hopefully) emerging from was also a period of technology growth. The easy step is to correlate the two, but that would be incorrect.

Here is what I believe is the key paragraph of this section of the paper;
“ There are jobs being created and destroyed in the economy all of the time… Our economy is complex, with a broad range of industries and occupations, some amenable at a particular time to automation, most others are not. ……… technological change, no matter how advanced, does not happen overnight- and current productivity changes are trending down. … the main reason is human wants are close to infinite. We need look no further than the fact that most people would love to win the Powerball Lottery. And as long as that is true, those wants will require labor to fill them (even if that labor is eventually supplemented by 22nd century robots).
There is a broad chorus of voices that the authors label as neo-luddite in tone, that are saying that innovation, automation and increasing productivity are costing jobs and are behind today’s high unemployment rates (recall this is a September 2013 writing). They have included a listing of well-known authors who have accepted this neo-luddite notion and these authors have included excerpts from a wide range of publications. They all paint a fairly negative picture of the future of Jobs.

So why are so many so gloomy?

Today our economy and our job creation engine have slowed down and the country has remained at 8% unemployment for several years.

The fear of technology correlates well to this slowed job creation and it has done the same over many years.

But the gloom is nothing new–In the early 20th Century the Great Depression led to a general concern that labor was too productive.

Keynes coined the term technological unemployment.
Bertrand Russell wrote an essay in 1932 called “In Praise of Idleness” noting that leftover work- after reductions by technology—should be divided up evenly.
A proposal was made to President Roosevelt to eliminate loading machines from mines and in general increase labor by decreasing machines.
Even the New Deal programs reflected this focus on manual labor.

The word “automation” was coined after WWII, and there was greater focus on the impact of innovation and automation on factory work, which extended across the economy.
Despite these periods of great worry—the economy and the number of jobs always continued to grow.

Productivity

The authors define two types of productivity;
Producing more output with less.
Producing a higher Value-added output for the same or less input.

They also define two ways to increase productivity;
The growth effect- where the output increases through investment in new technologies and improving worker skill sets.
The shift effect- where productivity results from shifting production from less productive to more productive industries.

Productivity is important because it is the only way to improve the per-capita GDP excepting workers working more hours- or more people working.
Productivity growth is especially important in internationally traded industries and is essential to maintaining US competitiveness. As we lose competitive position we lose high-value add production and the accompanying high wage work. This is the authors’ bottom line.

Why Productivity Doesn’t Lead to Fewer Jobs

“Both history and scholarly analysis have clearly and consistently refuted the notion that increased productivity leads in the moderate to long term to higher unemployment. This is because rising productivity increases overall wealth, and in a competitive economy that increased wealth gets reallocated to create additional demand that requires new workers.”

Savings from productivity gains flow to the economy through lower prices, higher wages to remaining employees or higher profits.

The authors contend there has never been a causal link between productivity and total employment growth. The size of the national workforce is based primarily on demographic and cultural factors and exhibits no clear relation to productivity.

Why the Neo-Luddites are wrong: Scholarly research evidence

The scholarly evidence as shown by several overview studies, supports the idea that technological change does not lead to fewer jobs, and in some cases may increase employment.

……. Some studies have found a positive relationship with increases in productivity leading to more not fewer jobs , at least in the medium and long term.

World Development Report 2013 notes that “over the long term (10 year period) changes in unemployment rates are small, in general, and employment in an economy is driven by the size of its labor force”. That is, not by changes in technology.”

Will the Future be different? Is Automation Speeding up?

“Clearly, innovation is not over and most certainly not exhausted due to past performance. As Schumpeter puts it, “there is no reason to expect slackening of the rate of output through exhaustion of technological possibilities”. This is a good thing. We are still harvesting the fruits of past research and building on past knowledge, and if we plant the right seeds we will continue to do so. Productivity growth remains as critical for our economic health as it ever was, as we must never forget that the attendant creative destruction benefits our entire economy.

Productivity has rarely increased at a rate of more than 4 percent per year, and the five year average of yearly increases has not broken 4 percent since 1952, when unemployment was quite low. This slow progress is because for all industries where we see progress, many more industries are operating at the same or lower levels of productivity as they had years ago. That means that massive improvement of the likes of even eight percent a year are basically out of the question for the United States, because they would require faster technological progress across a much broader array of technologies, industries and occupations.

Why don’t we have jobs? What is really going on?

“While there are a number of important causes including inadequate demand and the problematic nature of recovery from financial crises, the most compelling diagnosis is that we are failing to achieve robust recovery because the overall US economy has lost International Competitiveness!”

Conclusion: the Case for a National Productivity Policy

“Given that productivity growth is the most important factor in our nation’s economy it is surprising that the United States does not have an explicit national productivity policy.”

Paul Krugman wrote that “productivity growth is the single most important factor affecting our economic well-being. But it is not a policy issue because we are not going to do anything about it.”

“In summary, if we want our children to enjoy the same improvements in standard of living we experienced vis-à-vis our parents, rather than be afraid of robots and automation technology generally, we should do everything we can including developing a national productivity policy, to get more of it.”

Author’s summary—This article is worth reading from a larger or macro-economic view and to get comfortable with the future direction of the US economy. If the data in this article is believable, then there are no major disruptions expected from within the country. But we live in a worldwide economy, and our actions in Colorado, Nebraska, Wyoming etc., are heavily influenced by our competitive position in the world. We can make a difference.
As we adopt technology to make our companies more productive we improve the country’s competitive position as well. That can have the impact of raising salaries, providing better jobs and improving our businesses. Sounds like a good investment.