Positive effects of technical progress on employment have surpassed preceding negative effects in history and will likely do in future. This paper stresses that not only scope but also pace of negative and positive effects must be gauged. It therefore concludes that technical progress is good for employment but only if human capital adjusts quick enough to mitigate labour market disruption.
When Austrian economist Joseph Alois Schumpeter minted the term “creative destruction” , the US experienced an unparalleled heyday of productivity growth, stemming from technical progress known as the “Second Industrial Revolution” (Bergeaud et al. 2015). Innovations in electricity, motorization, communication, and such, “destroyed” (or outdated) physical and human capital, while “creating” new industries such as car manufacturing, television, or private telephoning. Until today, the effects of technical progress on employment trigger widespread fear and a heated political and scientific debate. Followingly, this paper argues that technical progress is good for employment only if disruption and adjustment move in a similar pace. If training labourer for a rising industry lags too far behind the dismissal of workers in declining industry, the gap weakens the labour market and the economy as a such.
Negative effects: Technical disruption results in a shift on the labour market, as old supply needs to adjust to new demand. This is harmful to those workers with outdated skills, currently seen in the bustling discussion around job losses through Big Data, Machine Learning, and Artificial Intelligence. Even though estimates on the vulnerability of jobs range between 9 % to 47 %, scholars unanimously agree that the technical progress harms employment in declining industries (Brynjolfsson and McAfee, 2014; Ford, 2015; Frey and Osborne, 2013). The detrimental effects on employment are further aggravated as technical progress entails the capitalization of labour, which results in less workers being need for an equal output.
Positive effects: Effects harmful to employment are countered by positive economic and labour market specific developments, such as new-industry and complementary job creation, and “capital deepening” (Bergeaud et al. 2015). Shifting economic production to a new industry drives up demand for labour in this area. For example, ICT-related industries created 22 % of all new jobs in OECD countries in 2013 (OECD 2016). Positive employment effects also spill-over on complementary industries, raising their demand for labour. An evident example is the higher labour demand in the packaging industry, which profits from increased e-commerce. Finally, “capital deepening” reduces price level of products and – though depending on the price elasticity – usually drives up the overall demand for products and hence for labour force. This could be seen in the expansion of computational power over the past 20 years, resulting in falling prices for computers and phones and an increase in labour demand for manufacturing electronic devices. What is important to notice: All these positive effects of technical progress on employment rely sine qua non on re-adjusting human capital to new industries through education. Only if labour demand can be met by appropriately (re-)trained staff, the new industry can thrive.
Assessing the overall impact of technical progress on employment relies on the scope and the pace of positive and negative effects. While the heated debate in comparing scopes seems to shift towards a dominance of positive over negative effects (e.g., Autor 2015, Bergeaud et al. 2015, Mokyr et al. 2015, Caselli/Manning 2018), pace is little discussed.
Regarding previous technical revolutions, the pace of dismantling old industries and setting off workers was slow and matched the slow (re-)training of labourers for new industries (OECD 2016). Yet, the present wave of technical progress falls into a time of increased speed in trade, information, and technology. This accelerates the spread of technical progress, thereby enhancing the pace of disruptive effects. If retraining cannot catch up with the increased pace, this opens gap where negative effects manifest, yet positive effects cannot unfold yet. Depending on its length, the lag has detrimental effects beyond the technical disruption: (1) Excess demand for labour in the new industry and declining demand for labour in the old industry will increase the output gap between actual output and potential output – harmful to the overall economy. (2) Depending on openness for migration, either competition about workplaces inside a country is increased by a high foreign worker inflow, or wages for new industry jobs rise (countering further job creation). (3) “Un-re-employable” add to structural (or natural) unemployment and burden social protection measures lastingly. (4) Finally, countries that lag human capital adjustment lose international competitiveness and step back from the innovation frontier.
The effects of technical progress on employment (and economic performance overall) is a much-discussed topic. Besides gauging potential positive and negative effects in size, the pace of dismissal and retraining of labourer plays an essential role in the labour market. This paper argued that technical progress is only beneficial for employment if human capital re-adjusts quick enough to have the positive effects compensate for malicious disruption. Countries that want to mitigate detrimental effects of technical progress and keep position in international competition are required to look out for squalls of the next technical revolution.
 Schumpeter defined the phrase “creative destruction” as a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one" (Schumpeter 1994 )
- Autor, D. (2015): “Why Are There Still So Many Jobs? The History and Future of Workplace Automation”, Journal of Economic Perspectives, vol. 29 no. 3, pp. 3-30.
- Bergeaud, A., Cette, G., and Lecat, R. (2016): Productivity Trends in Advanced Countries between 1890 and 2012”, The Review of Income and Wealth, vol. 62, no. 3.
- Brynjolfsson, E. and McAfee, A. (2014): The second machine age: work, progress, and prosperity in a time of brilliant technologies, WW Norton & Company: New York City.
- Caselli, F., and Manning, A. (2018): “Robot arithmetic: new technology and wages.”, American Economic Review: Insights.
- Ford, M. (2015): “Rise of the Robots: Technology and the Threat of a Jobless Future”. Basic Books: New York.
- Frey, C., and Osborne M. (2013): The Future of Employment: How Susceptible are Jobs to Computerization?, University of Oxford: Oxford.
- Mokyr, J., Vickers, C., and Ziebarth, N. (2015): “The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?”, The Journal of Economic Perspectives, vol. 29 no. 3, pp. 31-50.
- Schumpeter, J. A. (1994 ): Capitalism, Socialism and Democracy, Routledge: London, p. 82–83.
This OnePager is part of a six piece series written for the course "Advanced Economics: Economic Theory & Policy" at Hertie School of Governance, lectured by Prof Jean Pisani-Ferry, Chief Economist of the French President and Professor at Hertie School of Governance and SciencePo.