The Luddites are coming! The Luddites are coming!

“None too soon,” some say.

“Not again!” others reply.

And so a controversy that has erupted with regularity for 250 years, from the dawn of the industrial revolution, is again rolling off the lips of trade unionists, industrialists, nerdy brainiacs and politicians from coast to coast and continent to continent.  Are we innovating ourselves into oblivion or propelling ourselves into a new age of prosperity? Depends, it seems, on whom you ask. The Luddites, the reader may recall, were the English textile workers who, two hundred years ago, rebelled against laborsaving technology that threw less-skilled and low-wage labor out of work.

History suggests that it will all work out for the best.  Advances in technology, while temporarily disruptive to the workforce, have in the past, invariably increased productivity, lowered prices, increased consumption and stimulated the economy.  So, nothing to be concerned about, right?  We’re not so sure, and neither are a surprising number of economists, labor leaders and politicians.  While no one is seriously suggesting curtailing technological progress, there is a growing concern that we are reaching a tipping point where the disruption to labor, especially lower skilled labor, is, and will continue to be, severe, drawn out and socially disturbing.

Get this. A recent Oxford University study predicts that nearly half of America’s jobs will face cost-effective competition from computers by 2035.  There is, however, a misconception that manufacturing is dwindling away as evidenced by the shrinking manufacturing labor force.  That simply isn’t true.  Manufacturing in America is doing just fine. In fact, we manufacture more today than we ever have and, get this too, we manufacture more than twice as much as we did back in 1970.  It’s not manufacturing that is disappearing in America, it’s the labor force that used to do the manufacturing.

The real issue isn’t whether technology advances at the cost of jobs.  Of course it does.  The more relevant issue is whether technology results in new jobs being created that replace the jobs being lost.  Historically, the answer to that question has been a resounding — yes! But can we count on that being true going forward?  Some leading researchers aren’t so sure.  Enter Erik Brynjolfsson and Andrew McAfee of the Sloan School of Management at MIT.  They argue that impressive advances in computer technology—from improved industrial robotics to automated translation services—are largely behind the sluggish employment growth of the last 10 to 15 years. Even more ominous for workers, Brynjolfsson and McAfee foresee dismal prospects for many types of jobs as these powerful new technologies are increasingly adopted not only in manufacturing, clerical, and retail work but in professions such as law, financial services, education, and medicine.  They go even further, claiming that technology is destroying jobs faster than it is creating them, contributing to the stagnation of median income and the growth of inequality in the United States. Worse, they believe it is happening throughout the industrialized world.  What is at stake, their research suggests, is the survival of the middle class.

New technologies are “encroaching into human skills in a way that is completely unprecedented,” McAfee says, and many middle-class jobs are right in the bull’s-eye; even relatively high-skill work in education, medicine, and law is affected. “The middle seems to be going away,” he adds.

“The top and bottom are clearly getting farther apart.” While technology might be only one factor, says McAfee, it has been an “underappreciated” one, and it is likely to become increasingly significant. The MIT researchers believe a “great decoupling” has taken place with the speed of technology far outpacing the speed with which new jobs are being created.  If they are right, we will find ourselves in a serious bind. Technological progress is, they believe, eliminating the need for many types of jobs and really battering the worker. ­Brynjolfsson calls it “the great paradox of our era.”

“Productivity is at record levels, innovation has never been faster, and yet at the same time, we have a falling median income and we have fewer jobs. People are falling behind because technology is advancing so fast and our skills and organizations aren’t keeping up,” he says.

Last week we wrote about the alarming and increasing disparity between productivity growth and wage growth.  While increased productivity, by definition, comes at the expense of someone’s wages, increased productivity has, in the past, lowered costs, creating new demand and, as a result produced new employment opportunities.  As long as that continues to be the model we progress and everyone, eventually, benefits.

Understanding the disparity, however, between increased productivity and the decline in wage growth requires more than just looking at workers’ wage data. While the data demonstrate that unskilled workers earn lower real wages than they did 20 years ago, it is important to understand why. Two other economists, one from MIT and one from Harvard, found that workers graduating from high school have fewer skills than their counterparts did two decades ago. Specifically, the study found, “a high school senior’s mastery of skills taught in American schools no later than the eighth grade is an increasingly important determinant of subsequent wages.” For example, those who graduated from high school in 1980 were noticeably less skilled than their class-of-1972 counterparts.  We presume the skill disparity has grown even worse in the intervening years.  The skills the study found lacking were not rocket science, but simple computation with decimals, fractions, and percents and recognition of geometric figures.  Today, only about half of the nation’s high school seniors have mastered eighth-grade skills.

Are the Luddites right? Is technology doing us in? We think it’s a bit premature to blame technology for the chronically disappointing job growth of the last 15 years.  The data are really not conclusive.  Certainly there has been more going on than just technological innovation. We’ve had a rush to globalization and the lingering aftereffects of the financial meltdown. “No one really knows,” says Richard Freeman, a labor economist at Harvard University. Freeman points out that it’s very difficult to “extricate” the effects of technology from other macroeconomic effects. But he’s skeptical that technology would change a wide range of business sectors fast enough to explain recent job numbers.

Another MIT economist, David Autor, who has extensively studied the connections between jobs and technology, doubts that technology is the culprit plaguing job creation in America. “There was a great sag in employment beginning in 2000. Something did change,” he says. “But no one knows the cause.” Autor, by the way, questions whether productivity has really risen all that dramatically in the United States during the past decade. There are simply too many ways of measuring and weighing economic inputs, he argues. Maybe poor job growth could be simply a result of a sluggish economy. The sudden slowdown in job creation “is a big puzzle,” he says, “but there’s not a lot of evidence it’s linked to computers.”

Google Chairman Eric Schmidt seems to agree. Schmidt was recently quoted saying that technology will create job opportunities for humans in the future, just like it did in the past. He was speaking at the National Association for Business Economics in San Francisco.  Schmidt called automation a “collaboration model” in which machines and humans increasingly work together, each doing their specialized tasks.  He sees technology as the only way to create future growth. Schmidt has also written that technology could cause the labor market to go global. That means people living in Orange County, Calif. could be competing for jobs with workers in Uruguay.

We’re inclined to believe that technology will continue, on balance, to contribute mightily to growth and to the improvement of workers as they acquire new and needed skills.  Brynjolfsson, the MIT economist referred to earlier in this essay, believes, “life will change for the better in many ways because of these breakthroughs. Consumers will delight in a wealth of new products, services, and experiences.” But he goes on to say, we “also need to start preparing for a technology-fueled economy that’s ever more productive but that just might not need a great deal of human labor.”

Obviously, improvements in technology and automation can reach a point of diminishing returns.  Reduce the number of workers enough and, sooner or later, there won’t be anyone to buy all of those wonderful products and services.  We are reminded of a conversation that was overheard back in 1954 between a Ford Motors executive and Walter Reuther, head of the Auto Workers of America.  The Ford executive was proudly showing the powerful union chief the company’s newest fully automated loading machines.  The executive quipped,  “How are you going to collect union dues from these guys?”  Reuther replied, without batting an eye: “How are you going to get them to buy Fords?