Education is the job-killer lurking beneath the economy’s surface. Consider an exemplary employer making major investments in training for each of his 100 workers, even covering tuition for those who might benefit from technical courses at a local college. Say the investments have incredible returns, too—by the end of the year, each worker is twice as productive and 50 can do the work that last year required 100. That means 50 jobs have been destroyed.
Does that sound nonsensical? It should. Yet change “education” to “automation” or “technology” and you have the conventional wisdom that countless economists and politicians are spouting. If the employer invests in equipment that allows 50 workers to produce what previously required 100, we are suddenly concerned and upset. No one anthropomorphizes a worker’s enhanced skills, but a robot—well, a robot can “take” and “steal” and “destroy.”
In either case, with training or technology, the effect is to improve productivity—the amount of output per unit of work. Such productivity gains, whatever the mechanism, are the key to rising wages for workers and rising material living standards for society as a whole. We react differently to the two stories because our intuition fills in differently what both stories omit. In each case, worker productivity doubled. But what does the firm do next?
When it comes to training, we probably assume the firm takes advantage of these gains to produce more output. Those 100 workers produce twice as much, sales can rise, profits and wages can rise. When it comes to technology, though, we might assume the firm lays off workers who suddenly seem superfluous. It continues to produce the same level of output, with a workforce half as large.
This question of what happens next is thus central to the economy’s trajectory. Without the productivity gain, nothing happens. Workers able to produce more than before, for whatever reason, is the sine qua non of economic progress. But only if accompanied by rising output are the effects for workers undeniably positive.
Historically, that has been the dynamic. From 1947 to 1972, for instance, economy-wide productivity roughly doubled. But output surged as well and, at the end of the period, the same share of the population was working and men’s wages were up 86 percent. In the manufacturing sector, productivity rose by 3.4 percent annually, but real value added rose by 4.2 percent annually; employment during the period rose by more than three million.
Compare that period to the 21st century, when America has lost nearly five million manufacturing jobs. Was any of this because of extraordinary technological breakthroughs that caused productivity to surge, allowing firms to do much more with many fewer workers? No. In fact, the average rate of productivity growth in manufacturing this century has been 3.1 percent—lower than 1947–72 and no different than 1972–2000. But output growth has been only 1.3 percent, less than a third the rate of the earlier period. We’ve gone from the world where firms use a doubling of productivity to double output, to one where they use it to lay off half their workers. Had output growth this century equaled that of 1950–2000, manufacturing employment today would be near an all-time high.
So when policymakers blame automation for job losses, they are looking in the wrong place. Productivity gains have always been with us—in fact, they used to come faster. If anything, the American economy is suffering from insufficient automation—as reflected in declining productivity growth, stagnant wages, and remarkably little use of robots. American manufacturers use only 200 industrial robots per 10,000 workers, the standard measure of adoption. In both Germany and Japan, that level exceeds 300. In South Korea, it exceeds 700. With greater automation and higher productivity, American firms would likely be more competitive in the international economy.
If firms no longer invest to expand output as they used to, the explanation is not some irresistible technological force but an economic malady—the sort of thing policymakers bear responsibility to address. This means acknowledging the many things they have gotten wrong: imposition of environmental restrictions that make industrial development slow and costly, obsession with college enrollment to the exclusion of the many non-college pathways that might better prepare people for relevant fields, nonchalant tolerance of a massive and widening trade deficit, entrenchment of an outdated system of organized labor that workers and employers both dislike, and so on.
No wonder our politicians prefer throwing robots under the self-driving bus.
Oren Cass is a senior fellow at the Manhattan Institute and author of the new issue brief, “Issues 2020: Automation Is Not What’s Hurting Workers,” and The Once and Future Worker: A Vision for the Renewal of Work in America.
Editor’s Note: This piece was originally published by Economics21 at the Manhattan Institute.