Disrupted employment – it is not over for jobs market yet

Disrupted employment – it is not over for jobs market yet

iDisrupted Commentary by Michael Baxter, Chief Economics Editor

It is clear that technology is destroying jobs, and there are good reasons to think this trend may gather momentum and become very dangerous.  But the battle between job creation and job destruction is not over yet, and there are reasons to think that the jobs market may strike back.

Ever since the UK discovered industry, people have predicted the destruction of jobs. Technology breeds fear, that is why the 19th century saw the Luddites, today we see a softer kinder of Luddite, one that tries to stop technology by rules and regulations. Up until now, however, the story of technology has been that it has created jobs to replace those that were lost.  We may look back on a pre-industrial age with nostalgia, but truth is we read accounts of the past in books and on TV, via screens and paper that are rose-tinted.  Pre-industrial Britain was disease ridden, poverty was rife, starvation normal. It seems that the jobs that replaced those that were lost, boosted wealth, and helped create an end to a kind of post medieval misery.

Disrupted Employment - it's not over for the jobs market yet
Disrupted Employment – it’s not over for the jobs market yet Source: US Federal Bank of St Louis

But just because this has happened in the past, it does not mean it will happen in the future.

According to a report from Carl Benedikt Frey and Michael A. Osborne from Oxford University, over the next few decades up to 80 per cent of current jobs will be lost to technology.  But the report also said that “the workforce covering the remaining 20 per cent of jobs can expand to absorb the entire workforce.”

But is that right?

There are certainly things that robots and AI will never be able to do this side of a technology led apocalypse. The day AI can do empathy, and fulfil the roles of carers, counsellors and nurses will be the day that human race will have no purpose.  But other jobs will be lost to AI. Jobs that were once considered both secure and the preserve of the middle class, will go the way horse drawn carriages. 

Frey and Osborne say that jobs that involve a high level of social intelligence are less likely to be disrupted. Occupations that are likely to be safe include those which involve developing ideas, originality, negotiation, social perceptiveness, and assisting or caring for others. On the other hand, top of the list of jobs that are likely to be replaced by technology are insurance appraisers, insurance underwriters and tax preparers; occupational therapists, mental health counsellors, healthcare social workers and teachers seem quite safe from disruption.

On the other hand, consider the experience of recent years

It is clear that for much of this century the reward to capital has grown faster than the reward to labour. Meaning profits have risen, faster than wages. In 2006, in the US, profits to GDP reached the highest level ever recorded, with data going back to 1929. But this record has since been passed.

Maybe that is what technology is doing, it is pumping up profits at the expense of wages.  This paints a somewhat hopeless view of a future where technology change is not merely accelerating, but is accelerating at an accelerating rate

But not all are so negative.

Charles Goodhart, a former member of the Bank of England monetary policy committee recently penned a report published by JP Morgan predicting that wages are set to rise, at the expense of profits. His reason? Demographics.

The last few decades has seen the labour market explode in size. You can blame the baby boomers.  But as this numerous generation retires, we may see the ratio of the working population to retired population fall rapidly. This may lead to a shortage or labour, pushing up on wages.

See it in the context of the black-death.  It killed millions across Europe, but in the aftermath, the peasant had more power. Some historians even think the end of the black-death led to the end of the feudal system, and indeed of the Middle Ages.

There is one key difference between the drivers of demographics today and in the 14th century.   Instead of seeing the bubonic plague run amok, we are seeing the birth rate fall as women become better educated. Populations are either falling, or about to fall, in Japan, Germany and Italy. Russia and Eastern Europe will follow suit within a few years.  The population will start to fall in China in the decade after next, and it will even start falling in India later this century. Unless we see a rise in immigration, the remainder of this century will be characterised by falling populations in Europe, and then across most of the developed world.

So we have two conflicting forces. On the one hand we have technology threatening to destroy jobs, on the other hand we have demographics creating a scarcity of labour.

But technology may create jobs too, and it may do so for one key reason.

McKinsey recently published a report suggesting much the same thing. It predicts that we are set to enter an era when profits to GDP fall, wages rise. 

So why, what is happening? The answer lies with the rise of entrepreneurs. This is a worldwide phenomenon, but to illustrate the point, last year the UK saw more than half a million start-ups formed, an all-time record.

So why is this?

For one reason we have seen the internet lead to lower barriers to entry. In banking, for example, we are seeing the rise of challenger banks, and looking beyond that the rise of fin-tech creating all kinds of new opportunities for smaller companies.  

For another thing, there is a fear over disruptive technology. Some people at the top of large companies have grasped that disruptive technology poses a threat the like which the corporate world has never faced before. To deal with this threat, many companies have concluded that they need to support entrepreneurs with a view to either buying out the resulting companies that become successful, or simply by learning from them and creating new partners to help them embrace new technology. So we are seeing the rise of start-up schemes, encouraging more entrepreneurs to enter the fray.

There is another factor at play – a factor that is massively important but quite subtle. It is what Chris Anderson, the former editor of Wired, calls the Long Tail. Before the internet, selling niche products was hard. Say you sold a product that was only of interest to 0.01 per cent of the population.  Before the internet, retailing was the means of selling goods. And before the internet, that meant relying on a local audience. So if only 0.01 per cent of the population were relevant to your product that meant you needed a catchment area in excess of 10 million just to find 1,000 customers.

The internet has changed the rules. All of sudden a seller can target the global population, a product that appeals to 0.01 per cent of the population has a potential audience of 500,000 people.

So we are seeing markets become fragmented.  Technology is making it possible, but non-tech markets are being changed too. Take the beer industry, the internet creating a long-tail has led to the growing popularity of craft beers.

In world of growing competition, where new technology is changing the rules so fast, we are seeing profits come under threat – as predicted by Mckinsey. We are seeing the rise of entrepreneurs across worldwide, and this maybe the one type of person that cannot be replaced by technology.

But let me leave you with one thought. It is often assumed that innovation has to be done by people, that AI, no matter how advanced, can never do that. But consider the most innovative force known to man – evolution.

Evolution has created solutions that scientists can only envy. It has created solar used by bats and dolphins to navigate with a precision that science can-not match.  It has created the spider’s web, a material stronger than anything humans have been able to create. Antibiotics are even naturally occurring, and have been used by ants to enable them to eat certain fungi long before an intelligent ape learnt how to talk.

If evolution is the greatest innovative force ever invented, why can’t AI, mirroring the mechanism of evolution, outcompete the most innovative of entrepreneurs

See also: Disrupted Employment – the Return of the Craftsman and  Disrupted jobs market – disruptive technology and jobs.

John Straw will be speaking at the conference for  Digital Economy: Let’s be ready for the new Jobs! – Presidency of the Council of the European Union /