Technology Will Actually Spur Wage Growth, Not Kill Jobs

Source: Sean Gallup/Getty Images. Visitors view IBM Watson supercomputer in 2011 in Hanover, Germany.

Source: Sean Gallup/Getty Images. Visitors view IBM Watson supercomputer in 2011 in Hanover, Germany.

From the earliest days of the industrial revolution, humanity’s relationship with new technologies has been complex. Scientific advancement has brought everything from electricity to life-saving vaccinations, but as societies have become more technologically advanced, putting aside plows, mainframe computers, and pagers, there continues to be a fear of automation and computerization, fear that has been given shape and form countless times on screen and on the pages of novels. Fear of change cannot be the only explanation; neither can the nebulous fear that artificially intelligent machines will have a desire to destroy the human race. Both these reasons have undoubtedly contributed to the dialogue on technological advancements. However, there is another key element. One of the main intersections between the technological and the human is in employment. Technology has long been blamed for taking away livelihoods, and it has. Automation has been described as the scourge of the American middle class.

But is there more to the story?

To examine this question, let us first look at what industries human labor has been dramatically reduced.

Farming is perhaps the most notable example of how technology has replaced human labor. During the first half of the 20th century, technological advancements in agriculture led farmers to grow crops at exponentially larger scales, meaning the market could support fewer farmers. But at the same time, these technologies made food significantly cheaper, leaving Americans with more disposable income to put toward newly invented appliances like radios and televisions. And that consumerism required a corresponding boom in factory output, which created jobs in manufacturing and other supporting industries; the mid-century economy depended on mid-skill white-collar jobs like secretaries and bookkeepers.

Then a similar wave of technological innovation took place in the later half of the 20th century. The introduction of robots in factories and offices took over many of the jobs created earlier in the century. The cycle continues. As factories have become more automated over the past several decades, manufactured goods have correspondingly grown more affordable, and Americans (as a whole) have been left with more money to spend on services like education and health care, industries that have seen most of job growth in this century. Still, computers are becoming more advanced and ubiquitous, pushing industries like health care into a revolution.

What does innovation have to do with wage stagnation?

Wages

Chart from Pew Research

Over the past 30 years, computers have taken on an elephantine role in American life, and that includes the labor market. But this same time period has coincided with historic wage stagnation for ordinary Americans. Boston University School of Law economist James Bessen has extensively researched the link between technology and income growth in the United States, and he is skeptical that this current disconnect between the two innovations is permanent.

To be clear, technological innovation has hurt wage growth over the short term. Bessen wrote in an article for the Harvard Business Review:

“Today’s great paradox is that we feel the impact of technology everywhere – in our cars, our phones, the supermarket, the doctor’s office – but not in our paychecks… Yet since the beginning of the personal computer revolution three decades ago, the median wage has remained stagnant. Over the last two hundred years, technological advancements have been responsible for a ten-fold increase in wages. But some people claim that technology has now turned against us, permanently eliminating middle class jobs and portending a future of widening economic inequality.”

But he argues that this is not a historical turning point. “Throughout history, major new technologies were initially accompanied by stagnant wages and rising inequality, too,” wrote Bessen, pointing to both the 19th-century Industrial Revolution and “the wave of electrification that began at the end of the nineteenth century.” Eventually, ordinary workers saw robust job growth. Nothing is different today but the circumstances, according to Bessen.

When and how will wages grow?

Real technological revolutions are not constrained to the single moment when the initial invention hits the market. In reality, most important technologies are transformed over decades as large numbers of people apply, adapt, and improve the original invention. In order to implement market-shifting technologies, a huge number of workers must learn new skills and knowledge. And, as employers recognize the value of workers skilled in using the new technologies, those workers see higher wages.

For example, after the invention of the initial power loom, a key development in the Industrial Revolution, workers who knew how to operate the expensive machines were essential, meaning those factory weavers soon earned far more than traditional artisan weavers. Similarly, “steel workers with narrow skills earned more than craft ironworkers with broad skills; typographers on the new Linotype machines earned more than the hand compositors they replaced.” By learning technical skills on the job, workers with little formal education were able to enter the middle class, notes Bessen. But of course, this takes time.

Bessen even argued that acquiring special skills helped workers earn fair wages more than union bargaining.

Today, “those with specialized technical skills earn a growing bounty from technology,” he maintained. The evidence? “In survey after survey, over a third of managers report difficulty finding employees who have needed skills; business groups regularly decry the ‘skills gap,'” Bessen wrote. “In short, firms have plenty of demand for workers with critical technical skills, they are willing to pay high wages for workers who have them, but too few workers do.” And “until technology is standardized, it’s difficult to profit from investments in new skills,” he told Vox. If Bessen’s theory is correct, once new technologies like online publishing and supply-chain management mature, wages will then begin to grow.

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