Case Study (6) Technology and Employment Does technological progress create or destroy jobs?

Technology and Employment
Does technological progress create or destroy jobs?
Does technological progress destroy jobs? The obvious answer may seem to be yes. After all, new technology often involves machines taking over jobs that were previously done by people. There is another view, however. This argues that a failure to introduce new technology and ultimately to remain competitive will offer an even worse long-term employment problem. Markets, and hence employment, will be lost to more efficient competitors.
The relative merits of each of these views are difficult to assess, since they depend greatly upon the type of technology, its organization in the workplace and the market within which it is located. It is possible to identify four stages in the effects of new technology on jobs.
Stage (1) Design and installation. Here labor requirements grow as first designers and then construction workers are employed. As construction/installation is completed, employment from this source will then disappear.
Stage (2) Implementation. Here labor requirements decline, especially if the technology is concerned with improving existing processes rather than creating new products.
Stage (3) Servicing. Maintenance and repair may have positive employment effects.
This may gradually decrease over time as 'teething troubles' are eliminated, or it may increase as the stock of initially new machines begins to grow older.
Stage (4) Market expansion. This represents the long-term impact of technology on employment levels as the improved and/or cheaper products lead to more sales.

The optimistic view holds that, historically, technology has generated more jobs than it has destroyed. Total employment today is much higher than a hundred years ago, and yet technological progress has allowed many goods and services to be produced with far fewer workers. What has happened is that increased output has more than compensated for the growth in labor productivity. There is no reason, say the optimists, why this process should not continue.

The pessimists, however, are less certain about the potential employment benefits of new technology. Even in growth industries, such as pharmaceuticals, electronics, optical technology and high-value plastics, there has been a decline in employment.
But cannot workers who are displaced from high-tech industries simply find jobs in parts of the economy? There are two problems here. The first is that of structural unemployment.

Displaced workers may not have the skills to take up work elsewhere. Clearly what is needed is a system of retraining that enables workers to move to alternative jobs. The second is that of income distribution. If the only alternative jobs are relatively low-skilled ones in the service sector (cleaners, porters, shelf packers, check-out assistants, etc.), the displaced workers may have to accept a considerable cut in wages.



Questions & Answers:


In what areas of the economy are jobs growing most rapidly? Is this due to a lack of technological innovation in these areas?

In the service sector. It is partly due to a lack of displacement of labor by machines, but also due to a rapid rate of growth in demand. (Note that in some parts of the service sector, there has been a displacement of labor as a result of the information technology revolution.)

Why have rural areas generally seen a smaller decline in high-tech employment than urban areas, and in some cases seen an increase?

Because high-tech firms increasingly are choosing to locate in low-cost out-of-town sites. Given that transport costs are generally only a small proportion of the total costs of these firms, it is not important for them to be located near to their market.