The technology tsunami is replacing ‘good paying jobs’ that are not coming back

Those voters in Appalachia who convinced themselves that a con artist and grifter, Donald Trump, was going to bring back “good paying jobs” by bringing back 20th Century jobs in coal mining and manufacturing are going to be sadly disappointed and badly disillusioned.

Businesses have no financial incentive to bring back labor intensive jobs when they have modern technology — computerization, automation, robotics and now artificial intelligence — to replace human labor.  Tax laws and accounting norms make it easier to invest in robots and equipment than in people.

Ed Hess, professor of business administration at the Darden School of Business at University of Virginia and co-author of the new book, “Humility Is the New Smart: Rethinking Human Excellence in the Smart Machine Age” writes at the Washington Post, Coming technology will likely destroy millions of jobs. Is Trump ready?

American manufacturing job losses to China and Mexico were a major theme of the presidential campaign, and President Trump has followed up on his promise to pressure manufacturers to keep jobs here rather than send them abroad.

What he hasn’t yet addressed — but should — is the looming technology tsunami that will hit the U.S. job market over the next five to 15 years and likely destroy tens of millions of jobs due to automation by artificial intelligence, 3-D manufacturing, advanced robotics and driverless vehicles — among other emerging technologies. The best research to date indicates that 47 percent of all U.S. jobs are likely to be replaced by technology over the next 10 to 15 years, more than 80 million in all, according to the Bank of England.

Think back to the human misery in this country during the financial recession when unemployment hit 10 percent. Triple that. Or even quintuple it. We as a society and as individuals are not ready for anything like that. This upheaval has the potential of being as disruptive for us now as the Industrial Revolution was for our ancestors.

Techno-optimists tell us to relax — don’t worry, technology will produce lots of new jobs just like it did during the Industrial Revolution. History will repeat itself, they say. Well, not so fast.

First, human disruption caused by the Industrial Revolution in Britain lasted 60 to 90 years, depending on the historical research. That is a long time for society to “right” itself, and lot of personal pain. Second, this time will be different because there will be new questions: Will technology produce lots of new jobs that advancing technology itself can’t do? And will displaced workers be able to keep up with the pace of advancing technologies?

These issues should be front and center on the president’s agenda. Planning for how our country will adapt to the coming technology tsunami must start now. We are talking about a major societal challenge — preservation of the American Dream — as well as the future of work in the United States and the world.

Jobs at risk include a diverse range of service and professional positions. Retail and fast-food jobs will be almost entirely automated. Manual laborers and construction workers will be replaced by robots; long-haul truck drivers by self-driving trucks; accountants, clerks, paralegals, telemarketers and customer-service reps by artificial intelligence; and security guards by robots and drones. Even professionals in the fields of accounting, law, finance, consulting, journalism and medicine are at risk of losing their jobs to smart machines.

What jobs will be secure? Well, that will change as technology advances. For now, the consensus is that humans will be needed to perform those tasks that require higher-order critical thinking, innovation, creativity, high emotional engagement with other humans and trade skills requiring real-time problem-solving and manual dexterity. Humans will need to excel at doing those things that are, for now, uniquely human. Good will no longer be good enough.

We need to begin planning for what is coming. Our political leaders need to embrace this challenge. We need an American Dream 2.0 Plan for how we, as a society, will remain the land of opportunity as technological advances cause massive job losses. The stresses upon our system and way of life will be huge. This is not science fiction.

I ask the president to appoint a diverse blue-ribbon committee to study and make recommendations about how we, as a nation, will prepare for the coming technology tsunami and answer the tough economic questions of our time: How will we keep the American Dream alive in the Smart Machine Age? How will people find meaning and purpose in a world where full-time work will be limited? How must our public education system be transformed to better prepare our children for this new world? How do we, as a society, deal with the fact that the future of work for many will be no work at all?

We need to begin preparing ourselves, our families and our nation by mastering those skills that technology cannot replace. We need to rethink human excellence for the Smart Machine Age.

USA Today this week similarly takes a deep-dive look into this topic in a Special report: Automation puts jobs in peril. It is a must-read report that is far too long to excerpt here.

Other headlines just from this week include: Bank tellers are the next blacksmiths: Bank of America has opened three new robo-banks — called automated centers — that have ATMs and video­conferencing but no people.

“This is the beginning of the end of the American bank branch,” said Peter Fitzgerald, a former U.S. senator from Illinois, lifelong banker and founder of Chain Bridge Bank in McLean, Va. “Bank branches are dead. They were killed by the iPhone. It’s like the horseshoe when the automobile came along.”

Similarly, Will IBM’s Watson be an accountant killer? The company sure hopes so:

“IBM has shown how complex, data-rich industries such as healthcare, retail and education are being transformed through the use of Watson,” David Kenny, senior vice president of IBM Watson said in the New Atlas report. “Now with H&R Block, we’re applying the power of cognitive computing in an entirely new way that everyone can relate to and benefit from – the tax prep process.”

And Peter Cappelli, a management professor at the University of Pennsylvania’s Wharton School explains the financial incentives in tax laws and accounting norms that make it easier to invest in robots and equipment than in better managers and training for workers. How to save good jobs (excerpts):

The job prospects for blue-collar workers is one of the hottest topics in U.S. politics. The current fascination with the potential of robotics has helped reveal the important truth that productivity increases have been the biggest and perhaps the inexorable factor reducing the number of manufacturing jobs, and that’s increasingly true in service sectors as well. Most observers expect to continue.

So far, the options for what to do about the loss of good jobs are pretty bad. Changes in trade policy have lots of drawbacks, but even if they could be enacted, they won’t address the massive productivity-driven job losses in industries like manufacturing. Retraining workers who lose jobs sounds like a good idea if there were lots of good jobs available for which they could be retrained. But that has not been the case, and it is unlikely to be so in the foreseeable future. What can we do to help increase the number of good jobs in the United States?

One limitation of the current debate is that it ignores the choices individual employers make about how to get work done and how to improve productivity, something employers have to do. But substituting machines and software for people is not the only way to do that. And it is not necessarily even the most effective way.

Why have businesses been so inclined to go in that direction? Because we’ve stacked the deck with policy decisions that favor buying equipment over investing in employees and management.

* * *

So why aren’t we seeing more of a focus on upgrading management and employee skills rather than replacing workers with machines?

For-profit businesses, especially public companies that have extensive reporting requirements for investors, hate fixed costs or those that can’t be adjusted down if business falls. That’s a reason we typically hear for why CFO’s in particular hate adding workers, because they represent fixed costs.

Robots and technology are massively bigger fixed costs than workers. We can’t layoff robots or reduce their hours if business goes down as we can with employees. You might think that would scare investors and businesses away from that approach. What we can do with robots and tech under contemporary accounting rules and can’t do with investments in employees or management is amortize investments in robots and depreciate them over time, spreading the costs out. There are also a range of special tax breaks for investments in capital that aren’t there for management and employee spending. Tax laws and accounting principles do not recognize training and management interventions as investments even though they surely are by any other definition.

Another way in which accounting stacks the deck against investments in human capital and management systems has to do with how those investments are reported, or not reported. An investor looking at any company can tell pretty quickly how much it has invested in capital improvements because the figure is right there on the balance sheet along with related investments like leased capital and even fuzzy assets like “good will.” Those investments are seen as a good thing for the business and are counted as “assets” held against “liabilities.”

But if I wanted to see investments in training and in management, where would I find those? You can’t.

They are lumped in with “general and administrative expenses,” typically described as “overhead” costs. These are liabilities on balance sheets, and investors like to see them as low as possible. Businesses that spend a lot on training and management improvements can look to investors like they are blowing money on office furniture. So we have the irony that business is rewarded for investments in capital that raise productivity by eliminating jobs but punished for investments in people and management that raise productivity and save jobs.

The Federal Government has been also spent billions directly and through agencies like the Department of Defense to develop robots and other manufacturing technology that displaces workers. The Centers for Advanced Manufacturing spread the knowledge of how to use them to businesses. There is little attention given to how workers might fit into these new systems.

Given all this, it’s not surprising that businesses favor spending to replace workers with capital equipment.

As I have said before, I do not hear any politicians in this country, at any level of government, addressing this technology revolution that is transforming the economy and displacing human labor. They buy into the Techno-optimists who tell us to relax — don’t worry, technology will produce lots of new jobs (someday).  I strongly agree with Ed Hess that this issue should be front and center on the policy agenda. Sadly, our political leaders are either uninformed and/or indifferent to this issue.

13 responses to “The technology tsunami is replacing ‘good paying jobs’ that are not coming back

  1. Frances Perkins

    We had a huge data driven discussion in grad school in the 80’s about robotics impact on many industrial sectors, especially auto making. It all happened as predicted with much robotic investments in Mexico and China also, even with their lower labor costs. It doesn’t take 20-40 workers to build a car anymore, and delusional Trump and John John can’t change that. Education is still the key in post industrial society however this State thinks education is a burden rather than an investment, except I guess for religious private schools, which are an obvious priority for the one party dictatorship.

  2. John Huppenthal

    B.S. Back in 1900, 95 out of a hundred people worked on the farm. We didn’t have 95% unemployment because technology eliminated those jobs – we had more employment, not less.

    Jobs are coming back, this year, because better policies will be in place.

    Reduced regulatory load, lower tax rates equals more jobs.

    Technology was not responsible for the stagnation, it produced the little prosperity we experienced.

    • The only thing you got right was that “Back in 1900, 95 out of a hundred people worked on the farm.” Everything else is vacuous talking points.

  3. Prof. Timothy Wu just published a phenomenal piece entitled “The Attention Merchants.” Excellent book that helps explain the rise of Steve Bannon, Breitbart News, and how they were able to convince working America that Trump would be on their side.

  4. One additional detriment to saving jobs is our health care delivery system which ties health insurance to employment. Managing employee health care costs and paperwork represent a significant burden to employers. As job loss continues more and more former workers will be without health insurance.

    If job retention is to be a national priority it is clear that a single payer system is mandatory.

  5. It appears that if all the earnings from technology go to the already rich and the displaced workers get nothing there could be a revolution. People will fight before they starve. Trump’s election is a symptom. We need to both give displaced workers and others unable to make a living wage some sort of benefit to make life bearable. Some European countries are trying this to a limited extent. Retired people with adequate pensions are pretty much is this position now and they find things to do ranging from hobbies to social work to keep busy and lead fulfilling lives. It seems that some scientific, environmental, law enforcement and personal services would still be essential, but they should be extremely well paid.

  6. You did a great job pointing out this is a BIG issue that is facing the Nation as a whole, and not just the Trump Administration, as I mistakenly thought you were going to do. I feel bad I made that negative assumption when you, in the past, often explained both sides of issues very well, as you did in this case. Mea culpea!

    As to the issue, I agree with you completely that none of our politician seem to want to even address the issue, much less propose any sort of solution. They just keep kicking the can on down the road in the hope it becomes someone else’s problem. I fear no one is going to try and work the problem until it becomes a critical issue and there is rioting in the streets. I think that ultimately government is going to have to pay people NOT to work. I don’t know what we will do with the idle hands such an arrangement would create, but we will have to do something with those people who will be forced out of the workforce with no chance of decent employment.

    • Frances Perkins

      Write it down. I agree with Steve on something.

    • > I think that ultimately government is going to have to pay people NOT to work.

      This would be closely linked to the idea of Universal Basic Income. It’s generally considered to be the least distortionary way to provide welfare assistance, since the benefits do not phase out as the individual’s income increases. One could feasibly then get rid of most other welfare programs in order to pay for a good chunk of the costs associated.

      • John Huppenthal

        We do pay people not to work. Its called social security, disability, food stamps, medicare and low income housing. They are all conditional on working less. The less you work, the more you get. All these programs are direct payments not to work.

        Universal Basic Income would be paid regardless of the amount you work – thus not penalizing work but perhaps reducing the incentive to work because it enables you to buy things you would otherwise have to work for.

        The research by one Fed Reserve Board member on social security came up with an Frisch elasticity of 3.0 (your probability of working is very susceptible to incentives). By comparison, the Hicksian elasticies have generally been coming in at about .2 (your probability of working more hours is not very susceptible to incentives) . I disagree strongly that those two numbers can be that different but if they are different to even half that degree, it suggests that a Universal Basic Income would be a huge reform – hugely increasing labor force participation enabling people to lead healthier lives.

        This work suggests that people currently employed would not work all that much less even if they received that basic income in addition to their current income.

        And, its not just one researcher. Prescott, Noble Prize winner, also found Frisch elasticities of 3.0 in analyzing European work patterns.

        A universal basic income would reduce employment of current wage earners who would work less as a result of the income but would drastically increase employment of people currently in the welfare, social security and disability programs if those programs were replaced by the basic income.

        This work also suggests that people currently employed would not work all that much less even if they received that basic income in addition to their current income. But, people not working would be much more likely to work in a no welfare, Universal Basic Income environment.

        Also, this isn’t paying people not to work, this is an income regardless of how much they work. Much healthier than paying people not to work. Very likely to lead to people living much longer than they live now.

    • We pay people not to farm and nobody sees a great moral hazard in that – why not pay people not to work? We will eventually have to deal with the fact that the corporate economy only employs humans because it hasn’t innovated around the problem yet – but they are getting closer to fixing that inefficiency. We will all eventually live on “passive income,” as the rentier class calls it. If capitalism is to survive, then we all must become owners because we will no longer have much role as factors of production.