One Reason for High Unemployment? More Efficiency.
With all the political finger pointing and investor hand-wringing over the recent lackluster jobs reports, it has gone almost without notice the role greater efficiencies in business have played in holding employment down. While the employment picture may be disappointing, greater efficiencies usually lead to greater long-term success, as reflected in current corporate profits, which—unlike employment—are generally not disappointing at all.
Advances in technology and globalization have streamlined business functions and reduced the need for employment in both high and low skilled professions. Mechanical automation, the advancement of information technology and outsourcing have all helped corporate bottom lines, reduced the cost of goods to consumers, and improved the standard of living. But these boons also create unemployment. The rate of automation has increased rapidly since the dawn of the Internet and employers simply need fewer workers to do the same amount of work. In unskilled fields, examples include self check-out machines in retail, programming macros replacing data entry and robotic harvesters that replace farm workers and gardeners, just to name a few.
Higher skilled labor is at risk to automation as well. Cloud computing has eliminated the need for many IT jobs that relied on companies previously needing to host their own servers. Basic legal work has been commoditized by companies such as Legal Zoom, which reduce the demand for lawyers. Algorithmic trading and discount brokerages have reduced or eliminated the need for stockbrokers and market makers. Accounting, back office support work, education, and professions that involve transaction coordination are also at risk of automation through software or outsourcing. This is simply how industry moves forward.
In 19th century England, the industrial revolution spawned the Luddite movement of textile workers, who protested the loss of employment attributable to automated looms by smashing the machinery. Needless to say, it didn’t stop the advance of automation. Noteworthy also is the fact that eventually English workers returned to prosperity. Now, competing in a global economy with rapidly improving tools, it’s not unreasonable to expect reducing post-recession U.S. unemployment to be a persistent problem for a while. But it’s also reasonable to expect our improving efficiencies to help us grow the economy at a faster rate over the long haul, offering more opportunities generally. There would seem to be no need to smash the machinery.