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A public policy blog from AEI
One of the complexities when thinking about innovation, technological progress, productivity, and jobs is that each of those factors isn’t just one thing. For instance, Clayton Christensen, a professor at Harvard Business School, has differentiated between three different sorts of innovation. Christensen:
The first are “empowering” innovations. These transform complicated, costly products that previously had been available only to a few people, into simpler, cheaper products available to many. The second type are “sustaining” innovations. These replace old products with new. … The third type are “efficiency” innovations. These reduce the cost of making and distributing existing products and services … Efficiency innovations almost always reduce the net number of jobs in an industry, allow the same amount of work (or more) to get done using fewer people. … Efficiency innovations are liberating capital, but that capital is being reinvested into still more efficiency innovations. Our economies are generating many fewer empowering innovations than in the past.
I recalled that analysis when doing some research for my upcoming podcast with MIT economist Daron Acemoglu. (I’ve also podcasted with Christensen, by the way.) As Acemoglu models technological change, he broadly identifies the existence of “enabling technologies” and “replacing technologies,” with each having a different economic impact. The former, he writes, “augment the capabilities of some workers and enable them to perform new functions, increasing their productivity.” And with higher productivity comes higher wages. Examples include computer-assisted design and spreadsheet programs. The former, however, “explicitly replace labor in some tasks.”
Or to put it another way, some technologies allows companies to substitute capital for labor, while other technologies enable “the creation of new complex tasks [that] allow firms to replace old tasks by new variants in which labor has a higher productivity.” And thus what you have is a neverending race between those technologies (although the difference between the two isn’t as clear and precise as I am making it out to be) with the economic impact varying depending on the winner:
Critically, this framework implies that when the creation of new complex tasks keeps up with (or is even faster than) the process of automation, employment and wages will increase even as some workers are being replaced by machinery and new technology. In contrast, when automation runs ahead of the process of creation of new, labor-intensive tasks, technological change will bring lower employment, lower share of labor in national income and also potentially lower wages.
Which is winning right now, RT or ET? One sign that it might be RT is the well documented polarization of the job market and higher percentage of national income going to capital. But Acemoglu also suggests a self-correction mechanism or countervailing force “that may restore, in the long run, the share of labor in national income and employment back to their initial levels.” These forces may “restore some of the lost ground for labor because labor becomes cheaper as a result of automation, making the creation of new labor-intensive tasks more profitable.”
But also this warning:
These forces, do not, however, imply that the future is necessarily bright for labor. First, as already noted, these forces might take the economy to a new balanced growth equilibrium (rather than the one we started with) if new technologies also make the creation of further new technologies replacing labor cheaper. In this case, labor will not permanently disappear as a major factor of production, but the future level of employment and labor share may be lower in the future than the past. Second, these economic forces do not imply that the balance between the two types of technologies is efficient. In particular, to the extent that labor gets paid above its opportunity cost (eg, the value of leisure), firms will have a stronger incentive to adopt automation technologies than what a social planner wishing to maximize output would do. This suggests that policies that affect the composition of new technologies might be welfare-improving.
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