Why Technology Is No Longer Creating Jobs

http://knowledge.wharton.upenn.edu/article.cfm?articleid=3211#.UUHA34mR40w.email

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"Good thinkers are always in demand. A person who knows how may always have a job, but the person who knows why will always be his boss." (John C. Maxwell)

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In an article published yesterday, "K@W" recounts the result of a recent panel discussion involving four prominent economists assembled to explore the link between technology and job creation: the consensus outlook was "bearish."

Quoting Eric Brynjolfsson (a professor at MIT's Sloan School of Management and director of the MIT Center for Digital Business): he "...compared the market capitalization and payrolls of four of the biggest tech companies. His conclusion: While the companies had astronomical values on Wall Street, their job production was minimal...The four -- Apple, Amazon, Facebook and Google -- at the time had a market cap in the neighborhood of $1 trillion, which is roughly 6.25% of the combined market cap of all U.S. companies. But the four employ about 190,000 people, fewer than the number of jobs the U.S. economy needs to add approximately every six weeks to just keep pace with population growth." The implication is that "...even hugely successful tech companies cannot be counted on to create the kinds of jobs the economy needs."

One of my favorite concepts is "creative destruction." It's from Joseph Schumpeter, an economist who created that term long ago. His idea was that technology causes some jobs to disappear while bringing others into existence, but, quoting Brynjolfsson again: "...the last 10 years have been different. Technology simply hasn't been creating jobs as it did before...It's a double-barreled effect ... Not only are today's technology companies creating fewer jobs, but the products they make, notably computerized automation equipment, often lead to further job losses in other parts of the economy. These second-effect job losses are further encouraged by off-shoring and the declining power of labor unions."

I might add here that there is also "creative non-destruction" which is a term I use to describe government regulators who want to intervene to keep proposed mergers from happening because the combination might cause "monopolistic" behavior. How about price optimization and productivity improvement which, incidentally, helps everybody?! Of course, government regulators have a tendency to practice "Zombie Economics" which emphasizes such principles as: there should be a certain "number" of companies in any industry otherwise it's a "de facto" monopoly situation. Check the American/U.S. Airways merger where the new company will be told it has to get rid of certain "routes" or the government will fight the deal.

Michael Chui, another participant in the Wharton conference, and a key player at the McKinsey Global Institute, said that "employment transparency" has become a crucial issue for college students attempting to pick a field of study: "They need to know where the jobs of tomorrow are likely to be, but the data is not available to them during the period of their lives when they are making decisions that will weigh most heavily on their career options."

Chui went on to make a couple of other crucial points: he said the U.S. needs to increase the number of college graduates studying science, technology, engineering and mathematics, the so-called "STEM" curriculum: "More than 40% of China's college population are in a STEM field, and the figure in Germany is 28%. But in the United States, it's 15%." Further, "Even within STEM ... priorities may need to be re-adjusted. For example, a traditional elite education typically includes a healthy dose of calculus. But perhaps statistics should receive more attention because of the need for future managers to be able to more intelligently use the huge mountains of data now being routinely collected by businesses."

Wharton does an exceptional job of summarizing the discussions at this conference and I will be spending time reviewing a new book by Enrico Moretti (an economics professor at the University of California, Berkeley), one of the panelists, called The New Geography of Jobs where he breaks down the labor markets in the United States into winners, losers and fate yet to be determined.

The bottom line is that these people are coping with the future and the article is worth reading!