IN 1930, when the world was “suffering…from a bad attack of economic
pessimism”, John Maynard Keynes wrote a broadly optimistic essay,
“Economic Possibilities for our Grandchildren”. It imagined a middle way
between revolution and stagnation that would leave the said
grandchildren a great deal richer than their grandparents. But the path
was not without dangers.
One of the worries Keynes admitted was a “new disease”:
“technological unemployment…due to our discovery of means of economising
the use of labour outrunning the pace at which we can find new uses for
labour.” His readers might not have heard of the problem, he
suggested—but they were certain to hear a lot more about it in the years
For the most part, they did not. Nowadays, the majority of economists
confidently wave such worries away. By raising productivity, they
argue, any automation which economises on the use of labour will
increase incomes. That will generate demand for new products and
services, which will in turn create new jobs for displaced workers. To
think otherwise has meant being tarred a Luddite—the name taken by
19th-century textile workers who smashed the machines taking their jobs.
For much of the 20th century, those arguing that technology brought
ever more jobs and prosperity looked to have the better of the debate.
Real incomes in Britain scarcely doubled between the beginning of the
common era and 1570. They then tripled from 1570 to 1875. And they more
than tripled from 1875 to 1975. Industrialisation did not end up
eliminating the need for human workers. On the contrary, it created
employment opportunities sufficient to soak up the 20th century’s
exploding population. Keynes’s vision of everyone in the 2030s being a
lot richer is largely achieved. His belief they would work just 15 hours
or so a week has not come to pass.
When the sleeper wakes
Yet some now fear that a new era of automation enabled by ever more
powerful and capable computers could work out differently. They start
from the observation that, across the rich world, all is far from well
in the world of work. The essence of what they see as a work crisis is
that in rich countries the wages of the typical worker, adjusted for
cost of living, are stagnant. In America the real wage has hardly budged
over the past four decades. Even in places like Britain and Germany,
where employment is touching new highs, wages have been flat for a
decade. Recent research suggests that this is because substituting
capital for labour through automation is increasingly attractive; as a
result owners of capital have captured ever more of the world’s income
since the 1980s, while the share going to labour has fallen.
At the same time, even in relatively egalitarian places like Sweden,
inequality among the employed has risen sharply, with the share going to
the highest earners soaring. For those not in the elite, argues David
Graeber, an anthropologist at the London School of Economics, much of
modern labour consists of stultifying “bullshit jobs”—low- and mid-level
screen-sitting that serves simply to occupy workers for whom the
economy no longer has much use. Keeping them employed, Mr Graeber
argues, is not an economic choice; it is something the ruling class does
to keep control over the lives of others.
Be that as it may, drudgery may soon enough give way to frank
unemployment. There is already a long-term trend towards lower levels of
employment in some rich countries. The proportion of American adults
participating in the labour force recently hit its lowest level since
1978, and although some of that is due to the effects of ageing, some is
not. In a recent speech that was modelled in part on Keynes’s
“Possibilities”, Larry Summers, a former American treasury secretary,
looked at employment trends among American men between 25 and 54. In the
1960s only one in 20 of those men was not working. According to Mr
Summers’s extrapolations, in ten years the number could be one in seven.
This is one indication, Mr Summers says, that technical change is
increasingly taking the form of “capital that effectively substitutes
for labour”. There may be a lot more for such capital to do in the near
A 2013 paper by Carl Benedikt Frey and Michael Osborne, of the
University of Oxford, argued that jobs are at high risk of being
automated in 47% of the occupational categories into which work is
customarily sorted. That includes accountancy, legal work, technical
writing and a lot of other white-collar occupations.
Answering the question of whether such automation could lead to
prolonged pain for workers means taking a close look at past experience,
theory and technological trends. The picture suggested by this evidence
is a complex one. It is also more worrying than many economists and
politicians have been prepared to admit.
The lathe of heaven
Economists take the relationship between innovation and higher living
standards for granted in part because they believe history justifies
such a view. Industrialisation clearly led to enormous rises in incomes
and living standards over the long run. Yet the road to riches was
rockier than is often appreciated.
In 1500 an estimated 75% of the British labour force toiled in
agriculture. By 1800 that figure had fallen to 35%. When the shift to
manufacturing got under way during the 18th century it was
overwhelmingly done at small scale, either within the home or in a small
workshop; employment in a large factory was a rarity. By the end of the
19th century huge plants in massive industrial cities were the norm.
The great shift was made possible by automation and steam engines.
Industrial firms combined human labour with big, expensive capital
equipment. To maximise the output of that costly machinery, factory
owners reorganised the processes of production. Workers were given one
or a few repetitive tasks, often making components of finished products
rather than whole pieces. Bosses imposed a tight schedule and strict
worker discipline to keep up the productive pace. The Industrial
Revolution was not simply a matter of replacing muscle with steam; it
was a matter of reshaping jobs themselves into the sort of precisely
defined components that steam-driven machinery needed—cogs in a factory
The way old jobs were done changed; new jobs were created. Joel
Mokyr, an economic historian at Northwestern University in Illinois,
argues that the more intricate machines, techniques and supply chains of
the period all required careful tending. The workers who provided that
care were well rewarded. As research by Lawrence Katz, of Harvard
University, and Robert Margo, of Boston University, shows, employment in
manufacturing “hollowed out”. As employment grew for highly skilled
workers and unskilled workers, craft workers lost out.
This was the loss
to which the Luddites, understandably if not effectively, took
With the low-skilled workers far more numerous, at least to begin
with, the lot of the average worker during the early part of this great
industrial and social upheaval was not a happy one.
As Mr Mokyr notes,
“life did not improve all that much between 1750 and 1850.” For 60
years, from 1770 to 1830, growth in British wages, adjusted for
inflation, was imperceptible because productivity growth was restricted
to a few industries. Not until the late 19th century, when the gains had
spread across the whole economy, did wages at last perform in line with
productivity (see chart 1).
Along with social reforms and new political movements that gave voice
to the workers, this faster wage growth helped spread the benefits of
industrialisation across wider segments of the population. New
investments in education provided a supply of workers for the more
skilled jobs that were by then being created in ever greater numbers.
This shift continued into the 20th century as post-secondary education
became increasingly common.
Claudia Goldin, an economist at Harvard University, and Mr Katz have
written that workers were in a “race between education and technology”
during this period, and for the most part they won. Even so, it was not
until the “golden age” after the second world war that workers in the
rich world secured real prosperity, and a large, property-owning middle
class came to dominate politics. At the same time communism, a legacy of
industrialisation’s harsh early era, kept hundreds of millions of
people around the world in poverty, and the effects of the imperialism
driven by European industrialisation continued to be felt by billions.
The impacts of technological change take their time appearing. They
also vary hugely from industry to industry. Although in many simple
economic models technology pairs neatly with capital and labour to
produce output, in practice technological changes do not affect all
workers the same way. Some find that their skills are complementary to
new technologies. Others find themselves out of work.
Take computers. In the early 20th century a “computer” was a worker,
or a room of workers, doing mathematical calculations by hand, often
with the end point of one person’s work the starting point for the next.
The development of mechanical and electronic computing rendered these
arrangements obsolete. But in time it greatly increased the productivity
of those who used the new computers in their work.
Many other technical innovations had similar effects. New machinery
displaced handicraft producers across numerous industries, from textiles
to metalworking. At the same time it enabled vastly more output per
person than craft producers could ever manage...