History of Innovation and Job Polarization

November 2017


History of Innovation & Job Polarization

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In much of the current discussion, technological advances are described in threatening terms (e.g., disruptive technologies, job destruction); but technology has almost uniformly been a force of good throughout U.S. history and has delivered Americans from an era of dismal living conditions and backbreaking work. In the late 1880s, most Americans lived in dark dwellings with no access to electricity, water, sewers or refrigeration. Diseases spread rapidly in urban areas, and rural residents worked long hours and traveled far to markets.

When the country embarked on a remarkable era of technological innovation and economic growth, houses were networked with electricity, water, sewers and telephones. Cars and trucks ushered in investments in road, bridge and highway infrastructure. Refrigeration allowed for the expansion of American diets from primarily salted pork to a much broader array of fresh meats, fruits and vegetables. Innovations in health care drove down infant mortality and extended longevity. Low-paying farm labor gave way to an array of manufacturing jobs with good wages and benefits.

Henry Ford knew that if the automobile industry was going to prosper, his workers — and others like them — had to earn salaries high enough to buy his cars. His vision was broadly realized, and the U.S. embarked on an era of consumer-driven economic growth. Robust population growth and middle-class consumption generated jobs across the full spectrum of low-, middle- and high-skill levels: Restaurant workers, home builders, teachers, factory workers and professional managers.

During this time, technology-driven innovation boosted worker productivity. Output per worker-hour increased and businesses were able to pay their workers more. Wages rose at all skill levels, as the rising tide lifted all boats and the country experienced a remarkable transformation of its standard of living. In the century between 1870 and 1970, life expectancies rose from 39.4 to 70.9 years, while per-person economic output increased almost six-fold — from $4,060 to $23,900 in inflation-adjusted terms. By 1970, technology had delivered most of the life-improving innovations that we enjoy today. See Figure 6.

Beginning in the 1970s and 1980s, the labor market began to change. Automation, which had historically substituted for physical tasks (e.g., earth moving, transport, assembly), was spreading into other forms of routine work. Mathematical calculations, which had been performed by rooms of analysts and statisticians, could be handled increasingly by computers. Word-processing software altered typing and report production. Automated teller machines (ATMs) performed cash-handling tasks for financial institutions. Computer-Aided Drafting (CAD) appeared in architectural firms. Eventually, tax preparation software would tackle the complex federal tax code.

Harvard’s David Deming tracked the skills that were required in growing and shrinking occupations since 1980. He found occupations requiring both social and math skills grew as a share of all jobs, as did occupations that required social skills alone. Occupations requiring math skills but no social skills declined as a share of all jobs. Occupations requiring neither social nor math skills fared the worst of all. See Figure 7.

The expansion of automation into a broader array of routine work led to job polarization. Jobs increased at the low- and high-skill ends of the spectrum but stagnated or declined in the middle. Many of the middle-skill, middle-income jobs consisted of repetitive steps that could be documented, coded and executed with software.

The impacts of this automation have been especially pronounced for prime-age males (ages 25-54), a demographic that society has always expected to work. The share of unemployed prime-age males — both those looking for work and those not looking — has climbed from about 5 percent in the late 1960s to around 15 percent today. A simple extension of the trend would imply that about a quarter of prime-age males could be out of the labor force by 2050.

By most accounts, the middle-income job challenge will be with us throughout the next decade. Left unattended, job polarization will exacerbate the country’s already high levels of income inequality and fuel more political unrest.