“In the world that we are creating very quickly we are going to see more and more things that look like science fiction and fewer and fewer things that look like jobs.” – Andrew McAfee
The other day I came across an interesting TED talk which addresses one of the biggest issues our society and economy will have to deal with in the future. The talk was given by economist Andrew McAfee and was entitled “What will future jobs look like?” The 15 minute talk is packed with interesting charts and anecdotes about the impact technology has had and will continue to have on our job market. If you have the time, we highly recommend you watch it, but for those that can’t, today’s Insight will summarize some of the more salient points as well as provide our own perspectives on the topic.
The fear of machines taking jobs away from human beings has been around for quite some time. The first known instance can be traced back almost 200 years ago when English textile workers destroyed weaving machines in protest of the new technology. The fear of technology has proven to be misplaced as it has created more jobs than it has taken away. But could all that be changing on a go forward basis and if so, why is this time any different? The short answer is yes. Nobody knows for sure, but based on the advances we are seeing in technology, specifically machine learning which allows machines to mimic human decision making skills, this time may truly be different.
First the good news, technological advances will most likely continue to bring economic prosperity through higher output and lower prices or quite simply put, a state of economic abundance. Additionally, transferring work to machines will free humans from what many would consider the daily grind (or “drudgery and toil” per the talk), which in turn provides humankind with the time and opportunity to exercise more creativity and make the world a better place.
So that’s the good news. The bad news is that this trend will most likely benefit the capitalists (e.g. those that have wealth in the form of productive resources such as ownership in a business) at the expense of the labor class (e.g. those that rely on a job to produce income in order to sustain their living standard). In short, it will be harder and harder to offer your skills/labor in an economy that becomes more and more reliant on machines.
Over the past couple decades we have already seen this shift occur. For the average middle class worker, median income has actually gone down over the past 15 years. The economic divide between the haves and the have nots continues to get wider, which is creating a vicious cycle of greater inequality and polarization. The chart below from Andrew McAfee’s TED talk shows how corporate profits as a percentage of overall GDP have soared while wages have plummeted over the past 30 years. Many economists attribute this shift to advances in technology.
Digging in a little deeper into the data we see that the divide isn’t simply between employers and employees, but instead a disproportionate amount of the pain is being felt by the less skilled laborers. In his talk, Andrew describes two fictitious people named Bill and Ted (“Excellent!”). Bill is not college educated and works as a laborer most likely in some sort of service industry doing blue collar or low level white collar work. Ted is college educated and has a professional white collar job (manager, engineer, doctor, lawyer, etc.).
If we go all the way to 1960 when computers were first being adopted by businesses, Bill and Ted led fairly similar lives (albeit at different income levels). But since that time, the fortunes of Bill and Ted have diverged quite dramatically. The chart below shows the percentage of Bills and Teds who have been able to hold a full time job (40 hours/week) since the early 60’s. What we see from this chart is that the working professionals (Teds) have fared just fine while the true laborers (Bills) struggled to maintain a job. This same trend shows up in a number of other metrics including the rates of divorce, voting record, and imprisonment, which could all be related to the economic stress of not being able to work for a living. Suffice it to say, the age of technology has not been so kind to the Bills of this country.
So what can we do about this? According to Mr. McAfee, in the near term we need to be encouraging entrepreneurship, putting the Bills to work through infrastructure projects, and making sure we are properly educating the upcoming workforce for the economy they are about to join. In the long-term he floats the idea of some sort of guaranteed minimum income. The merits and problems of that solution are well beyond the scope of this post, but we again remind everyone that nothing happens in a vacuum and there will always be unintended consequences for any decision, not the least of which would be something as big as a guaranteed income.
As with most economic issues, there is no simple fix to something as vast and complex as the paradox of automation. But in the same vein we don’t think this is a hopeless problem that is impossible to resolve. Humankind has shown to be extremely resilient and capable of solving tough challenges throughout history, and we don’t think this challenge will be any exception. We need to continue to educate people on societal issues such as this so that we can work together to try to solve them. We’ll end this week’s post with a quote that perfectly summarizes this sentiment by none other than President Abraham Lincoln (emphasis added), “I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.”
Author Elliott Orsillo, CFA is a founding member of Season Investments and serves on the investment committee overseeing the management of client assets. He spent nearly ten years as a financial analyst and portfolio manager working primarily with institutional clients prior to co-founding Season Investments. Elliott earned a bachelor's degree in Engineering from Oral Roberts University and a master's degree from Stanford University in Management Science & Engineering with an emphasis in Finance. Elliott and his wife Gigi have three children and like to spend their time outdoors enjoying everything the great state of Colorado has to offer.
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