TECHNOLOGY AT WORK

February 2015
Citi GPS: Global Perspectives & Solutions
11
Brynjolfsson and McAfee argue that we are
not likely to see a growth problem resulting
from a slowdown in innovation as
workplaces restructure and productivity
growth follows
Innovation this time around benefits the few
rather than the many which is cause for
concern
The view that a widening gap between productivity and pay is due to increased
usage of labour-substituting capital is favoured by Erik Brynjolfsson and Andrew
McAfee, arguing that the reason why wages have failed to keep pace with
productivity is that ordinary workers are unable to adapt to an ever increasing pace
of technological change. 14 As a result, many workers are seeing their skills made
redundant by new computer technologies. According to Brynjolfsson and McAfee,
we are not likely to have a growth problem resulting from a slowdown in innovation:
technological advances increase productivity only after long lags. As workplaces
gradually restructure to accommodate new technologies, they argue, productivity
growth will follow. Still, the concentration of wealth that Piketty forecasts may be
exacerbated as computer-controlled devices are increasingly substituted for human
workers. According to a recent study by Carl Benedikt Frey and Michael Osborne,
as many as 47% of US jobs are at risk for automation over the forthcoming
decades. 15
While Joseph Schumpeter famously noted that long-run growth occurs via structural
change, which may inflict pain, this report will argue that the recent trend of
declining living standards is not just the result of structural change. It is caused by
the changing nature of innovation.
The Digital Age: Why This Time is Different
There is reason to be concerned that we are experiencing an era in which
innovation benefits the few rather than the many. Because most individuals are
consumers and producers, new technologies will have an impact on people’s living
standards in both capacities, positively or negatively. In the past, some innovations
have benefited ordinary people both as producers and consumers. 16 Others have
negatively impacted workers in production while helping consumers.
To be sure, an important feature of the Industrial Revolution was that it benefited
people both as producers and consumers over the long-run. In particular, the
adoption of the assembly line created vast employment opportunities for low-skilled
workers and enabled corporations such as the Ford Motor Company to manufacture
the Model-T at a sufficiently low price for it to become the people’s vehicle. By
contrast, the digital revolution has mainly benefited ordinary people as consumers.
While the World Wide Web provides many things for free, new employment
opportunities have mainly been created for highly skilled workers. 17 At the same
time, the potential scope of automation has rapidly expanded, substituting for
ordinary workers in a variety of domains. 18 In short, while the digital age has been a
blessing to consumers, it is changing the world of work in ways that may make a
growing share of workers worse off (in their capacity as producers) over the longrun.
14 Brynjolfsson and McAfee (2014).
15 Frey and Osborne (2014).
16 Glaeser (2014).
17 Berger and Frey (2014).
18 Frey and Osborne (2013).
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