0.7 21st century technology, digital displacement, and the role of  (Page 3/17)

In the period 1987-2011, the computer industry generally became by far the best-performing portion of U.S. manufacturing. However, much of the industry has moved abroad. By 2012 the U.S. transitioned from being the world leader in producing computers to one among many leaders, Ibid., p.7. and computer services can now easily be incorporated into foreign production of computers. This is both good news and bad news for technologically ambitious emerging nations: it helps to improve living standards, but it also will likely mean, as in the U.S., a decline in the share of employment in manufacturing; especially in jobs paying good wages. It will likely also mean further declines in labors share in U.S.

In any case, the implication of the second wave of digitization will be far reaching, not only for developing nations, but also higher income nations in North America, Europe and East Asia.

For developing nations, cheap labor is already becoming less important in manufacturing and income growth generally, with obvious effects on income inequality.

The recent experience of developed nations may foreshadow what may be in store for poorer nations’ labor market. For richer nations such as the U.S., the digital revolution has been a major factor in the increasing “polarization” in the U.S. labor market. The number of jobs requiring medium levels of skills has diminished, while the numbers of jobs requiring high and low skills has grown, again with obvious implications for income distribution.

This is a relatively recent development. In the U.S. before about 1990 low skill jobs tended to be replaced by high skill jobs, but the number of middle skill jobs remained fairly constant. Polarization in the labor markets of the U.S. began to grow in the 1990s. It accelerated with the economic meltdown known as the “Great Recession” of 2008-09 (see Chapter___).

Whereas the shift away from labor in poorer nations has been most keenly felt in low-skill employment, the shift in the U.S. has until recently been away from middle skill jobs. But essentially one prime cause is behind both: the growing automation of routine tasks made possible by the second wave of the digital revolution (involving, among other things, increasing utilization of robotic devices in manufacturing). As noted in a study by the Federal Reserve Bank of Dallas this has been largely due to the vastly increased availability of computing power since 1990, as well as a rapid reduction in its costs. See Anton Cheremukhin (2014, May), “Middle-Skill Jobs Lost in U.S. Labor Market Polarization,” Dallas Federal Reserve Economic Letter , 9(5).

Concern over displacement of labor in economic activity is by no means confined to the U.S. Similar patterns of polarization in labor markets have emerged in 16 developed European nations. Maarten Goos, Alan Manning and Anna Salomons (2009, May), “Job Polarization in Europe”, American Economic Review, Papers and Proceedings , 99(2): 58-63. A recent study for Britain estimates that as much as 47% of occupations there could be fully automated in the next few decades. Carl Benedikt Frey and Michael A. Osborne (2013, September 17). "The Future of Employment: How Susceptible are Jobs to Computerisation?" U.K. Oxford: OMS Working Paper.