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Is IT Making Unemployment Worse? The Debate Has Begun

In America, the combination of high unemployment and the start of the presidential election process has sparked a great deal of debate about how jobs are created, and lost. Nothing new there. Similar academic and populist debates have been part of every modern recession, as society seeks both strategies – legislation, fiscal and monetary policies – and scapegoats – corporations, machines, trade, foreigners, etc.

Is IT Making Unemployment Worse?

In the current marketplace of ideas, IT's ability to eliminate jobs is getting a lot more attention than its capacity to create them.

What's different today is that information technology is now at the centre of the discussion. Over the decades, we have grown used to thinking of IT as an engine of economic growth. But in the current marketplace of ideas, IT's ability to eliminate jobs is getting a lot more attention than its capacity to create them. Whether this shift in attitude is warranted or not, it's a potentially huge change in the way our industry is perceived. Moreover, unless the national unemployment picture improves considerably, concern over IT's effect on jobs will likely increase sharply in 2012 and beyond.

President Obama moved the issue into the mainstream media in June 2011 when he remarked: "There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and use an ATM, you don't go to a bank teller, or you go to the airport and you're using a kiosk instead of checking in at the gate." Never mind that ATMs have been around for decades (or that airport kiosks are used at check-in, not the gate), the President of the United States essentially said that technological progress is eliminating jobs, resulting in "some" level of structural unemployment, a potent phrase in economic circles.

Recent thinking

Not coincidentally, over the last six months many of America's most prominent IT thinkers have been weighing in on the impact of digital technology on the modern economy. We recommend that clients keep abreast of these discussions, and be prepared to talk about how information technology is changing employment patterns in your firm and industry. As a starting point, we suggest the four perspectives below, three of which happen to come from close LEF associates:

"Why software is eating the world."

In the August 20 2011 Wall Street Journal, Netscape founder and now venture capitalist, Marc Andreessen, explained how software is either replacing or transforming huge chunks of the global economy. The main thrust of his argument is that people (and investors) consistently underestimate the long-term power of software, and therefore often miss out on incredible opportunities. From this vantage, he sees today's severe shortage of software skills in emerging areas as a major barrier to IT industry progress. Check it out at:

http://online.wsj.com/article/SB10001424053111903480904576512250915629460.html

 

"The second economy."

We have long recommended the work of Brian Arthur, who has spoken at our events and helped with our research. In an October 2011 paper in the McKinsey Quarterly, Brian describes today's evolving digital infrastructure as a second economy – an ever-more capable, but largely invisible world where machines autonomously work with other machines, and where dramatic improvements in economic productivity may not lead to corresponding increases in human employment. It's a great read:

https://www.mckinseyquarterly.com/The_second_economy_2853

 

"The race against the machine."

Also in October, MIT Professors Eric Brynjolfsson (an LEF research adviser) and Andrew McAfee (recent LEF Executive Forum speaker) took the employment issue head-on by examining the current evidence regarding IT's overall effect on jobs. While Eric and Andrew are adamant that they are long-term digital optimists, they have had to conclude that right now IT does appear to be eliminating jobs faster than it is creating new ones, across a wider range of fields and skills than generally recognized. That two prominent MIT professors are publically taking this position is unprecedented. Available on Kindle only at:

http://www.amazon.com/Race-Against-Machine-Accelerating-ebook/dp/B005WTR4ZI#_

 

"Faltering US competitiveness."

For many years, I have worked closely with Rob Atkinson, the founder of the Information Technology and Innovation Foundation (ITIF). No one I know has tracked the relationship between the economy and technology more closely than Rob. In a December paper, Rob critiques today's leading US unemployment theories: lack of aggregate demand, prolonged financial deleveraging, regulatory uncertainty, jobs/skills mismatch, innovation stagnation, and increasing machine automation. While all of these factors are relevant, Rob argues convincingly that the main cause of US unemployment today is declining competitiveness, especially in manufacturing. We think this is a critical point with many implications for the way we think about IT going forward. See:

http://www.itif.org/publications/explaining-anemic-us-job-growth-role-faltering-us-competitiveness

 

LEF clients know that we have been writing about all of these issues for some time. While we don't focus specifically on employment, we have long observed the disruptive and transformative effects of IT within certain industry sectors. More recently, we have emphasized the accelerating virtualization of the economy. By 'virtualization' we mean the use of IT to reduce our need for physical objects (cameras, calculators, maps, etc); physical spaces (stores, offices, travel, etc); and physical labour (office staff, customer support, sales clerks, etc). Similarly, our work on the shortage of double-deep and business intelligence professionals highlights much of today's jobs/skills gap. Overall, there is clearly a sea-change in motion, one with deep employment and competitiveness implications.

What to do?

Clearly, information technology (like all major technologies before it) both creates and destroys jobs. Historically, the long-term gains from improved productivity have always outweighed the short-term losses. Thus, the burden of proof is on those who believe that IT is contributing to a net job decline. This is why the work of Brynjolfsson and McAfee is so important, and will be increasingly cited.

Of course, no matter what is going on in the wider economy, clients generally have little choice other than to do what makes sense for their firms, as they seek to become as competitive as possible. This will increasingly require the deployment of technology to do things cheaper and/or better. Whether these changes are called virtualization, the emergence of a second economy, racing against the machine, or being swallowed by software is not important. We are all referring to the same underlying shift toward an increasingly digital economy. The key point is that, since this shift is largely inevitable, the business climate will be much more tranquil if employees, political leaders and society at large generally believe that the overall economic impact of IT is broadly positive. If they conclude otherwise, the consequences for our industry will be profound.

This is one reason why in 2012 we are putting so much emphasis on the relationship between IT and business growth in both our research and Executive Forums. If we can demonstrate that IT will help the overall economy to grow and remain competitive, concerns about specific job losses will be easier for everyone to accept. We also think that focusing on growth is important at an individual firm level, as many clients currently feel torn between today's alluring new IT capabilities and their equally strong cost and austerity pressures.

Our growth research approach

In order to make sense of these issues, we are seeking a research framework with which to assess IT's impact on growth and competitiveness. Our first attempt is shown above, in what is essentially a growth and competitiveness value chain. We welcome your feedback.

The text on the right side of the figure shows the sorts of developmental issues we will explore. For example, in today's consumerized, social media driven world, the skills and motivations of individuals and communities are much more important than in the past, as a great deal of extremely valuable economic activity is now essentially voluntary in nature (and thus hard to capture in traditional growth and employment metrics). Similarly, we believe that too much of today's growth/jobs debate is still top-down in nature, whereas many of the most decisive drivers will be increasingly bottom-up.

As this initiative breaks new ground for us, we have adopted a partnership strategy. As shown above, the ITIF has done important work in developing recommendations at the global, national and industry levels, which we will draw upon for this project. Equally importantly, we will be working closely with Professor Edward Hess of the Darden Business School at the University of Virginia. Professor Hess's work has focused on the growth of the firm, including innovation cultures, systems and processes, and the enabling role of technology. Ed will be speaking on these topics at our 2012 US and UK Executive Forums.

While many challenges and risks await us, we are confident that the net contribution of IT will be positive over the coming years if appropriate strategies are pursued at each level of our growth/competitiveness value chain.

The result will be a high-level assessment of the potential of IT to drive growth, competiveness and employment across modern societies. While many challenges and risks await us, we are confident that the net contribution of IT will be positive over the coming years if appropriate strategies are pursued at each level of our growth/competitiveness value chain. The IT infrastructure (the second economy) that is now being built will eventually underlie whole new industries stemming from 3D printing, the life sciences, new materials, new forms of energy, and the countless other breakthroughs and innovations that lie ahead. But until much more progress is made in these areas, our industry may very well feel increasingly under siege, even as digital technology enters its most exciting phase ever and so many IT products and services continue to delight the public.

As always, we would very much like to discuss these issues with our clients. If you would like to be part of this research initiative, please get in touch at david.moschella@leadingedgeforum.com.

 

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AUTHORS

David Moschella
Research Fellow
David Moschella, based in the United States, is a Research Fellow for Leading Edge Forum.  David's focus is on industry disruptions, machine intelligence and related business model strategies.  David was previously Global Research Director of the programme. David’s key areas of expertise include globalization, industry restructuring, disruptive technologies, and the co-evolution of business and IT.  He is the author of multiple research reports, including Disrupting the Professions through Machine Learning and Digital Trust, 2016 Study Tour Report: Applying Machine Intelligence, There is Now a Formula for Machine Intelligence Innovation,  Embracing 'the Matrix' and the Machine Intelligence Era and The Myths and Realities of Digital Disruption. An author and columnist, David’s second book, Customer-Driven IT, How Users Are Shaping Technology Industry Growth, was published in 2003 by Harvard Business School Press.  The book predicted the shift from a supplier-driven to today’s customer-led IT environment.  His 1997 book, Waves of Power, assessed global competition within the IT supplier community.  He has written some 200 columns for Computerworld, the IT Industry’s leading publication on Enterprise IT, and has presented at countless industry events all around the world. David previously spent 15 years with International Data Corporation, where he was IDC’s main spokesperson on global IT industry trends and was responsible for its worldwide technology, industry and market forecasts.    

CATEGORIES

21st Century
Adaptive Execution
Assets/Capabilities
Identity/Strategy
Proactive, Haptic Sensing
Reimagining the Portfolio
Value Centric Leadership

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