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Technology and the Employment Challenge

By A. Michael Spence, William R. Berkley Professor in Economics & Business

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For individuals, businesses, educational institutions, and governments in advanced countries, broad-based, elevated, and efficient investment in education and skills is critical.

New technologies of various kinds, together with globalization, are powerfully affecting the range of employment options for individuals in advanced and developing countries alike – and at various levels of education. Technological innovations are not only reducing the number of routine jobs, but also causing changes in global supply chains and networks that result in the relocation of routine jobs – and, increasingly, non-routine jobs at multiple skill levels – in the tradable sector of many economies.

How, then, should policymakers confront the new and difficult challenges for employment (and, in turn, for the distribution of income and wealth), especially in developed economies? From recent research, we have learned a number of interesting things about how the evolution of economic structure affects employment.

The tradable side of advanced economies has not generated any real net increases in employment for at least two decades, while the jobs that it has created are concentrated in the upper-income and upper-education ranges, with employment declining in the middle and lower range of income and education. Growth in high-end services employment is matched by contraction in high-employment components of manufacturing supply chains.

Until the crisis of 2008, middle- and lower-income job growth occurred entirely in the non-tradable sector of the economy, which accounts for roughly two-thirds of advanced countries’ output and employment. Here, incomes and value added per employee remained largely flat. Jobs could be eliminated by technology, but not by global competition; and, unsustainable, debt-fueled domestic-demand growth helped to delay the current employment deficits.

As a result, the advanced economies have been shedding routine jobs at a rapid rate, while adding non-routine jobs (for example, those that cannot yet be replaced or reduced by machines and networked computers). This has fueled a dramatic rise in the return on education and high-level skills, with the share of total income received by owners of capital and high-end employees increasing in advanced countries for more than two decades.

Read full article as published in Project Syndicate