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Crowded unemployment lines, however, aren’t necessarily a sign that machines are winning a zero-sum fight with humans. The surge of spending on automation and IT systems, for example, is one of the economy’s strongest props. In the third quarter, nonresidential investment, which includes labor-saving machinery, contributed 1.41 percentage points to gross domestic product growth, second only to consumer spending. Lincoln Electric Holdings, a maker of robotic welding gear, reported $55.5 million in third-quarter profits, up 71 percent from the same period in 2010.
Businesses are spending more on technology now because they spent so little during the recession. Yet total capital expenditures are still barely running ahead of replacement costs. “Most of the investment we’re seeing is simply replacing worn-out stuff,” says economist Paul Ashworth of Capital Economics.
So if machines aren’t responsible for the dearth of jobs, what is? Simple: lack of demand. Industry is using less of its productive capacity today than it did at the low point of the 1990-91 recession, according to the Federal Reserve. “We need a new source of demand,” says MIT’s Autor. “If people aren’t buying stuff, then no one’s hiring workers.”
The prosperous 1990s revealed the power of demand to simultaneously boost employment and spending on machines. Companies binged on new equipment and software in the late 1990s even more than today, yet the unemployment rate averaged 4.4 percent, notes economist Dean Baker of the Center for Economic & Policy Research in Washington, D.C. From the first quarter of 1997 through the end of 2000, even as productivity increased 14 percent, demand for goods and services was so great that the private sector created more than 9 million jobs.
One thing that’s different now: Instead of lifting all boats, as it once did, technology is sorting workers into winners and losers. Over the past three decades job growth has been fastest among high- and low-skill jobs, while mid-skill occupations atrophied, according to economists Jaison Abel and Richard Deitz of the Federal Reserve Bank of New York. Although the economy created nearly 50 million new nonfarm positions in that period, technology cut the ranks of some workforce mainstays, such as machine operators, by more than half.
Flat-lining living standards and a rich-man, poor-man job market add up to a scary new era. Despite their concerns, Brynjolfsson and McAfee remain “digital optimists.” Eventually, they say, revolutionary technologies will spawn unimagined new businesses and jobs. There’s certainly room for them. By the Congressional Budget Office’s reckoning, total output in the third quarter was 5 percent below potential. That amounts to almost $800 billion of missing demand—enough to occupy both man and machine.
The bottom line: Although machines may appear to get all the good jobs, there’s nothing wrong with the labor market that resurgent demand wouldn’t fix.
Lynch is a reporter for Bloomberg News.
