Does Inequality Hinge on Too Much Automation or Not Enough?

Adams Nager October 17, 2016
October 17, 2016

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A recent article in The Wall Street Journal by Jon Hilsenrath and Bob Davis seems to confuse job creation with economic impact. In their analysis, the two report on jobs in high-tech firms, commenting that despite large valuations tech companies employ few workers. The article further concludes that this is sign that technology has deepened inequality—a claim that repeats the flawed work of Erik Brynjolfsson—and that further gains in technology will lead to technology that destroys jobs without following the age-old pattern of creating new ones.

However, the article largely misses the punch. Looking simply at the number of jobs in a particular company says very little about the impact of technology on employment, and even less on the impact of employment on inequality. In fact, it’s a good thing that Internet companies can achieve such great success with few workers as significant benefits are created for consumers and relatively few resources consumed. Moreover, these companies are not even automating, as in most cases they allow individuals to do things they could never do before. While Google has maybe displaced reference librarians, for the most part the technology simply allows us to consume a much greater volume of knowledge, opening up myriad opportunities.

Rather than casting a suspicious eye on technology and looking inward and backward, the United States should look more closely at job loss resulting from aggressive and unfair trade practices by countries seeking to replace middle-class jobs and craft trade policy accordingly. For instance, Chinese dumping of steel and solar panels, as well as their attempts to steal intellectual property from U.S. companies in order to best foreign competition.

The largest point to be made is that current automation is not different from previous technology advances. In the past, eras of rapid technology growth were associated with faster wage growth for all. And while innovation creates big winners, in the long run it lifts all ships. And automation promises to do the same now.

Inequality is a major concern, and one we should be examining in depth. Yet to merely associate inequality with technology on flimsy evidence is a step backward. Both economic theory and history point towards productivity gains (created through technology and automation) leading to middle-class jobs. Yet despite hype surrounding what are thought of as transcendent modern technologies, productivity growth is low. Too little, not too much, technology may be responsible for slow median wage growth that frustrates voters this election.