Tuesday, February 08, 2011

Technology, jobs, and creative destruction

In response to the recent approval of an all-electronic toll-collection system for the Golden Gate Bridge, many San Franciscans have voiced concern over the loss of toll workers’ jobs. The belief that new technologies are necessarily detrimental to employment, however, reflects a common misunderstanding regarding the interplay between technological advance, progress, and the economy as a whole. Though the introduction of electronic tolls will harm the toll workers in the short run by putting them out of work, they also enable the government to re-allocate the money formerly spent on toll-worker wages. These savings will either pay for other public goods and services (thereby employing workers in other sectors) or be used to reduce the deficit (thereby reducing the burden on the taxpayer).

Many balk at the notion of cutting jobs for the sake of “efficiency.” Consider, however, whether people would choose to move in the opposite direction—sacrificing efficiency for the sake of increased employment. Instead of using dishwashers and washing machines, individuals could hire others to wash their dishes and clothes by hand—that, too, would create jobs. It is tempting to separate such individual spending decisions from those made by the government, but ultimately the saving from automated tollbooths is no different from that provided by any other time- and money-saving device.

The process of old products or services dying out in the wake of new technologies, known as creative destruction, has been transforming the world for centuries. Many typewriter manufacturers went out of business with the advent of computers, yet few people would argue today that we should have repressed such technological advances for the sake of workers. Just as the computer industry gave birth to myriad of new jobs, the new tolls themselves create jobs in technology development, manufacturing, maintenance, etc. Thus, instead of widespread unemployment, the result of such technological progress is economic growth. People use technology to produce goods more efficiently, and those goods then become available for everyone’s consumption.

Does this mean new technologies never cause employment problems? Of course not. Those whose skills are made obsolete by new technologies may indeed suffer a period of unemployment, although often the money saved is even put toward job-training programs and unemployment insurance to ease the pain of transition (to quote The Economist, “Protect workers, not jobs”). While this is an unfortunate side effect of technological growth, the difficulty imposed on the unlucky individuals is typically outweighed by the widespread benefits to society that technology creates.

Discussion Questions:

1. Can you think of other industries where creative destruction is present and thus encourages the creation of improved technology on an ongoing basis?

2. Before the Golden Gate Bridge was built in the 1930s, cars had to cross between San Francisco and Marin County (the two ends of the bridge) on ferries. How is building the bridge like an improvement in technology, and how did it impact employment?

3. How does creative destruction affect the quality decision producers must make? Why is it that some goods are made with the intention of lasting decades while others are only designed to last a few years?

4. In this case, the tolls will reduce the number of workers in the toll-collecting industry, but is this always the case with new technology? What is an industry where technology acts as a complement to labor, and how is this different from technology as a supplement to labor?



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