We live in an era of major
disruptions, brought about by
the accelerating pace of
technological innovations. This
can be viewed as the modern
day equivalent of the industrial
revolution of the late 18th
century. The impact of that
revolution was so earth shatteringly profound; it affected almost all aspects of
daily life. For the first time in the history of humankind,
per capital GDP and population size was growing at a
steady pace.
Almost everyone benefitted from this process, but it didn’t happen overnight. There was a painful “adjustment” phase during which the innovations of the time rendered certain “craft” worker skills redundant. In the textile industry, swaths of artisan weavers suddenly found themselves jobless, displaced by machines that could produce far more cloth requiring less skill and effort. Unemployment rose, causing riots and protests and emergence of Luddites.
The disruptions happening today are not all that different from the early stages of the industrial revolution. We have been ushered into the era of the digital revolution, and into a process that is displacing many “mid skill” workers. The newly unemployed need to readjust their competences in order to adapt to a new job market landscape.
In the U.S., the post-recession unemployment rate has been unusually resilient to a strengthening recovery. The cyclical patterns of unemployment seem to be absent, suggesting that a more secular element is at play. Other clues, such as the changing composition of unemployment, household consumption patterns and the distribution of wealth all point in the same direction.
The digital revolution is engendering a polarization of incomes but, unlike in pervious downturns, it is the middle skill segment of the economy that is feeling most of the pinch. So not only is the income distribution gap between the highest and lowest skill set workers being accentuated, the pay for workers that find themselves in the lower middle segment are being increasingly dragged downwards.
These are jobs that are typically “rules based” and repetitive, but that also require a certain degree of cognitive skills. Increasingly powerful computers that deliver greater efficiency and precision are supplanting those skills. We seem to be witnessing technology climbing the “skill set” ladder, invading jobs that were exclusive to humans.
Another area of disruption comes from digital technologies that are allowing us to create so called lossless, hi fidelity copies of original works, permitting us to dramatically expand our reach. A musician’s works can be recorded, duplicated and distributed with little effort. A teacher is no longer confined to the physical boundaries of the classroom; the course can be projected effortlessly to almost any location on earth.
All this has tremendous economies of scale implications, empowering those with skills or talent in unprecedented ways. It is also the cause of widening inequality within the highest income bracket. Through a process of “winner takes it all”, first comers or those that exhibit slightly better talent take the “lions share” of income, leaving others at a substantial disadvantage.
Last but not least of the inequality contributions of the digital revolution stem from the division between capital and labor. The owners of capital are constantly competing with labor for jobs. Advances in technology tend to increase the attractiveness of capital versus labor. This in turn raises inequalities by boosting the earnings power of capital providers versus labor. It is a constant tug of war, as technology displaces workers, those workers gradually acquire skills that machines lack, and the cycle is repeated.
The digital revolution, through a process of creative destruction, is causing havoc on the economy. Economists suggest that the disruption is temporary and point to the industrial revolution as proof. No one really knows the duration of this disruption, mainly because of the acceleration of technological innovation. There are those that suggest that success in the future will require collaboration rather than competition with machines. Truth is, nobody knows what the future of the digital revolution holds for humanity.
Almost everyone benefitted from this process, but it didn’t happen overnight. There was a painful “adjustment” phase during which the innovations of the time rendered certain “craft” worker skills redundant. In the textile industry, swaths of artisan weavers suddenly found themselves jobless, displaced by machines that could produce far more cloth requiring less skill and effort. Unemployment rose, causing riots and protests and emergence of Luddites.
The disruptions happening today are not all that different from the early stages of the industrial revolution. We have been ushered into the era of the digital revolution, and into a process that is displacing many “mid skill” workers. The newly unemployed need to readjust their competences in order to adapt to a new job market landscape.
In the U.S., the post-recession unemployment rate has been unusually resilient to a strengthening recovery. The cyclical patterns of unemployment seem to be absent, suggesting that a more secular element is at play. Other clues, such as the changing composition of unemployment, household consumption patterns and the distribution of wealth all point in the same direction.
The digital revolution is engendering a polarization of incomes but, unlike in pervious downturns, it is the middle skill segment of the economy that is feeling most of the pinch. So not only is the income distribution gap between the highest and lowest skill set workers being accentuated, the pay for workers that find themselves in the lower middle segment are being increasingly dragged downwards.
These are jobs that are typically “rules based” and repetitive, but that also require a certain degree of cognitive skills. Increasingly powerful computers that deliver greater efficiency and precision are supplanting those skills. We seem to be witnessing technology climbing the “skill set” ladder, invading jobs that were exclusive to humans.
Another area of disruption comes from digital technologies that are allowing us to create so called lossless, hi fidelity copies of original works, permitting us to dramatically expand our reach. A musician’s works can be recorded, duplicated and distributed with little effort. A teacher is no longer confined to the physical boundaries of the classroom; the course can be projected effortlessly to almost any location on earth.
All this has tremendous economies of scale implications, empowering those with skills or talent in unprecedented ways. It is also the cause of widening inequality within the highest income bracket. Through a process of “winner takes it all”, first comers or those that exhibit slightly better talent take the “lions share” of income, leaving others at a substantial disadvantage.
Last but not least of the inequality contributions of the digital revolution stem from the division between capital and labor. The owners of capital are constantly competing with labor for jobs. Advances in technology tend to increase the attractiveness of capital versus labor. This in turn raises inequalities by boosting the earnings power of capital providers versus labor. It is a constant tug of war, as technology displaces workers, those workers gradually acquire skills that machines lack, and the cycle is repeated.
The digital revolution, through a process of creative destruction, is causing havoc on the economy. Economists suggest that the disruption is temporary and point to the industrial revolution as proof. No one really knows the duration of this disruption, mainly because of the acceleration of technological innovation. There are those that suggest that success in the future will require collaboration rather than competition with machines. Truth is, nobody knows what the future of the digital revolution holds for humanity.
