Our recent jobs numbers are truly disturbing. In July 2011, the unemployment rate was 9.1%, and we were unable to create enough jobs to keep up with our population growth. The following month we created no new net jobs at all. And just yesterday, we learned that 4.4 million Americans have been out of work for more than a year, which is roughly 31 percent of the total.
There are lots of theories about why hiring didn't pick up again during the recent recovery, but one of the most convincing ones relates to the role that technology has played in our employment crisis. A new e-book titled Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, written by Erik Brynjolfsson and Andrew McAfee, provides fascinating insights into this vexing issue. While technology certainly has had a negative impact on job growth in recent years, there are reasons to be hopeful about the future, according to the authors.
This time it really is different
Unlike previous recoveries, American companies didn't resume hiring after the Great Recession. According to Brynjolfsson and McAfee, investment in equipment and software had "returned to 95% of its historical peak" by 2010, which represented "the fastest recovery of equipment investment in a generation." While actual layoffs soon dropped off, companies did not bring in new people. In other words, "companies brought new machines in, but not new people."
Our technologies appear to be progressing faster than society can keep up. The authors do not find this surprising, and they provide compelling evidence on how this is happening. There used to be a time when it was just assumed that there were some things computers couldn't do. But now we have the following:
A new technology platform called GeoFluent can effectively translate words from one language to another for business purposes.
Watson Labs, working with IBM (NYS: IBM) , created a machine that defeated the best Jeopardy! players ever in February 2011.
According to the authors, it is precisely this sort of technological progress that led to job losses during the Great Recession. Computers are now able to do things that used to be the domain of humans, and this trend will only continue, whether we like it or not.
You mean I can sell this junk?
Fortunately, this trend doesn't necessarily have to result in net job losses in the future. Brynjolfsson and McAfee show how eBay (NAS: EBAY) and Amazon (NAS: AMZN) Marketplace "spurred over 600,000 people to earn their livings by dreaming up new, improved, or simply different or cheaper products for a worldwide customer base." And Apple's (NAS: AAPL) App Store and Google's Android Marketplace, "make it easier for people with ideas for mobile applications to create and distribute them."
In order to tackle the employment crisis, we must bring "machines and humans together" according to the authors. And that can only be done by improving our organizational innovation and making sure our workers are better trained. The e-book closes by offering 19 proposals to address those areas. Among the proposals, quite a few were aimed at our woeful education system, including demands to pay teachers more and to hold students and teachers to higher standards.
John Henry won that race
Race Against the Machine is an important book, and I highly recommend it to everyone. I find the argument that technological advances have stifled new job growth to be more convincing than those arguments that are focused solely on weak demand or insufficient innovation.
And who could deny that our substandard educational system plays a part here? Recent testing of American 15-year-olds had us ranked 14th in reading, 17th in science, and 25th in math out of 34 countries. We were also 27th out of 34 when it comes to high school graduation rates. If such trends were to continue, we literally might become too ignorant to solve many of the challenges facing us in the future. Sadly, this may already be the case.
The authors conclude their work by noting that we are in the midst of a third industrial revolution, which is "fuelled by computers and networks." They are confident about this digital future, though they believe that we have a lot of work to do if we are to benefit from all of its possibilities. I admire their optimism, though I worry that we don't feel enough urgency about our dysfunctional educational system.
At the time thisarticle was published John Reeves owns shares of Google and Apple.The Motley Fool owns shares of International Business Machines, Apple, and Google. Motley Fool newsletter services have recommended buying shares of eBay, Apple, Amazon.com, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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