Wednesday, February 12, 2014

12/2/2014: ICT, Productivity & Employment in the US Manufacturing

More recent research, to follow up on previous post (which dealt with jobless recoveries). This time around on the key issue of workers displacement by technology.

"RETURN OF THE SOLOW PARADOX? IT, PRODUCTIVITY, AND EMPLOYMENT IN U.S. MANUFACTURING" by Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson and Brendan Price (NBER Working Paper 19837, from January 2014) looks into the validity of the 'technological discontinuity' paradigm - the one that "suggests that IT-induced technological changes are rapidly raising productivity while making workers redundant."

Here's the justification of the tested thesis: "An increasingly influential “technological-discontinuity” paradigm suggests that IT-induced technological changes are rapidly raising productivity while making workers redundant. This paper explores the evidence for this view among the IT-using US manufacturing industries."

Basic argument here is that modern workplace is continuing to become more automated, transformed by the ICT capital. Two implications of this are:

"First, all sectors—but particularly IT-intensive sectors—are experiencing major increases in productivity. Thus, Solow’s paradox is long since resolved: computers are now everywhere in our productivity statistics."

"Second, IT-powered machines will increasingly replace workers, ultimately leading to a substantially smaller role for labor in the workplace of the future. Adding urgency to this argument, labor’s share of national income has fallen in numerous developed and developing countries over roughly the last three decades, a phenomenon that Karabarbounis and Neiman (forthcoming) attribute to IT-enabled declines in the relative prices of investment goods. And many scholars have pointed to the seeming “decoupling” between robust U.S. productivity growth and sclerotic or negligible growth rates of median U.S. worker compensation (Fleck, Glaser and Sprague 2011) as evidence that the “race against the machine” has already been run—and that workers have lost."

Top conclusion of the paper: "There is some limited support for more rapid productivity growth in IT-intensive industries depending on the exact measures, though not since the late 1990s."

But there are some serious nuances involved.

"We find, unexpectedly, that earlier “resolutions” of the Solow paradox may have neglected certain paradoxical features of IT-associated productivity increases, at least in U.S. manufacturing." Of these, the paper highlights two:

"First, focusing on IT-using (rather than IT-producing) industries, the evidence for faster productivity growth in more IT-intensive industries is somewhat mixed and depends on the measure of IT intensity used. There is also little evidence of faster productivity growth in IT-intensive industries after the late 1990s.

"Second and more importantly, to the extent that there is more rapid growth of labor productivity (ln(Y=L)) in IT-intensive industries, this is associated with declining output (ln Y ) and even more rapidly declining employment (lnL). If IT is indeed increasing productivity and reducing costs, at the very least it should also increase output in IT-intensive industries. As this does not appear to be the case, the current resolution of the Solow paradox does not appear to be what adherents of the technological-discontinuity view had in mind."

In other words: "Most challenging to this paradigm, and our expectations, is that output contracts in IT-intensive industries relative to the rest of manufacturing. Productivity increases, when detectable, result from the even faster declines in employment."

Goes some miles explaining the declining role of primary labour… 
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