Ed­u­ca­tion in the Sec­ond Ma­chine Age

Financial Mirror (Cyprus) - - FRONT PAGE -

Ar­ti­fi­cial in­tel­li­gence, once con­fined to the realm of sci­ence fic­tion, is chang­ing our lives. Cars are driv­ing them­selves. Drones are be­ing pro­grammed to de­liver pack­ages. Com­put­ers are learn­ing to di­ag­nose dis­eases. In a re­cent book, the econ­o­mists Erik Bryn­jolf­s­son and An­drew McAfee de­scribe th­ese re­cent ad­vances as ex­am­ples of the be­gin­ning of what they call “the sec­ond ma­chine age.”

The very name – the first ma­chine age was the In­dus­trial Revo­lu­tion – sug­gests an epochal shift. And, in­deed, if the pre­dic­tions are to be be­lieved, th­ese tech­no­log­i­cal ad­vances could have pro­found im­pli­ca­tions for the way we live.

One common fore­cast is that as ever-more ad­vanced robots sub­sti­tute work­ers, the cost of la­bor will be­come less im­por­tant, and man­u­fac­tur­ing will move back to rich coun­tries. Another is that in­creas­ingly in­tel­li­gent ma­chines will re­duce the de­mand for ad­vanced skills, and that the eco­nomic ad­van­tage of hav­ing th­ese skills will de­cline as a re­sult.

The first of th­ese two hy­pothe­ses re­mains far-fetched. But there is ev­i­dence that the sec­ond has al­ready started to come to pass, with se­ri­ous im­pli­ca­tions for the way that mod­ern economies have at­tempted to meet the chal­lenges of glob­al­i­sa­tion.

To be sure, there has been plenty of anec­do­tal ev­i­dence of “reshoring” – the re­lo­ca­tion of jobs from low-wage coun­tries to high-wage economies. Ap­ple is shift­ing some man­u­fac­tur­ing from China to Sil­i­con Val­ley; Air­tex De­sign Group is mov­ing part of its tex­tile pro­duc­tion from China back to the United States. In a re­cent survey of 384 firms in the eu­ro­zone by the man­age­ment con­sul­tancy Price­wa­ter­house­Coop­ers, two-thirds of the re­spon­dents said that they had reshored some ac­tiv­i­ties dur­ing the past year, and 50% plan to do so in the next.

But when one looks at the data, there is no sign of reshoring. In­deed, the trend is con­tin­u­ing in the op­po­site di­rec­tion. Off­shoring dropped dur­ing the Great Re­ces­sion that fol­lowed the 2008 global fi­nan­cial cri­sis, but quickly re­bounded, ac­cel­er­at­ing past pre-cri­sis lev­els. For the mo­ment, the re­turn of man­u­fac­tur­ing to rich coun­tries re­mains a pre­dic­tion, not an out­come.

Eval­u­at­ing the sec­ond hy­poth­e­sis is more com­pli­cated. At first glance, the ev­i­dence sup­ports the pos­si­bil­ity that de­mand for ad­vanced skills is fall­ing. With the ex­cep­tions of the US and Ger­many, the wage gap be­tween skilled and un­skilled work­ers has been de­clin­ing in all Western coun­tries in the last 17 years.

One pos­si­ble ex­pla­na­tion is that ed­u­ca­tion lev­els in Europe out­stripped the pace of tech­no­log­i­cal change, over­sup­ply­ing the mar­ket for ad­vanced skills. In Aus­tria, the share of peo­ple with a univer­sity de­gree or its equiv­a­lent in­creased by 250% be­tween 1996 and 2012. In the United King­dom and Italy, it almost dou­bled. In Spain, it jumped by 70%, and in France by 60%. By com­par­i­son, in the US and Ger­many, the share of the pop­u­la­tion with a ter­tiary ed­u­ca­tion rose by a more mod­est 25%.

It is also pos­si­ble, how­ever, that the drop in the wage gap be­tween skilled and un­skilled work­ers rep­re­sents com­pe­ti­tion from in­creas­ingly in­tel­li­gent ma­chines. Here, the US is a case in point. Be­cause ed­u­ca­tional at­tain­ment has been ad­vanc­ing only mod­estly in the US since the turn of the cen­tury, we would ex­pect the wage gap to be ris­ing steeply, as it did in the 1980s and 1990s. In­stead, it has re­mained largely un­changed, and it is the un­em­ploy­ment rate among skilled work­ers that is on the rise, dou­bling in the US and the United King­dom from 2000 to 2012.

Un­til the 1980s, about 70% of in­come went to la­bor in­come and 30% to cap­i­tal in­come. But, since then, the share of in­come go­ing to la­bor has de­clined in all rich coun­tries. It is now at about 58% of GDP. Ac­cord­ing to re­search by the econ­o­mists Loukas Karabar­bou­nis and Brent Neiman, half of this de­cline is the re­sult of cheaper in­for­ma­tion tech­nol­ogy, which has en­abled firms to re­place work­ers with com­put­ers.

The im­pli­ca­tions are se­ri­ous. If th­ese are in­deed the first signs of the sec­ond ma­chine age, it is pos­si­ble that we have been fight­ing the wrong bat­tle. As the scarcity of hu­man cap­i­tal de­clines in im­por­tance, the rapid ex­pan­sion of ed­u­ca­tion may not be the an­swer to the chal­lenges of glob­al­i­sa­tion that we hoped it would be.

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