How au­to­ma­tion is split­ting coun­try’s work­force in two

San Francisco Chronicle Late Edition - - BUSINESS REPORT - By Ed­uardo Porter

It’s hard to miss the dogged tech­no­log­i­cal am­bi­tion per­vad­ing the sprawl­ing desert me­trop­o­lis of Phoenix.

There’s In­tel’s $7 bil­lion, 7-nanome­ter chip plant go­ing up in Chandler. In Scotts­dale, Axon, the maker of the Taser, is hun­grily snatch­ing tal­ent from Sil­i­con Val­ley as it em­braces au­to­ma­tion to keep up with grow­ing de­mand. Star­tups in fields as var­ied as au­tonomous drones and blockchain are flock­ing to the area, drawn in large part by light reg­u­la­tion and tax in­cen­tives. Ari­zona State Univer­sity is fu­ri­ously churn­ing out engi­neers.

And yet for all its suc­cess in draw­ing and nur­tur­ing firms on the tech­no­log­i­cal fron­tier, Phoenix can­not es­cape the un­com­fort­able pat­tern tak­ing shape across the the na­tion’s econ­omy: De­spite all its shiny new high-tech busi­nesses, the vast ma­jor­ity of new jobs are in worka­day ser­vice in­dus­tries, like health care, hos­pi­tal­ity, re­tail and build­ing ser­vices, where pay is medi­ocre.

The fore­cast of an Amer­ica where ro­bots do all the work while hu­mans live off some yet-to-be-in­vented wel­fare pro­gram may be a Sil­i­con Val­ley pipe dream. But au­to­ma­tion is chang­ing the na­ture of work, flush­ing work­ers with­out a col­lege de­gree out of pro­duc­tive in­dus­tries, like man­u­fac-

tur­ing and high-tech ser­vices, and into tasks with mea­ger wages and no prospect for ad­vance­ment.

Au­to­ma­tion is split­ting the la­bor force into two worlds. There is a small is­land of highly ed­u­cated pro­fes­sion­als mak­ing good wages at cor­po­ra­tions like In­tel or Boe­ing, which reap hun­dreds of thou­sands of dol­lars in profit per em­ployee. That is­land sits in the mid­dle of a sea of less ed­u­cated work­ers who are stuck at busi­nesses like ho­tels, restau­rants and nurs­ing homes that gen­er­ate much smaller prof­its per em­ployee and stay vi­able pri­mar­ily by keep­ing wages low.

Even econ­o­mists are re­assess­ing their be­lief that tech­no­log­i­cal progress lifts all boats, and are be­gin­ning to worry about the new con­fig­u­ra­tion of work.

Re­cent re­search has con­cluded that ro­bots are re­duc­ing the de­mand for work­ers and weigh­ing down wages, which have been ris­ing more slowly than the pro­duc­tiv­ity of work­ers. Some econ­o­mists have con­cluded that the use of ro­bots ex­plains the de­cline in the share of na­tional in­come go­ing into work­ers’ pay­checks over the last three decades.

Be­cause it pushes work­ers to the less pro­duc­tive parts of the econ­omy, au­to­ma­tion also helps ex­plain one of the econ­omy’s thorni­est para­doxes: De­spite the spread of in­for­ma­tion tech­nol­ogy, ro­bots and ar­ti­fi­cial in­tel­li­gence break­throughs, over­all pro­duc­tiv­ity growth re­mains slug­gish.

“The view that we should not worry about any of these things and fol­low tech­nol­ogy to wher­ever it will go is in­sane,” said Daron Ace­moglu, an econ­o­mist at the Mas­sachusetts In­sti­tute of Tech­nol­ogy.

Semi­con­duc­tor com­pa­nies like In­tel or NXP are among the most suc­cess­ful in the Phoenix area. From 2010 to 2017, the pro­duc­tiv­ity of work­ers in such firms — a mea­sure of the dol­lar value of their pro­duc­tion — grew by about 2.1 per­cent per year, ac­cord­ing to an anal­y­sis by Mark Muro and Ja­cob Whi­ton of the Brook­ings In­sti­tu­tion. Pay is great: $2,790 a week, on av­er­age, ac­cord­ing to govern­ment sta­tis­tics.

But the in­dus­try does not gen­er­ate that many jobs. In 2017, the semi­con­duc­tor and re­lated de­vices in­dus­try em­ployed 16,600 peo­ple in the Phoenix area, about 10,000 fewer than three decades ago.

The same is true across the high-tech land­scape. Air­craft man­u­fac­tur­ing em­ployed 4,234 peo­ple in 2017, com­pared to 4,028 in 2010. Com­puter sys­tems de­sign ser­vices em­ployed 11,000 peo­ple in 2017, up from 7,000 in 2010.

To find the bulk of jobs in Phoenix, you have to look on the other side of the econ­omy: where pro­duc­tiv­ity is low. Build­ing ser­vices, like jan­i­tors and gar­den­ers, em­ployed nearly 35,000 peo­ple in the area in 2017, and health care and so­cial ser­vices ac­counted for 254,000 work­ers. Restau­rants and other eater­ies em­ployed 136,000 work­ers, 24,000 more than at the trough of the re­ces­sion in 2010. They made less than $450 a week.

The big­gest sin­gle em­ployer in town is Ban­ner Health, which has about 50,000 work­ers through­out a vast net­work that in­cludes hos­pi­tals, out­pa­tient clin­ics and home health aides. Though it em­ploys high-paid doc­tors, it re­lies on an army of lower paid or­der­lies and tech­ni­cians. A nurs­ing as­sis­tant in Phoenix makes $31,000 a year, on av­er­age. A home health aide makes $24,000.

While Ban­ner in­vests heav­ily in tech­nol­ogy, the ma­chines do not gen­er­ally re­duce de­mand for work­ers. “There are not huge op­por­tu­ni­ties to in­crease pro­duc­tiv­ity, but tech­nol­ogy has a sig­nif­i­cant im­pact on qual­ity,” said Ban­ner’s chief op­er­at­ing of­fi­cer, Becky Kuhn.

The 58 most pro­duc­tive in­dus­tries in Phoenix — where pro­duc­tiv­ity ranges from $210,000 to $30 mil­lion per worker, ac­cord­ing to Muro and Whi­ton’s anal­y­sis — em­ployed only 162,000 peo­ple in 2017, 14,000 more than in 2010. Em­ploy­ment in the 58 in­dus­tries with the low­est pro­duc­tiv­ity, where it tops out at $65,000 per worker, grew 10 times as much over the pe­riod, to 673,000.

The same is true across the na­tional econ­omy. Jobs grow in health care, so­cial as­sis­tance, ac­com­mo­da­tion, food ser­vices, build­ing ad­min­is­tra­tion and waste ser­vices. Not only are some of the tasks tough to au­to­mate, em­ploy­ers have lit­tle fi­nan­cial in­cen­tive to re­place low-wage work­ers with ma­chines.

On the other end of the spec­trum, the em­ploy­ment foot­print of highly pro­duc­tive in­dus­tries, like fi­nance, man­u­fac­tur­ing, in­for­ma­tion ser­vices and whole­sale trade, has shrunk dur­ing the last 30 years.

Econ­o­mists have a hard time getting their heads around this. Steeped in the be­lief that tech­nol­ogy in­evitably leads to bet­ter jobs and higher pay, they long re­sisted the no­tion that the Lud­dites of the 19th cen­tury, who fa­mously thrashed the weav­ing ma­chines that were tak­ing their jobs, might have had a point.

“In the stan­dard eco­nomic canon, the propo­si­tion that you can in­crease pro­duc­tiv­ity and harm la­bor is bunkum,” Ace­moglu said.

By re­duc­ing prices and im­prov­ing qual­ity, tech­nol­ogy was ex­pected to raise de­mand, which would re­quire more jobs. What’s more, econ­o­mists thought, more pro­duc­tive work­ers would have higher in­comes. This would cre­ate de­mand for new, un­heard-of things that some­body would have to make.

To prove their case, econ­o­mists pointed con­fi­dently to one of the great­est tech­no­log­i­cal leaps of the last few hun­dred years, when the ru­ral econ­omy gave way to the in­dus­trial era.

In 1900, agri­cul­ture em­ployed 12 mil­lion Amer­i­cans. By 2014, trac­tors, com­bines and other equip­ment had flushed 10 mil­lion peo­ple out of the sec­tor. But as farm la­bor de­clined, the in­dus­trial econ­omy added jobs even faster. What hap­pened? As the new farm ma­chines boosted food pro­duc­tion and made pro­duce cheaper, de­mand for agri­cul­tural prod­ucts grew. And farm­ers used their higher in­comes to pur­chase new­fan­gled in­dus­trial goods.

The new in­dus­tries were highly pro­duc­tive and also sub­ject to fu­ri­ous tech­no­log­i­cal ad­vance­ment. Weavers lost their jobs to au­to­mated looms; sec­re­taries lost their jobs to Mi­crosoft Win­dows. But each new spin of the tech­no­log­i­cal wheel, from plas­tic toys to tele­vi­sions to com­put­ers, yielded higher in­comes for work­ers and more so­phis­ti­cated prod­ucts and ser­vices for them to buy.

Some­thing dif­fer­ent is go­ing on in our cur­rent tech­no­log­i­cal rev­o­lu­tion. In a new study, David Au­tor of the Mas­sachusetts In­sti­tute of Tech­nol­ogy and Anna Salomons of Utrecht Univer­sity found that over the last 40 years, jobs have fallen in ev­ery sin­gle in­dus­try that in­tro­duced tech­nolo­gies to en­hance pro­duc­tiv­ity.

The only rea­son em­ploy­ment didn’t fall across the en­tire econ­omy is that other in­dus­tries, with less pro­duc­tiv­ity growth, picked up the slack. “The chal­lenge is not the quan­tity of jobs,” they wrote. “The chal­lenge is the qual­ity of jobs avail­able to low- and medium-skill work­ers.”

Adair Turner, a se­nior fel­low at the In­sti­tute for New Eco­nomic Think­ing in London, ar­gues that the econ­omy to­day re­sem­bles what would have hap­pened if farm­ers had spent their ex­tra in­come from the use of trac­tors and com­bines on do­mes­tic ser­vants. Pro­duc­tiv­ity in do­mes­tic work does not grow quickly. As more and more work­ers were bumped out of agri­cul­ture into servi­tude, pro­duc­tiv­ity growth across the econ­omy would have stag­nated.

“Un­til a few years ago, I didn’t think this was a very com­pli­cated sub­ject: The Lud­dites were wrong, and the be­liev­ers in tech­nol­ogy and tech­no­log­i­cal progress were right,” Lawrence Sum­mers, a for­mer Trea­sury sec­re­tary and pres­i­den­tial eco­nomic ad­viser, said in a lec­ture at the Na­tional Bureau of Eco­nomic Re­search five years ago. “I’m not so com­pletely cer­tain now.”

The grow­ing aware­ness of ro­bots’ ef­fect on the work­ing class raises anew a very old ques­tion: Could au­to­ma­tion go too far? Ace­moglu and Pas­cual Restrepo of Bos­ton Univer­sity ar­gue that busi­nesses are not even reap­ing large re­wards for the money they are spend­ing to re­place their work­ers with ma­chines.

But the cost of au­to­ma­tion to work­ers and so­ci­ety could be sub­stan­tial. “It may well be that,” Sum­mers said, “some cat­e­gories of la­bor will not be able to earn a sub­sis­tence in­come.” And this could ex­ac­er­bate so­cial ills, from work­ers drop­ping out of jobs and getting hooked on painkillers, to mass in­car­cer­a­tion and fam­i­lies fall­ing apart.

Sil­i­con Val­ley’s dream of an econ­omy with­out work­ers may be im­plau­si­ble. But an econ­omy where most peo­ple toil ex­clu­sively in the lowli­est of jobs might be lit­tle bet­ter.

Do­minic Va­lente / New York Times

Reg­is­tered nurse Lour­des Sor­re­les cares for Pablo Lopaz Romero at Ban­ner-Univer­sity Med­i­cal Cen­ter Phoenix.

Bob Owen / Hearst News­pa­pers

Ab­hi­jit Majumdar, AI/vi­sion de­vel­oper at Plus One Ro­bot­ics, demon­strates the Pick­One, a Swiss-made robot that sorts out clut­tered pack­ages, which uses soft­ware de­vel­oped by Plus One.

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