Productivity Paradox: Technology May Hinder Economic Growth

Friday, 21 Jun 2013 07:45 AM

By Barry Elias

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During our shift to a digital economy, employment has been polarized and the middle class has hollowed. From 1980 to 2005, the share of job growth and wage increases were lowest for those with mid-level skills, according to MIT economist David Autor.

This dynamic is similar to our transition from an agrarian economy to an industrialized one over a century ago. The percentage of Americans employed in agriculture fell from 41 percent in 1900 to 2 percent today. Similarly, the share of employment in our manufacturing sector dropped from 30 percent following World War II to 10 percent today, mainly due to automation.

Increased productivity arising from technological innovations has reduced demand for mid-level positions in the service sector, which represents nearly 80 percent of the economy. Affected areas include manufacturing, retail and clerical, as well as professions in medicine, law, finance and education. As a result, annual inflation-adjusted median family income has remained relatively flat for several decades, and total employment growth has actually declined slightly in the past decade despite a 9 percent growth in the population.

Ironically, demand for low-skilled labor that cannot be automated, such as home healthcare, will remain strong, especially from purchasers in the upper and middle classes. Demand will remain strong over the next few decades for creative problem solvers and entrepreneurs in areas such as engineering, computer science and healthcare sciences.

The decoupling of the middle class from the general economy over the past three decades was exacerbated after the Clinton administration deregulated the financial industry. This caused a massive transfer of wealth to the financial community — an industry that provided diminishing returns to society — while the labor supply became less competitive in terms of value-added skills.

Future economic growth is predicated on a more educated society — one that acquires skills to produce high-quality, cost-effective goods and services that genuinely benefit the world. Implementation of blended online learning will permit easier access to knowledge and skill development for the masses.

This construct will ameliorate the polarized and gentrified labor market and promote a more balanced, sustainable growth pattern that will serve our society well.

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