In 1998 the group of the top ten corporations in terms of market capitalization (market value of all shares) included four firms operating in the digital economy (Microsoft, Intel, IBM and Lucent Technologies). In 2018, there were five of them and most importantly four (Apple, Microsoft, Amazon and Alphabet (Google)) occupied the top four positions. Only three of the top ten firms had operations that could somehow fall in the traditional old-economy sectors of chimney stacks or brick and mortar firms. This is one way to understand the new structure of the economy.
There is, though, another more interesting dichotomy that has serious implications for employment and incomes. This is the dichotomy between high-technology and low-technology sectors. The importance of this dichotomy comes from the fact that technology intensity is closely related to productivity (value of output per worker); and productivity is in turn related to the level and growth of wages. This point was brought home again in an informative article by Eduardo Porter in the NYT (2/5/2019). The data, drawn from businesses operating in Phoenix, AR, show the gap in wages between low-technology/productivity sectors on one hand and high-technology/productivity sectors on the other. There is no reason to doubt that this split also exists across the US economy. For example, Porter’s article shows that in 2017 a person working in the accommodation and food services sector received an average weekly wage of $420 whereas a person working in the information sector earned an average weekly wage of $1,450. The latter worker’s productivity was 6.22 times that of the former.
As we would expect, when technology plays a lesser role in the production of products and delivery of services, firms need to hire more workers (i.e., more hands like sanitation workers or brains like educators). The opposite is true in the high-technology/productivity sectors. The result is that a lot more people are employed in low-technology sectors than high-technology sectors. This implies that when we hear that employment rises and unemployment falls the opportunity to earn relatively high incomes is not the same for all new hires. Since a lot more people are hired in low-technology/productivity sectors where wages are lower, that depresses the overall average growth of wages. And this explains why despite the emergence of new professional fields with high wages, the majority of Americans are not enthusiastic about their earnings.
Not only high-technology/productivity sectors employ fewer people they also have a serious barrier to entry for aspiring workers: they require high-skill sets that come with advanced education (at least a bachelor’s degree or specialized technical vocational training). The data show that college graduates (whether white, Hispanic or black) make twice or more the income of non-college graduates within each demographic block. The insufficient career preparation of white non-college workers (that comprise the white working class) and their resentment against educated elites is not actually helping them to escape low-wage jobs. And any politician’s pledge that he/she will restore the good old wages of working-class people is either ignorant or an outright lie. No politician can affect the productivity of a sector when productivity is related to the nature of the job and the technology intensity that goes with it.
And there is more bad news for less-educated working-class people. Firms are moving fast in adopting technologies that displace low-skill workers. You may have read a NYT (1/26/2019) article “The Automation Agenda Hidden by the Davos Elite” which reports that although executives are loath to declare the move to technology (for fear of upsetting their workers) in reality they are doing exactly that. The above-mentioned Porter article also reports that academics now fear that the expectation that technology and Artificial Intelligence would help create enough jobs at good wages to replace those lost to technology is no longer justified by the recent data. Therefore, the concern of mostly white working-class Americans that they lose wages to immigrants is misplaced. The real culprits are technology advancements and lack of the requisite skills that force these workers to low-productivity and, hence, low-income jobs.
What should then be done? Thoughtful experts recommend that the government must play a greater role in assisting working class people to retool for the thriving sectors of the economy. Besides college education, support and promotion of vocational education in fields needed in the knowledge-driven economy are extremely important in that connection. There is a big difference between being willing to escape the low-wage economy and not being able to do so for lack of means or social support that local and federal government programs can provide. Sending the unemployed coal miners of West Virginia and Kentucky back to coal dust filled mines leads to a life of precarious health and uncertain employment future. Sending them to computer and robotics classes is the right thing to do if we truly care about them.
The bi-furcated economy we face raises a number of political questions. If indeed the increasing application of technology does not lift all boats and a non-trivial fraction of workers stagnates in low-wage sectors, is this healthy for the social cohesion of the country? If we fail to train more American workers for the technology-intensive jobs, who will fill the gap? The obvious answer is that we need to have a policy to attract foreigners with the needed skill sets. Currently, we seem to go backwards in this respect. On the other hand, if we succeed to train a lot more people for the technology-intensive sectors, who will fill all those low-wage but necessary jobs? This points to the need for an immigration policy that welcomes workers from less developed countries. Since American low-wage jobs still pay a lot better than low-wage jobs in underdeveloped countries, this is a win-win solution.
Economic trends in technology utilization, employment needs, and labor incomes suggest that we need to have an informed debate about their consequences instead of exploiting these issues to advance narrow political goals.
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