Wassily Leontief is not especially well-known at present by the general public, but he was one of the giants of 20th century economics. (He died in 1999.) When the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (commonly known as \”the Nobel prize in economics\”) first started to be given in 1969, there was a backlog of worthy winners, and those who won in the prize in the first decade or so formed a particularly elite group. Leontief won in 1973 for \”for the development of the input-output method and for its application to important economic problems\”.
Thus, it was a big deal when Leontief wrote an essay for Scientific American in September 1982 arguing that new trends in mechanization and computing were displacing jobs. The title and subtitle give a good sense of his themes: \”The Distribution of Work and Income: When workers are displaced by machines, the economy can suffer from a loss of their purchasing power. Historically the problem has been eased by shortening the work week, a trend currently at a standstill.\” (The archives of Scientific American from these years are not readily available on-line, as far as I can tell, but many libraries will have back issues on their shelves.) That special issue of Scientific American issue contained seven other essays about how American jobs were being lost to the \”mechanization of work,\” with articles discussing how mechanization was reducing jobs in in a wide range of industries: manufacturing, design and coordination of manufacturing, agriculture, mining, commerce (including finance, transport, distribution, and communications), and information-based office work.
Leontief\’s concern was of course not a new one in 1982. Indeed, his essay starts by hearkening back to the Luddite movement of the early 19th century in which hand-weavers banded together to destroy some of machines that were automating the textile industry. I\’ve posted before on this website about other episodes in which concerns about automation and job loss ran especially high: for example, here\’s a discussion of \”Automation and Job Loss: Fears of 1964\” (December 1, 2014) and \”Automation and Job Loss: Fears of 1927\” (March 16, 2016). Joel Mokyr, Chris Vickers, and Nicolas L. Ziebarth provide a long-term perspective on these issues in \”The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?\” which appeared in the Summer 2015 issue of the Journal of Economic Perspectives.
Of course, Leontief knew perfectly well that in the past, technology had been one of main drivers of disruptions that over time raised the average standard of living. hy would the effects of new technologies be different? In terms that seem very similar to the concerns raised by some current writers, Leontief wrote in 1982:
There are signs today, however, that past experience cannot serve as a reliable guide for the future of technological change. With the advent of solid-state electronics, machines that have been displacing human muscle from the production of goods are being succeeded by machines that take over the functions of the human nervous system not only in production but in the service industries as well … The relation between man and machine is being radically transformed. … Computers are now taking on the jobs of white-collar workers, performing first simple and then increasingly complex mental tasks. Human labor from time immemorial played the role of principal factor of production. There are reasons to believe human labor will not retain this status in the future.
Re-reading Leontief\’s 1982 essay today, with the benefit of hindsight, I find myself struck by how he sometimes hits, and then sometimes misses or sideswipes, what I would view as the main issues of how technology can lead to dislocation and inequality.
For example, Leontief expresses a concern that \”the U.S. economy has seen a chronic increase in unemployment from one oscillation of the business cycle to the next.\” Of course, he is writing in 1982, after the tumultuous economic movements of the 1970s. The US unemployment rate was above 10% from September 1982 (when his article was published) through June 1983. But since then, there have been multiple periods (late 1980s and early 1990s, the mid-1990s, and mid-2000s, and since February 2015), when the monthly unemployment rate has been 5.5% or lower. With the benefit of three decades of hindsight since Leontief\’s 1982 essay, the issue of technological disruption is not being manifested in a steadily higher unemployment rate, but instead is the dislocation for workers and the way in which technology contributes to inequality of wages.
If one presumes (for the sake of argument) a continued advance in technology that raises output, then the question is what form these gains will take. More leisure? If not more leisure, will the income gains be broadly or narrowly based?
Leontief emphasizes that one of the gains of technology in broad historic terms was a shorter work week. For example, he writes of how \”reduction of the average work week in manufacturing from 67 hours in 1870 to somewhat less than 42 hours\” by the mid-1940s, and points out that the work week did not continue to decline at the same pace after that. This notion that economic gains from technology will lead to a dramatically shorter work week is not new to Leontief: for example, John Maynard Keynes in his 1930 essay \”Economic Possibilities for Our Grandchildren\” (available a number of places on the web, like here and here) wrote about how technology was going to be so productive that we would move us toward a 15-hour work-week.
The hidden assumption behind this prediction for less working time seems to be that production will, either soon or in the not-too-distant future, become sufficient to cover everyone\’s desires, so that as technology continues to increase production beyond that level, the total hours worked can decline substantially. Back in 1848, the greatest economist of his time, John Stuart Mill, was already arguing that in the richer countries already had plenty of production, and what was needed was just a more equal distribution of that production. Indeed, if society was mostly content with the mixture of goods and services available to middle-class England in 1848, or to Keynes in 1933, or to Leontief in 1982, then the work-week could be a lot shorter. But I don\’t see a lot of Americans out there who would be willing to settle for, say, the information technology or health care technology or the housing or transportation from those earlier times.
If technology doesn\’t just make the same things more cheaply, but also makes new goods and services that people desire, then the gains from technology may not lead to dramatically shorter work weeks. Very little in Leontief\’s essay discusses how technology can produce brand-new industries and jobs, and how these new industries provide consumers with goods and services that they value.
Concerning the issue of how technology can lead to greater inequality of incomes, Leontief offers some useful and thought-provoking metaphors. For example, here\’s his Adam and Eve comparison:
\”Adam and Eve enjoyed, before they were expelled from Paradise, a high standard of living without working. After their expulsion they and their successors were condemned to eke out a miserable existence, working from dawn to dusk. The history of technological progress over the past 200 years is essentially the story of the human species working its way slowly and steadily back into Paradise. What would happen, however, if we suddenly found ourselves in it? With all goods and services provided without work, no one would be gainfully employed. Being unemployed means
receiving no wages. As a result until appropriate new income policies were formulated to fit the changed technological conditions everyone would starve in Paradise.\”
As noted earlier, the evidence since 1982 doesn\’t support a claim of steadily higher unemployment rates. But it does support a concern of increasing inequality, where those who find themselves in a position to benefit most from technology will tend to gain. One need not be worried about \”starving in Paradise\” to be worried that the economy could be a Paradise for those receiving a greater share of income, but not for those on the outside of Paradise looking in.
Leontief also offers an interesting image about what it means to be a worker who can draw on a larger pool of capital, using an example of an Iowa farmer. He writes:
What I have in mind is a complex of social and economic measures to supplement by transfer from other income shares the income received by blue- and white-collar workers from the sale of their services on the labor market. A striking example of an income transfer of this kind attained automatically without government intervention is there to be studied in the long-run effects of the mechanization of agriculture on the mode of operation and the income of, say, a prosperous Iowa farm.
Half a century ago the farmer and the members of his family worked from early morning until late at night assisted by a team of horses, possibly a tractor and a standard set of simple agricultural implements. Their income consisted of what essentially amounted to wages for a 75- or 80-hour work week, supplemented by a small profit on their modest investment. Today the farm is fully mechanized and even has some sophisticated electronic equipment. The average work week is much shorter, and from time to time the family can take a real vacation. Their total wage income, if one computes
it at the going hourly rate for a much smaller number of manual-labor hours, is probably not much higher than it was 50 years ago and may even be lower. Their standard of living, however, is certainly much higher: the shrinkage of their wage income is more than fully offset by the income earned on their massive capital investment in the rapidly changing technology of agriculture.
The shift from the old income structure to the new one was smooth and practically painless. It involved no more than a simple bookkeeping transaction because now, as 50 years ago, both the wage income and the capital income are earned by the same family. The effect of technological progress on manufacturing and other nonagricultural sectors of the economy is essentially the same as it is on agriculture. So also should be its repercussions with respect to the shortening of the work day and the allocation of income.
Leontief here is eliding the fact that the share of American workers in agriculture was about 2-3% back in 1982, compared to 25-30% about 50 years earlier. He is discussing a smooth transfer of new technology for a single family, but with the rise in agricultural output for that family, something like 90% of their neighbors from 50 years earlier ended up transferring out of farming altogether. When Leontief and other modern writers talk about how modern technology is fundamentally more disruptive than earlier technology, I\’m not sure I agree. The shift of the US economy to mechanized agriculture was an extraordinarily disruptive change.
But Leontief also has his finger on a central issue here, which is that jobs which find ways to technology and investment as a complement are more likely to prosper. Along these lines, I\’m intrigued by the notion that when workers use web-based connectivity and applications, they are accessing a remarkable global capital infrastructure that complements their work–even though the Internet isn\’t physically visible in my side yard like a combine harvester.
A final Leontief metaphor might be called the \”horses don\’t vote\” issue. In a short article written at about this same time for a newsletter called Bottom Line Personal (April 30, 1983, 4:8, pp. 1+), Leontief wrote:
People cannot eat much more than they already do. They cannot wear much more clothing. But they certainly can use more services, and they begin to purchase more of them. This natural shift comes simultaneously with the technological changes. But in the long run, the role of labor diminishes even in service industries. Look at banking, where more and more is done electronically and automatically, and at secretarial areas, where staff work is being replaced by word processors.
The problem becomes: What happens to the displaced labor? In the last century, there was an analogous problem with horses. They became unnecessary with the advent of tractors, automobiles and trucks. And a farmer couldn\’t keep his horses and postpone the change to tractors by feeding them less oats. So he got rid of the horses and used the more productive tractor. After all, this doesn\’t precipitate a political problem, since horses don\’t vote. But it is more difficult to find a solution when you have the same problem with people. You do not need them as much as before. You can produce without them.
So the problem becomes the task of reevaluating the role of human labor in production as it becomes less important. It is a simple fact that fewer people will be needed, yet more goods and services can be produced. But the machinery and technology will not benefit everyone equally. We must ask: Who will get the benefit? How will the income be be distributed? We are accustomed to rewarding people for work based on market mechanisms, but we can no longer rely on the market mechanism to function so conveniently.
As noted earlier, when Leontief says that it\’s \”a simple fact\” that fewer people will be needed, I think he is overstating his case. Since 1982, the prediction of steadily rising unemployment rates has not come true. However, the prediction of steadily rising inequality of incomes and diminished opportunity for low-skilled labor has occurred.