The technological advances, between inequality and job losses

Eric Horvitz, who is co-director of Microsoft Research main lab in Redmond, Washington, told me about a system that could predict with uncanny accuracy the likelihood that a pregnant woman suffers postpartum depression; such a system would by observing their Twitter posts, measuring signs such as the number of times he used words like “I” or “me”.

Ramesh Rao, Institute for Telecommunications and Information Technology at the University of California of California, San Diego, described how doctors using video and audio to assess the remotely victim of a stroke, made the right call 98 percent of the time.

But this is just the beginning. “The really innovative things still need to be activated”, Rao said. “Whatever happens will be disturbing”.

But that’s not important.

Some years ago, this kind of technological development would have considered a good strong story: an opportunity to improve health and living standards of the nation, and also to perhaps to reduce the costs of healthcare and achieve a leap in productivity to strengthen the privileged position of the U.S. on the frontier of technology.

But a growing pessimism has gripped our understanding of the impact of such innovations. It is an old fear that has spread from the time of Ned Ludd, who destroyed two knitting machines in England in the nineteenth century and introduced the Luddite movement, which was the first organized protest of humanity against technological change.

THE JOB WILL PAY LESS

The incomes of workers have been declining worldwide since labor faces more competition and new technologies that save labor.

In its current incarnation, however, the fear is really very new. Strikes fundamental propositions developed through more than half a century of economic studies scholars. It can be expressed briefly: What if the technology became a substitute for labor, instead of becoming its complement?

As recently wrote J. Bradford Delong, an economics professor at the University of California, Berkeley, throughout most of the history each new machine that was once operated by hands and muscles of a person increased demand for complementary human skills; as those in the eyes, ears or brain.

But he said Delong; no law of nature ensures that this will always be so. Some jobs, such as nannies, for example, or the waiters always require many people. But as information technology intrudes into occupations that have historically relied primarily on intelligence, threatens to leave a much smaller amount of work to carry people.

These kinds of ideas still beat most economists, who consider sacrilegious, an impertinent divergence of a rule that capital (from land and lathes to computers and cyclotrons) is complementary to labor.

It was a rule that wrote economists Robert Solow, who won the Nobel Prize in Economics for his work on how to contribute labor, capital and technological progress to economic growth. Over 50 years ago, he suggested that part of the remuneration of an economy that corresponds to labor and capital would be fairly stable over time.

But emerging evidence establish that this doctrine has been in place long ago is no longer valid. In the U.S., the share of national income going to workers (wages and benefits) has been shrinking for nearly half a century.

At present, is at its lowest level since 1950, while the return on equity has been shot. Corporate profits include the national income larger share since the government began measuring the statistic in 1920.

In a recent interview, Professor Solow remarked that his proposal for relatively stable parts, labor and capital posed a “steady state economy, no systematic structural changes”.

That assumption no longer seems to be in force. “Over the past decades, structural something might be happening with the economy, which seems to increase the share capital”, he said.

Professor Solow suggests that technology is probably not the sole cause of the reduction in the workforce. He cites “daily reasons” which include erosion of the minimum wage, the annihilation of trade unions and the anti-labor legislation.

But technology clearly plays a role. “We’ll know better in 10 or 15 years”, said Professor Solow. “But now if I were to interpret the data, I would say that as the economy becomes more capital intensive compared the share of capital income increase”.

This change is occurring worldwide. In a recent article in the Quarterly Journal of Economics, Loukas Karabarbounis and Brent Neiman, School of Business Booth, University of Chicago, said that part of the income going to workers has been declining worldwide.

As the cost of capital investment has fallen relative to the cost of labor, businesses rushed to replace workers with technology.

“Since the mid-1970s onwards, there is evidence that capital and labor are more substitutable” than standard economic models suggest, Professor Neiman said. “This is happening everywhere. It is a major global trend”.

The implications are potentially harmful: The vast disparities in income distribution that have been spreading inexorably from the 1980s will expand even more.

This is almost a consensus reading logs. “It is difficult to make a very specific prediction about how capital income evolves in the next 10 years sector”, said Daron Acemoglu, a colleague of Solow at MIT (Massachusetts Institute of Technology). “Future technology could perhaps increase the contribution of labor”.

Tyler Cowen, an economics professor at George Mason University, says that the definitions of labor and capital are arbitrary. Instead, he searches the world relatively scarce factors of production and finds two: natural resources are disappearing, and good ideas, you can reach larger markets like never before. If they have one of those factors, then most will reap rewards of growth. Otherwise, it will not happen.

For a long time, conventional wisdom held that the economy of technological change affects income inequality increasing wages for skills through a dynamic called “technical change that favors certain abilities”. The losers are the workers whose job can be replaced by machines (textile workers, for example). Those whose skills are augmented by machines (think Wall Street traders using ultrafast computers) will gain.

However, there is increasing note that this is not the full story and the story of inequality, full of skills; it is not as simple as once believed economists. The persistent reduction in revenue labor suggests another dynamic. Call it “technical change favoring capital”, which encourages replace workers who receive a decent wage by machines, regardless of their abilities.

For example, research carried out by Canadian economists Paul Beaudry, David Green and Benjamin Sand, states that the demand for highly skilled workers in the U.S. had its peak around 2000 and then fell, even when the amount of such continued increasing workers. This pushed those with a more advanced academic training down the ladder of skills that are sought for jobs, workers and sank even lower with less education.

This dynamic opens up a new way for spreading inequality: the increase in salaries in the field of inherited wealth, a theme explored in depth a new book by Thomas Piketty called “Capital in the XXI Century”.

So what say the long-term perspective related to good jobs in the area of medicine? Legislators cling to the hope that a growing industry of healthcare workers provides support to the U.S. middle class in the future. But the technology could easily disrupt this promise too.

“The jobs related to health care may be safe now”, said Gordon Hanson, an economics professor at the University of California at San Diego, “but our sense of what is sure wins due to the impact constant contradictions our technological progress”.

Or, as Rao said, the diagnosis made from Twitter posts “requires no medical training”.

The only safe way forward seems to be having as much money.