The nature of work is continuously changing. Technological innovation has always been a force of creative destruction, or as Schumpeter (1943:87) described it “the perennial gale of creative destruction”. While it is true that most innovations are incremental improvements, there are indeed technological innovations during certain periods that disrupt industries and consumer markets. These disruptive innovations alter the supply and demand of goods, services, and processes in such ways that the pioneers of such innovations gain a growing share in consumer markets, whilst eclipsing attention to previous work.
“the performance attributes that existing customers do value improve at such a rapid rate that the new technology can later invade those established markets. Only at this point will mainstream customers want the technology. Unfortunately for the established suppliers, by then it is often too late: The pioneers of the new technology dominate the market.”
Joseph L. Bower and Clayton M. Christensen
Genuine disruptors are pioneers of new technologies which initially become popular in emerging consumer markets that are often of less interest to established suppliers who tend to focus more on the needs of mainstream consumers in existing markets. However, history teaches us that radical technological advances in the fields of science and technology which become popular in emerging consumer markets, can later be adopted by mainstream consumers. This typically results in the radical change of the business landscape.
Scientific and technological advancements have a transformative impact on industries and consumer markets, often in unexpected and unforeseen ways. The implications of disruptive technologies extend beyond the importance of the scientific or technological discovery itself, and beyond their financial or investment returns; in many ways they transform human life. Think of the disruptive effect of the automobile in early 1900, when automobiles soared in popularity, eclipsing within a decade the previously dominant position of the horse-carriage in the streets of big cities.
While the transportation system saw the disappearance of horse-drawn carriages and the rise in dominance of the automobile, a large number of jobs associated with horse-carriages and their peripheral industries became less relevant (e.g., horse herders, stablers, street cleaners, carmen and carters), whereas demand for new skills and expertise associated with automobiles and the their peripheral industries increased (e.g., car mechanics and engineers, jobs in road construction and rubber factories). Schumpeter’s concept of innovation as “the perennial gale of creative destruction” is a statement which captures the simultaneous rise in the demand for some products, services, or jobs, and the fall in the demand for others.
“Old concerns and established industries, whether or not directly attacked, still live in the perennial gale. Situations emerge in the process of creative destruction in which many firms may have to perish that nevertheless would be able to live on vigorously and usefully if they could weather a particular storm.”
Joseph A. Schumpeter
There is a recurrent theme with each wave of disruptive innovation(s), which tends to focus largely on the “destruction” part of the disruption whilst largely ignoring the “creative” part. The arrival of newcomers, of disruptors of all sorts, threatens the relative equilibrium existing in the market. New radical innovations that invade mainstream consumer markets have the force to change the status quo and depose the leaders from their dominant positions in their industries.
The 21st century has already seen a series of disruptions, by innovative entrepreneurs who identified opportunities in otherwise ignored markets that seemed less important to established suppliers. Some of these, for better or worse, have already altered the future of work as we know it. Think of hydroponics and aquaponics vertical farming, fintech, advances in solar and wind energy, in battery technologies, online sharing platforms, distant online teaching and learning, electric vehicles, and driver-less cars. Several jobs will certainly be destroyed, while many other jobs will be created. The nature of work and the standards of living will inevitably change once again as they did before, during the final decades of the 19th century and the first half of the 20th century.
“Indoor plumbing, automobiles, airplanes, electricity, home appliances, and public sanitation and utility systems all came into widespread use during this period. In industrialized countries, at least, people at all levels of society received an astonishing upgrade in the quality of their lives, even as the overall wealth of society was propelled to dizzying new heights.”
Nevertheless, there are certain concerns regarding the sharing of the benefits from all these scientific and technological breakthroughs. One of the most recent and arguably most prominent voices expressing their concert about technology and particularly automation, is Martin Ford and his book The Rise of Robots. At the core of Ford’s concerns is a productivity-wages chart which is a popular chart, one can find in several publications.
Similar representation of the data have been used by several authors. For instance, the reader can find this type of chart in Ford (2015:36), The rise of Robots, Figure 2.1; which was based on Mishel (2012:2), The wedges between Productivity and median Compensation growth, Figure A; in Graeber (2013:179), Bullshit Jobs, Figure 7; in Fix (2020:1), Debunking the ‘Productivity-Pay Gap’, Figure 1; which was based on an older version of a chart published online by the Economic Policy Institute, The Productivity–Pay Gap, that has now been updated to a slightly different chart that shows the divergence starting closer to 1980. While the charts represent similarly a growing gap between productivity and wages (compensation) centered around 1973, the interpretations of the authors differ.
Ford (2015:54) argues that since “the vast majority of American workers now work in nontradable areas like government, education, health care, food services, and retail. For the most part, these people are not directly competing with overseas workers, so globalization is not driving down their wages”. Instead, the author supports that advancing technology is the cause, arguing that “Even as the number of manufacturing jobs has been steadily declining as a percentage of total employment, the inflation-adjusted value of the goods manufactured in the United States has dramatically increased over time. We are making more stuff, but doing so with fewer and fewer workers” (Ford, 2015:55).
Graeber (2013:179) offers a different explanation of the growing gap between productivity and wages. The author argues that until the early 1970s, “increases in worker productivity would indeed be matched by increases in worker compensation”, but there was a point in time in the early 1970s after which the two measurements begun to diverge. The author supports that the growing gap is because “extra managers are hired with the ostensible purpose of improving efficiency. But in this case, there was little to be improved… But the managers were hired anyway”. Hence, even while productivity kept increasing the average compensation started remaining largely flat.
“Where did the profits from this increased productivity go? Well, much of it, as we are often reminded, ended up swelling the fortunes of the wealthiest 1 percent: investors, executives, and the upper echelons of the professional-managerial classes.”
Mishel (2012:1) argues that “Productivity growth, which is the growth of the output of goods and services per hour worked, provides the basis for the growth of living standards”. However, the author supports that “the experience of the vast majority of workers in recent decades has been that productivity growth actually provides only the potential for rising living standards”. The author further supports that in recent years, particularly after 2000, “wages and compensation for the typical worker and income growth for the typical family have lagged tremendously behind the nation’s fast productivity growth”. The explanation offered by Mishel (2012) on the growing gap between productivity and wages is that “This divergence of pay and productivity has meant that many workers were not benefitting from productivity growth—the economy could afford higher pay but it was not providing it”. Additionally, Mishel (2012:7) concludes that “Reestablishing the link between productivity and pay of the typical worker is an essential component of any effort to provide shared prosperity”.
“In short, workers, on average, have not seen their pay keep up with productivity. This partly reflects the first wedge: an overall shift in how much of the income in the economy is received in wages by workers and how much is received by owners of capital. The share going to workers decreased.”
Another explanation of the divergence between productivity and wages is offered by Fix (2020:1) who argues that the divergence has nothing to do with productivity. The author argues that “Although economists claim to measure ‘productivity’, their measure is actually income relabelled”, supporting that the standard methods used to measure productivity are flawed. The author explains that “To calculate workers ‘productivity’, the EPI divides Net Domestic Product by the number of labor hours worked”, but Net Domestic Product is equivalent to National Income.
Therefore he argues, “When we divide National Income by total labor hours, we’re actually measuring average hourly income. So the EPI’s measure of ‘productivity’ is identical to average hourly income of labor hours worked“. The growing gap explains Fix (2020) is that “Over the last 40 years, the wages of production workers have declined relative to the average hourly income” and that is exactly what the chart shows. At the same time the subpopulation of CEOs has seen their compensation grow by an astonishing 940% since 1978, whereas the typical worker’s compensation has risen by a meagre 12% during the same time.
“In short, the growing inequality of labor income can explain a large part of the apparent ‘productivity-pay gap’. Again, this gap isn’t about productivity. It’s about the declining relative income of production workers.”
The explanations offered on the growing gap between productivity and wages raises serious concerns regarding the level of compensation inequality among the different strata of firm hierarchies and socioeconomic classes, and how the prosperity generated by technological innovations is shared between owners of capital, production workers, middle managers, higher managers, and top executives. Alvaredo, Atkinson, Piketty, and Saez, (2013:5) suggest that “institutional and policy differences play a key role in these transformations. Purely technological stories based solely upon supply and demand of skills can hardly explain such diverging patterns”. The pace of work keeps speeding up, and the amount of information shared among people and organisations is continuously increasing, which forces every stakeholder to re-evaluate many aspects of work and of the workplace. New waves of technological disruption will always become gales of creative destruction. Organisations and policy makers can ensure that the economic gains from scientific discoveries and technological innovations are shared more equally so that change does not only destroy, but also creates.
“If technology changes the nature of work and disrupts traditional social insurance systems, policies can reduce vulnerabilities by expanding social protection systems. If technology leads to less equal income distribution, policies are called to redistribute income.”
UN DESA, Development Policy and Analysis Division (DPAD)
Alvaredo, F., Atkinson, A.B., Piketty, T. and Saez, E., (2013). The top 1 percent in international and historical perspective. Journal of Economic perspectives, 27(3), pp.3-20.
DPAD, (2017). The impact of the technological revolution on labour markets and income distribution. Frontier Issues, United Nations Department of Economic and Social Affairs, Development Policy and Analysis Division (DPAD).
Fix, B. (2020). Debunking the ‘Productivity-Pay Gap. Economics from the Top Down.
Ford, M. (2015). Rise of the Robots. Basic Books. New York.
Graeber, D., 2018. Bullshit jobs. Simon & Schuster Paperbacks. New York.
Mishel, L., 2012. The wedges between productivity and median compensation growth. Issue Brief, 330, pp.1-7.
Schumpeter, J.A., 1943. Capitalism, socialism and democracy. George Allen & Unwin. London.