Does capitalism, with its accompanying technological disruptions, create more jobs than it destroys?
Conventional wisdom says unequivocally “yes.” Each new wave of innovation eventually brings new jobs in number and value far greater than those it displaces. Telegraph readers become telephone operators become call center representatives. No need to fret over, or more to the point – adapt around – changes to the workforce wrought by technology because new employment will magically replace the old. What has been always shall be.
Policy-makers and the public at large may be missing a massive transformation unfolding right beneath our feet because we are looking at the wrong data. Has capitalism always created an ever-expanding pool of jobs? Not exactly. Will it create enough new jobs in the future to support a social model based on mass employment? Almost certainly not.
Two logical flaws contribute to our myth of capitalist job creation. First, we conflate “jobs” with “work.” They are not the same thing. Capitalism invented the concept of a job while steadily and relentlessly eliminating work. Mass employment is itself an innovation developed by capitalism. As technical sophistication advances, the work we replace becomes more sophisticated. This process eventually eats into job creation, as even the most uniquely human of work processes becomes vulnerable to automation.
We have already entered an era of declining employment that has been overlooked for decades. The decline in new job creation is only cushioned today by our tolerance for low wages, fueling the growth of easily replaceable employment in low-skilled service jobs. The end of mass employment as a social force is already well-advanced. Though it poses a social challenge, it a promising development for cultures with the agility to adapt.
Capitalism, and the technical innovations it spawns, incrementally replaces returns on toil with returns on capital. In other words, capitalism delivers accelerating value by relentlessly eliminating work. In its early stages it created jobs where none existed before. Extend the process of eliminating work across a long enough time frame, and jobs begin to disappear as well.
Richard Arkwright’s water frame could simultaneously spin 128 threads. It could operate 24 hours a day, stopping only for intermittent repairs and resupply. By comparison, that work was previously performed as a cottage industry by skilled weavers who usually also engaged in other work. In the course of a full day working, a weaver might be able to accomplish six to eight hours of weaving, between cooking, cleaning, child care, farm labor, and so on. Workers were sometimes assembled into factories, but those factories were little more than a lot of people in the same place weaving by methods similar to cottagers. Cottagers performed work, but they did not have “jobs.”
A single day of operation by one of Arkwright’s early machines in the 1770’s could easily replace the work of a thousand cottagers. His first mill was five stories with several dozen machines. It employed about 200 workers, almost all of them children. It rendered the work of thousands of people redundant, but created 200 jobs where no formal employment had previously existed.
Downstream from the factories, new jobs would over time emerge in mercantile stores, distribution, machine assembly, factory management, business accounting, banking and other previously unheard of roles. Those new jobs would be far more lucrative and humane than the endless toil of farm or mine labor that had existed before. They would not, however, require anything approaching the amount of human work previously necessary. Conversion of endless subsistence labor to “employment” in a “job” would lead to a long term, though still temporary rise in the number of people engaged in formal employment as capitalism and innovation continued to replace human labor at a steadily accelerating pace.
As we eliminated work, we created entire new social institutions. With families freed from the endless drudgery of farm labor and cottaging, women started to become, for the first time in history, homemakers. As the elimination of work progressed, demand for (a social tolerance of) child labor declined. In the farm economy that dominated economic life in the 19th century, only a rare few women or children avoided dawn to dusk toil for subsistence. By 1920, only 21% of women were “gainfully employed.”
By the second half of the 19th century we began to imagine childhood as a promising development phase rather than just a period of dimmed human usefulness. In 1910 only 20% of American children were employed. That number dropped by more than half over the next decade. By the time the US finally outlawed child labor in 1938 it had already ceased to be economically relevant. We had eliminated so much work that children had been freed from labor. This pool of children no longer forced into mines or fields could develop themselves, preparing to perform higher value work later in life. The replacement of work created the nuclear family, childhood, mass education, retirement, and a knowledge economy.
Eliminating work gradually made the remaining jobs more and more lucrative. If we look closely, this process is evident in our employment and pay statistics. Our employment to population ratio peaked along with industrialization. As a moving average, that ratio remained flat for decades until it began a temporary rise in the late 1970’s. What happened then? At a social and political level we had, for the first time in our history, begun to allow women and minorities to participate in the workforce on more or less equal terms with white males.
Women had been sidelined from work starting in the 19th century. Along with Blacks, Hispanics and other minorities they had been marginalized in order to preserve the most lucrative of the emerging job opportunities for white men. By the 70’s both groups were gaining new access to the workforce.
For the next twenty-five years we saw a surge in the number of people participating in the workforce. It should come as no surprise that the entry of new workers into an already weakening jobs environment led to stalled wage growth.
By the late 90’s the moving average for employment to population plateaued. It has been declining ever since. Overall, liberalizing workforce participation and integrating the southern states into the national economy led to about a 9% temporary increase in the moving average for employment, which eventually settled back to about a two-percentage point increase, from which it has resumed its long term decline.
Statistical noise from the liberalization of the workforce in the late 20th century can be eliminated by examining workforce participation by the only group of people who had full access to the workforce– white males. The employment to population ratio for white males has been in decline for as long as we have measured it. In fact, it has dropped by almost a quarter over the past sixty years. The pace of the decline was fairly steady until the 90’s. Since then the rate of decline in employment to population for white males has doubled.
The numbers tell the tale. Capitalism is not creating new jobs. It hasn’t done so for a very long time. Capitalism is not an engine of job creation. Capitalism is an engine for generating returns to capital. Capitalism invented the concept of a “job” to solve a problem being experienced at a certain stage of industrial development. There is no reason to think that mass employment could not be innovated away as easily as the horse-drawn wagon. As automation and machine learning begin to cut into our demand for skilled human work, we can expect a new phase to emerge. The age of mass employment is coming to an end.
For generations we have cushioned the impact of technical innovation with social adaptations like the nuclear family, a 40-hour work-week, child labor laws, retirement, and the welfare state. As capitalism grows and its impact accelerates, our social evolution must keep pace. Our next step is probably some form of basic income, but more is needed.
A basic income would replace our economic dependence on mass employment, but it would do nothing to transform the social role of employment. Continuing to develop the power of innovation while easing its social impact will require us to rethink of the role of work and employment in our basic values.
A social order that gradually evolved around the concept of formal employment must evolve or be rendered irrelevant. Worse, it may become unstable. Those who want to slow or halt this process are missing the point. Eliminating work may eliminate jobs, but it does so by creating enormous new wealth. Halting that process may keep someone employed, but it also keeps all of us poorer. A vastly higher percentage of people were working far more hours in 1880 than are today. The replacement of that labor was a value to humanity. We want that process to continue.
Our challenge is not to stop people from losing jobs. Our challenge is to build a social framework that allows us to assign the rewards from innovation in a just manner without mass employment. Up to now we have granted nearly all of the value from new innovation to the people who perform the jobs in those field, or the people whose capital funded the effort. Value, not just in terms of income, but also in terms of status, respect, even health insurance, is distributed (mostly) via jobs. With far more value being created now by new, relatively jobless institutions, we need a new way to assign the value from that economy.
This is a matter than deserves far more thought and consideration. Needless to say, the Luddites railing against trade and innovation are contributing no more to this discussion than those who ignore the problem altogether.
How would you create value from your life if a job were no longer an option? Though it sounds revolutionary, our ancestors have been down a similar road. We already solved this problem when we set children loose from toil. We solved this problem when we allowed people to retire from jobs at an advanced age. Precedents are available to guide us.
Are we ready to replace “get a job” with “get a life?”