The Dangerous Economist: Technological Disruption in the Labor Market

Friday, January 31, 2025

Technological Disruption in the Labor Market

By David J. Deming, Christopher Ong, and Lawrence H. Summers. From NPR's Planet Money. Summers was Secretary of the Treasury from 1999 to 2001, director of the National Economic Council from 2009 to 2010 and president of Harvard University from 2001 to 2006.

"Obviously, there is a big fear right now that artificial intelligence will kill a bunch of jobs. We don't know what's going to happen. But we can maybe learn from the past.

The three economists, one of whom is a former US Treasury Secretary (Larry Summers), go through history — all the way back to 1880 — and estimate how new technologies changed what people do for work. So, for example, how the invention of the automobile may have killed horse-and-buggy jobs and created jobs in factories manufacturing cars.
The economists find that one of the most disruptive periods for occupational change was between 1940 and 1970, "when agricultural employment was still disappearing, manual labor was shifting into production and away from railroads, and clerical and administrative work were growing rapidly."

One of their most interesting findings is that the least disruptive period was rather recently. "The years spanning 1990 to 2017 were the most stable period in the history of the US labor market, going back nearly 150 years." That's maybe surprising because that was an era when we saw the spread of the personal computer, the rise of the Internet, and the advent of the smartphone. The study suggests that, relative to earlier technological waves, these technologies didn't do as much to change what Americans do for a living.

However, since 2017, the economists find, we've started seeing an uptick in occupational change.

First, they find that high-paid employment has grown while low- and middle-paid employment has declined as a percentage of total workforce. Maybe good news?

Second, and related to the previous finding, the economists find that "employment growth has stalled in low-paid service jobs."
Third, they find a huge increase in people working in science, technology, engineering, and math-related jobs. "The share of employment in STEM jobs has increased by more than 50 percent since 2010, fueled by growth in software and computer-related occupations," they write.

Finally, they find that "retail sales employment has declined by 25 percent in the last decade, likely because of technological improvements in online retail." They hypothesize that maybe this has to do with the advent of artificial intelligence. "While large language models (LLMs) like ChatGPT are too new for us yet to see any direct impact on the labor market, companies have been using predictive AI to optimize business operations since at least the mid-2010s. Online retailers like Amazon use AI to personalize prices and product recommendations and to manage inventory more efficiently, outcompeting big-box retail." Of course, the pandemic had an effect here too.
Looking forward, the economists suggest that occupational change will likely continue at a relatively fast pace (compared to the 1990-2017 period) as Generative AI and other new technologies change the labor market. Link to paper"