Technological change and the Scottish labour market

Section 1: Overview

There is nothing remarkable about new technologies replacing workers: from the seed drill and threshing machine to the silicon chip, innovations have allowed machines to undertake with the necessary quality and speed, tasks that could previously only have been performed by humans.

The consequences for the individuals, families, communities and regions directly affected have at times been severe. Yet, overall, the economies of the 19 ^th and 20 ^th centuries managed to create new jobs at least as quickly as old jobs disappeared. The higher productivity unleashed by new technologies freed up resources for investment elsewhere. Technological change ultimately enhanced the general welfare of the population through the provision of new goods and services and the welcome displacement of hard, physical and routine low wage labour.

This dynamic is apparent in recent Scottish history: despite shedding thousands of jobs in extractive and manufacturing industries and suffering extended periods of high unemployment, widespread and enduring technological unemployment is not currently a feature of Scotland’s labour market nor indeed that of any advanced nation. However, significant sectoral shifts in employment are identifiable over relatively short periods of time. The last 20 years have seen a near halving of manufacturing jobs in Scotland but large increases in health and social work, professional services and accommodation and food services jobs.

Views differ on how technological change will affect employment in the 21 ^st century. Some argue that a significant proportion of current jobs are at risk over a relatively short horizon whilst others stress that humans and technology are often complements not substitutes and that the labour market could prove as resilient as during previous waves of technological change. The following is a brief overview of the arguments and evidence underpinning these positions.

View 1: New technologies are already enabling new forms of management and work organisation and will soon be able replace a significant proportion of current workers

Some prominent researchers argue that the current wave of technological change will differ fundamentally from previous waves in that the net impact on employment could prove negative. In their influential book The Second Machine Age ^[1] , MIT’s McAfee and Brynjolfsson argue that the ‘exponential, digital and combinatorial’ technological progress of the 21 ^st century will prove ‘profoundly beneficial’ but bring ‘some thorny challenges…stemming from the fact that as computers get more powerful, companies have less need for some kinds of employment”. They provide numerous examples of technologies that are redefining – or will redefine - the range of human capabilities machines can replicate.

A widely cited study ^[2] (Frey and Osborne 2013) estimated that 47% of current US jobs were vulnerable to new technologies within the next 10 to 20 years. IPPR ^[3] applied the same methodology to Scotland and found a very similar number of jobs at risk. A number of other books, papers and articles ^[4] argue that swathes of jobs including whole occupations will be lost and that these will include some previously regarded as immune to technological displacement.

Beyond the net impact on employment, there is also a growing awareness that new technologies are already transforming – for good and bad - the way the workplace is experienced. This debate is most prominent around the ‘gig economy’ ^[5] : somewhat loosely defined as temporary or freelance work facilitated by digital intermediaries.

Management by algorithm can change the nature of employment relationships. Platform based companies such as Uber and Deliveroo and their many advocates argue that technology ‘creates new employment opportunities, better and cheaper consumer services, transparency and fairness in parts of the labour market that are characterised by inefficiency, opacity and capricious human bosses’ ^[6] . Others worry about the precarious nature and quality of the work generated and the over-reliance on forms of self-employment ^[7] .

Technology also facilitates new forms of performance management which may have adverse consequences for workers (a recent STUC report ^[8] discusses such practices and their impact). The prevalence of these practices extends well beyond the gig economy into traditional occupations in sectors previously regarded as a source of stable, quality employment.

At the same time, technology is helping create quality new jobs and occupations, opening up possibilities for forms of flexible working that benefits workers and creates new ways to improve health and safety. Rewarding working lives can now be led in locations that previously could only sustain a narrow range of employment. The ease with which technology can connect businesses and consumers allows many more people to pursue fulfilling careers in self-employment.

View 2: The pace of technological change and its impact on jobs may be exaggerated; it is unlikely Scotland (and other advanced nations) will experience widespread technological unemployment in the foreseeable future

The extent to which technology will replace workers in the 21 ^st century is fiercely contested. The OECD critique of the Frey and Osborne report cited above stresses that technology will also create jobs and that technological feasibility is not synonymous with economic viability ^[9] . It concludes that 9% of UK jobs are at risk by 2030.

Contrary to the predominant narrative, some commentators argue that the labour market is becoming ‘less, not more, dynamic’ ^[10] . MIT labour economist David Autor stresses that “tasks that cannot be substituted by automation are generally complemented by it” and predicts that “many of the tasks currently bundled into [middle skill] jobs cannot readily be unbundled—with machines performing the middle-skill tasks and workers performing only a low-skill residual—without a substantial drop in quality” ^[11] .

If new technologies were substituting for workers at the rate assumed in much popular writing, productivity growth should be increasing rapidly. However, this is the opposite of what is actually observed across the global economy where productivity growth has slowed significantly since the crisis ^[12] . There is little sign of the investment boom necessary for a surge in deployment of new technology.

Gordon ^[13] argues that when compared to the great innovations of the 1st and 2nd industrial revolutions the productivity dividends of the 4th will ultimately disappoint (and that the 3 ^rd has already disappointed); technological progress will not compensate – at least in the US - for the six ‘headwinds’ of ‘demography, education, inequality, globalization, energy/environment, and the debt overhang”. In a provocative paper Nordhaus ^[14] concludes that the point at which growth increases sharply as technological improvements rapidly cascade through the economy “is not near”. Jones et al suggest that “growth is constrained not by what we are good at but rather by what is essential and yet hard to improve” ^[15] .

Not only are productivity growth and business investment weak, the innovation diffusion mechanism may be breaking down ^[16] : it is no longer safe to assume that new technologies will be quickly and widely adopted. Similarly, others warn that “almost all innovations in robotics and AI take far, far, longer to be really widely deployed than people in the field and outside the field imagine…In principle, it could be done differently, in practice it isn’t” ^[17] .

Weighing competing theories of the future

It’s very difficult to tell which version of the future will prove more accurate: will technological unemployment be widespread or will, as has happened with previous waves of technological change, the labour market prove more resilient than many anticipate? There are compelling arguments on both sides. It is incontestable that productivity growth in the advanced world has been very weak over the last decade but slow productivity growth and high employment in the present does not necessarily preclude technology induced mass unemployment in the future.

One explanation for stagnant productivity and weak investment is that low labour costs – attributable to technology and globalisation – may discourage further investments in labour-saving technology ^[18] . It is difficult to justify expensive investment in technology if profits can be maintained by simply deploying more low wage labour. Another may simply be that AI is suffering from the implementation lags suffered by all general purpose technologies: the full productivity dividend may not be realised until waves of complementary innovations are developed and implemented ^[19] . If and when these are forthcoming, the more pessimistic forecasts about job losses may start to prove accurate.

The pace of technological development is undoubtedly rapid (though not necessarily more rapid than previous waves ^[20] ). The dispute is around the deployment of this technology and the timing and extent of wider economic impacts. What matters for jobs isn’t just the pace and nature of technological change but how this interacts with other factors – e.g. globalisation – to determine final labour demand. Technology can directly replace and create jobs but it also exerts an indirect effect as it opens up new possibilities for the development of global value chains ^[21] .

Interestingly, researchers on both sides of the future of jobs debate share concerns over the potential distributional consequences of technological change ^[22] . The OECD finds that “low qualified workers are likely to bear the brunt of the adjustment costs... the likely challenge for the future lies in coping with rising inequality” ^[23] . Autor argues that “the primary societal challenge posed so far is not falling aggregate labour demand but, rather, an increasingly skewed distribution of employment and ultimately earnings favouring highly educated workers” ^[24] . The high capital intensity and concentrated ownership structures of digital/technology firms could also exacerbate income and wealth inequality ^[25] .

Summary

There is no consensus on the impact new technologies will have on labour demand; some tasks and occupations will be replaced but new jobs will be created and it will not necessarily make economic sense to replace human labour even when technologically feasible to do so. This is especially true when there is weak wage growth and a global abundance of labour.

However there is a plausible case that the technological change in the 21 ^st century could pose new and serious challenges in sustaining a labour market that supports broadly based prosperity. The following sections consider what is currently happening in the labour market and workplace in an attempt to draw specific conclusions about how Scotland might best prepare to meet these challenges.