Dropping off the pace

“I was on an airplane and there was high-speed Internet on the airplane. That’s the newest thing I know that exists. And I’m sitting on the plane and they go, open up your laptop, you can go on the Internet. And it’s fast, and I’m watching YouTube clips. It’s amaz—I’m on an airplane! And then it breaks down. And they apologize, the Internet’s not working. And the guy next to me goes, ‘This is bullshit.’ I mean, how quickly does the world owe him something that he knew existed only 10 seconds ago?” (Louis C. K.)

Although the telephone was invented in 1876 it took decades before even half of households had one installed. Indeed, it was not until the 1960s that telephone penetration hit 80 per cent.

What took the landline well over half a century to accomplish, was achieved by the mobile phone in less than half a decade.

The adoption rate of each new device/appliance has been quickening for some time (see chart below). There are a lot of reasons why this is the case. Our incomes are higher, there are more players in the market, there are fewer barriers to entry, technology is less reliant on massive infrastructure, costs are lower and so on. Whatever the cause, it appears that the pace of technological change is getting faster.

 

Household diffusion of selected technologies

Source: Michael Felton, NY Times (pinched here from the PC, who pinched from ACOLA, who pinched it from Felton)

The (perceived) pace of change is the source of much anxiety. The PC’s paper on digital disruption for example notes: “there is a concern in parts of the community that the pace of change will accelerate, leading to substantial unemployment in the future”. And countless papers have been written on the potentialimpact of automation.

We might expect that this era of unprecedented technological change is matched by unprecedented disruption in the labour market. But this doesn’t seem to be the case.

Earlier this year the Information Technology and Innovation Foundation (ITIF) released a study on the rate of technological disruption in the US labour market since 1850. Contrary to popular perceptions, they found that the rate of occupational churn has never been slower. ITIF’s results are reported in the figure below. Unfortunately comparable data for Australia is not available for the same time period. While not as striking as in the US, the key finding that churn is not faster than ever before is certainly true.

 

Rate of occupational churn, Australia and the US

Notes: Occupational churn measures the absolute value sum of jobs in occupations growing and occupations declining, as a share of total jobs in the economy. For example, if the churn rate were 20 per cent, this would mean that the number of jobs in occupations growing either faster or slow than the workforce at large represents 20 per cent of the workforce. Based on ITIF’s Method 2.

Source: ITIF and me.

ITIF argue (as they would) that the key risk is that technological change will be too slow, rather than too fast: “the single biggest economic challenge facing advanced economies is not too much labour market churn, but too little, and thus too little productivity growth.” The corollary of this is that policymakers should be doing everything possible to speed up the rate of creative destruction rather than slow it down.

Really though, the pace of change is probably immaterial. And it will become more immaterial the better are our mechanisms for transitioning redundant workers to new sources of employment. The more responsive and agile is the economy, the more it will be able to benefit from technological developments.