Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 16
1
Introduction
TECHNOLOGY AND AMERICAN ECONOMIC WELFARE
Technological change transforms the production of goods and services
and improves the efficiency of production processes. It also allows the
production of entirely new goods and services. Since the beginnings of
American industrialization, such change has been a central component of
U.S. economic growth, growth characterized by the creation of new
industries and the transformation of older ones through innovations in
products and processes. One of the results of these innovations has been
increased productivity that is, greater output per unit of input which
has been largely responsible for growth in U.S. income per person during
most of this century. Such growth in turn has contributed to higher living
standards for Americans and shorter workweeks (Abramovitz, 1956;
Denison, 1962; Solow, 19571. The contribution made by technological
advances to growth in income per person has increased during the past
100 years (Abramovitz and David, 1973; Temin, 19751; that contribution,
as well as the contribution of new technology to overall U.S. economic
advance, is likely to increase still further as the United States becomes
more closely linked to the global economy.
Technological change in production processes frequently reduces the
amount of labor and other resources needed to produce a unit of output;
these reductions lower both the costs of production and the labor
requirements for a fixed output level. If a reduced demand for labor were
the only effect of technological change on employment, policymakers
16
OCR for page 17
INTROD UCTION 17
addressing the problem of maintaining U.S. economic welfare would
simply have to balance the contributions of technological change against
the costs of higher unemployment.
Yet technological change has other important effects that historically
have enabled society to achieve greater prosperity without sacrificing
employment. By reducing the costs of production and thereby lowering
the price of a particular good in a competitive market, technological
change in production processes frequently leads to increased demand for
that good; greater output demand results in increased production, which
requires more labor, and offsets the effects of reductions in the amount of
labor required per unit of output. Even if the demand for a good whose
production process has been transformed does not increase significantly
when the price of the good is lowered, benefits still accrue because
consumers can use the savings from price reductions to purchase other
goods and services. In the aggregate, therefore, employment often
expands. Moreover, when technological change results in the develop-
ment and production of new products, employment grows in the indus-
tries that serve the markets for these goods, as well as in the industries
supplying inputs to them. Historically and, we believe, for the foreseeable
future, any laborsaving impact of technological change on aggregate
employment has been and will continue to be outweighed by the beneficial
employment effects of the expansion in total output that generally occurs.
Total employment within an economy is determined by a great many
influences, of which technological change is only one and far from the
most important. The level of total employment is influenced by the rate of
economic growth, operating in conjunction with growth in the labor
supply; by the level of real (inflation-adjusted) wages; by business cycle
fluctuations; and by occasional "shocks" to the economic system for
example, the massive oil price increases of 1973 and 1979. We have
defined our task as that of analyzing the contribution of technological
change to employment and unemployment. Because technological change
plays such a limited role in determining total employment, its employment
impacts in this area are primarily sectoral, and those impacts are affected
only indirectly by aggregate economic conditions. We therefore regard
the design of macroeconomic policies aimed at achieving high levels of
aggregate demand and employment as outside the panel's charge.
In recent years, international trade has become an important force
within the U.S. economy. Consequently, international trade flows inter-
act with technological change to affect U.S. employment. Some of the
implications of this interaction for economic policy and employment in
the U.S. economy are discussed later in this report (see Chapters 2 and 34.
A detailed analysis of international trade issues and recommendations for
international trade policy, however, would have drawn us far from our
OCR for page 18
18 TECHNOLOG Y AND EMPLO YMENT
primary focus the impact of technological change on employment. We
therefore devote little attention to international trade policies.
Much of our analysis focuses on the employment effects of technolog-
ical change in particular industries or sectors. As technological change
and other factors alter the structure of the economy, unemployment can
and will result in some areas, while expanding employment opportunities
appear elsewhere. Our analysis and policy prescriptions highlight ways of
facilitating the movement of workers from sectors or occupations in
which labor demand is declining to areas in which it is growing.
Our principal finding may be succinctly stated:
Technological change is an essential component of a dynamic, expanding
economy. The modern U.S. economic system, in which international
trade plays an increasingly important role, must generate and adopt
advanced technologies rapidly in both the manufacturing and nonmanu-
facturing sectors if growth in employment and wages is to be maintained.
Recent and prospective levels of technological change will not produce
significant increases in total unemployment, although individuals will
face painful and costly adjustments. Rather than producing mass unem-
ployment, technological change will make its maximum contribution to
higher living standards, wages, and employment levels if appropriate
public and private policies are adopted to support the adjustment to new
technologies.
Technological change often involves difficult adjustments for firms and
individuals. Workers must develop new skills and may be required to seek
employment in different industries, occupations, or locations. In many
cases, workers suffer severe financial losses as a result of permanent
layoffs or plant closings. Managers also face serious challenges in
evaluating and adopting new manufacturing and office technologies in an
increasingly competitive global economy.
In light of these realities, we recommend policies to help workers and
firms adjust to technological change. Our recommendations propose new
initiatives to aid displaced workers through job search assistance, basic
skills training, retraining, and advance notice of plant shutdowns and
large-scale permanent layoffs. These initiatives focus on the need for
society as a whole, which benefits from technological change, to assist
individuals who experience hardship as a result of it and to help them
secure new jobs. We also discuss strategies to help firms adopt new
technologies more rapidly.
The alternative to rapid rates of technological change is stagnation in
productivity growth and real wages. In foreign economies, technological
change will be rapid for the foreseeable future; if the United States is to
remain an industrial power capable of generating high-wage employment,
OCR for page 19
INTRODUCTION 19
such change is indispensable (although other factors, e.g., capital forma-
tion, also affect the international competitiveness of U.S. industry). In the
end, the goals of increased high-wage employment and rapid rates of
technological change are more than compatible; achieving the first goal
depends on accomplishing the second.
Technological change poses significant challenges to government
policymakers, business, and labor, as well as to individual workers and
managers. Although the United States remains a technological and eco-
nomic leader, the performance of this economy in adopting new technol-
ogies, achieving higher levels of productivity, and dealing with the
adjustment of workers to technological change leaves much to be desired.
The costs of continued suboptimal performance in these areas are not
inconsequential: if business, labor, and government fail to develop
appropriate adjustment policies, the technological dynamism and inter-
national competitiveness of the U.S. economy will decline.
WHOSE JOBS ARE AFFECTED BY
TECHNOLOGICAL CHANGE?
Total employment depends on the supply of and demand for labor. The
labor supply is determined by demographic factors, which affect the
number of entrants to the labor force each year, and by changes in the
proportion of different population groups seeking employment (labor
force participation rates). The demand for labor depends primarily on the
rate of growth in total output and real wages, both of which can be
affected by cyclical fluctuations, and on numerous other factors.
Although technological change is of secondary importance in determin-
ing total employment, it does affect one component of aggregate unem-
ployment. "Structural" unemployment is unemployment of long duration
that persists in the face of economic expansions. It stems from the
dynamism of the economic system in which jobs are created and
eliminated constantly, regardless of the state of aggregate or total demand
(Leonard, 19861. Although the duration of either unemployment after job
loss or job search after entry into the labor force is relatively short for
most workers, others have great difficulty finding new jobs and thus may
be unemployed for much longer periods.
Our discussion of technological change and employment focuses on the
effects of new technology on the employment of experienced workers and
on job openings for those entering the labor force. For example, techno-
logical change may contribute to unemployment among experienced
workers because the jobs created by new technology are located far away
from the areas with significant job losses; in addition, the new jobs that
result from technological change may require skills that make them
OCR for page 20
20 TECHNOLOG Y AND EMPLO YMENT
difficult for displaced workers to fill. The evidence suggests that the
adoption of new technologies by U.S. firms is a relatively modest
contributor to permanent job loss in this economy, although precise
distinctions among the causes of displacement are virtually impossible to
make. There is, however, some reason to believe that technological
change may play a role in other causes of experienced worker displace-
ment. As we discuss later (see Chapters 2 and 3), much of the displace-
ment of U.S. workers resulting from import competition reflects more
rapid technological progress in other nations.
Programs such as job search assistance and counseling, as well as
retraining, are designed to help experienced displaced workers adjust to
technological change and are potential means of reducing structural
unemployment. Because there have been few evaluations of such pro-
grams, however, there is little guidance for successful program planning
and design. New initiatives in this area must incorporate substantial
resources for experimentation and evaluation, as discussed in Chapters 7
and 8.
As for labor force entrants (discussed in Chapters 3 and 5), our review
of the evidence suggests that a strong foundation in basic skills will be
indispensable to finding good jobs in the workplace of the future (see also
the report of the COSEPUP Panel on Secondary School Education for the
Changing Workplace, 1984~. Job openings for well-prepared entrants to
the labor force should remain sufficient to absorb the projected smaller
population of entrants in the future.
TECHNOLOGICAL CHANGE AND EMPLOYMENT
IN AN "OPEN" ECONOMY
The U.S. economy of the 1980s is more "open" to international trade
than the U.S. economy of the 1950s and 1960s; imports and exports affect
a larger share of economic activity and employment. In such an environ-
ment, productivity growth, which is influenced by technological change,
is essential to maintaining higher real earnings and preserving U.S. jobs.
Our discussion of the employment impacts of technological change is
influenced by our recognition that within an open economy, growth in
output and employment depends on productivity growth.
How does technological change support growth in productivity, em-
ployment, and output within an economy that is open to international
trade? The answer lies in the interdependence of these factors, a key
concept in explaining the analysis in this report. The process of techno-
logical change, which is discussed in greater detail in Chapter 2, involves
exploiting scientific and technical knowledge in the invention and inno-
vation stages. Within the modern economic environment, the knowledge
OCR for page 21
INTROD ACTION 21
that is the basis for commercial innovations need not be domestic in
origin. U.S. firms have relied on discoveries made elsewhere in the world
in developing new technologies, and U.S. basic research may underpin
(and has underpinned) the technological advances of firms in other
nations.
The relative rates of development and adoption by U.S. and foreign
industries of new process technologies affect the rates of growth in labor
productivity in those industries and therefore can produce differences in
labor costs among U.S. and foreign firms. To the extent that foreign firms
develop and adopt new technologies more quickly than U.S. firms, the
production costs of foreign producers will fall more rapidly. In the
absence of other adjustments, these reductions in the production costs of
foreign producers will decrease markets for U.S. firms and ultimately
reduce jobs for U.S. workers within the affected industries.
To remain competitive in the absence of technological advance and
productivity growth in these industries, U.S. labor costs must be lowered
relative to those of foreign producers. This can occur through direct
reductions in wages or through reductions in the foreign exchange price of
the U.S. dollar. Both of these alternatives shrink U.S. workers' incomes,
relative to those of workers in other nations, and thereby contribute to
stagnation in U.S. living standards. Thus, if U.S. firms fall behind foreign
firms in rates of development and adoption of new technologies, the
alternatives are not attractive U.S. workers must accept fewer jobs or
lower earnings.
Yet, if U.S. firms can consistently develop and adopt new technolo-
gies more rapidly than foreign producers, the picture is quite different.
The resultant higher productivity growth in U.S. industries will support
lower production costs, which will enable U.S. workers to retain
higher-wage jobs. Within the modern world economy, however, new
knowledge and technologies developed within the United States are
transferred to foreign competitors more quickly than they were in the
past. Therefore, any technology-based advantages held by U.S. firms
and workers over foreign firms and workers are likely to be more fleeting
in the future. One key factor in sustaining American living standards,
wages, and employment is continued public and private investment in
the generation of new knowledge. U.S. firms also must advance from
fundamental knowledge to commercial innovations more rapidly than in
the past.
The open character of the U.S. economy of the 1980s and 1990s means
that the link between productivity and output growth will play a central
role in determining wages and employment in U.S. manufacturing (and
eventually in portions of the U.S. services sector, as this sector becomes
increasingly involved in international trade). The changing nature of
OCR for page 22
22 TECHNOLOGYAND EMPLOYMENT
international competition has enhanced the importance of higher levels of
skills within the employed work force. More highly skilled workers can
adopt new technologies more quickly and adapt more easily to changing
markets and competitive conditions. We see improvements in the skills
of the employed work force as a major factor in preserving and
strengthening high-skill, high-wage employment in the U.S. economy.
ORGANIZATION OF THE REPORT
Our report contains nine additional chapters. Chapter 2 describes the
process of technological change, devoting particular attention to the
adoption of new technologies and to the special problems of small firms in
managing technological change and adoption. Chapter 3 discusses how
technology, labor supply, and labor demand affect the impact of techno-
logical change on employment in an open economy. Chapter 4 considers
the impact of technological change on employment and wages, focusing
on empirical studies of the sectoral employment effects of such change,
and also discusses the impact of new technologies on job skill require-
ments. The employment and economic status of entrants to the labor
force and the employment prospects of women and minorities are
discussed in Chapter 5.
Chapter 6 examines the impacts of technology on the workplace,
exploring the effects of technological change on the structure of the firm,
the role of labor-management relations in managing these changes in the
workplace and the challenges and opportunities in occupational health
and safety that result from technological innovations. Chapter 7 discusses
public and private policies that affect the adjustment of the economy and
the labor force to technological change. Chapter 8 proposes several
strategies for further research on technology, employment, and worker
adjustment assistance programs and stresses the need to collect data on
the diffusion of innovations and their effects on workers and the work-
place. Chapter 9 contains the panel's findings, and Chapter 10 presents
our policy recommendations.
The panel did not reach definitive conclusions or findings in some
areas of its charge. Because of a lack of data, for example, as well as our
conclusion that technological change will have only a limited effect on
regional growth in the future, we did not analyze in detail the regional
economic impacts of technological change. Analysis of the effects of
technology on the length of the working day was not pursued for similar
reasons. The absence of a panel finding or policy recommendation
should not be taken as evidence that the issue in question is unimportant
or that it does not require further research and monitoring. In those
cases in which an important issue could not be addressed for whatever
OCR for page 23
INTROD UCTION 23
reasons we have noted the need for additional work. In other areas-
for example, the evaluation of the effectiveness of retraining for dis-
placed workers there is insufficient quantitative evidence for a factual
finding. In these instances, we have provided a statement of our
collective judgment based on the expertise of our panel members and on
the research and analysis carried out by panel members, staff, and
authors of commissioned papers during the past 18 months.
Representative terms from entire chapter:
labor force
