Experts see that the 3rd Industrial Revolution is upon us. How many jobs will be lost?

Summary:  It’s been almost 4 years since the first article appeared on the FM website warning about the next wave of job losses from automation. Now experts slowly begin to grapple with this problem, estimating its magnitude, extent, and possible solutions. Here we look at three of these. Properly managed, the 3rd industrial revolution will be an unmixed blessing to all. But only if we manage it better than we’re doing with simpler problems today.

We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come – namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.

But this is only a temporary phase of maladjustment. All this means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. There would be nothing surprising in this even in the light of our present knowledge. It would not be foolish to contemplate the possibility of afar greater progress still.

Economic possibilities for our grandchildren” by John Maynard Keynes, The Nation, 11 October 1930. He had confidence in our ability to solve both economic and political problems of modernization.

Jobs of the Future

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Contents

  1. Retail: an example of the coming wave of losses
  2. Number crunching to estimate the jobs at risk
  3. A more realistic analysis
  4. For More Information

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(1)  Retail: an example of the coming wave of losses

The next industrial revolution will improve productivity in many ways, not just the simple machine-replace people exchange seen so often in the past.

Fifteen million people work in retail, plus millions more in jobs supporting them. A large fraction of those jobs will go away in the next decade as e-commerce gains market share. Salespeople, the people that run and maintain the companies and the stores, the people that maintain the buildings — a widening circles of impact.

Here’s one of the many articles appearing as the inevitable approaches: “The Tipping Point (E-Commerce Version)“, Jeff Jordan (Partner, Andreessen Horowitz), 14 January 2014 — Excerpt:

We’re in the midst of a profound structural shift from physical to digital retail. The drivers of this shift are simple:

  • Online retail has strong cost advantages over its offline counterparts and is rapidly taking share in many retail categories through better pricing, selection and, increasingly, service.
  • These offline players have high operational leverage and many cannot withstand declining top-line revenue growth for long.
  • The resulting bankruptcies of physical retailers remove competition for online players, further boosting their share gains.

So, how has this shift been playing out? Recent data suggests that it’s happening faster than I could have imagined.

Online Share of Retail
From Recode, 14 January 2014

The data suggests that there are two very different patterns going on with respect to e-commerce penetration. The two largest categories — “Food and Beverage” and “Health and Personal Care” — show e-commerce penetration well below the overall average. These categories essentially are the domains of grocery stores and drug stores, and e-commerce (at least to date) has achieved only modest penetration of these massive categories (but Amazon Fresh has designs on changing that).

… One additional observation is that the pace of online share gain in the specialty retail categories shows absolutely no signs of slowing down.

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… Now let’s throw in one more massive complication for brick-and-mortar retailers in these categories: The total retail sales in these markets have been extremely sluggish, and have barely recovered back to pre-recession levels. This is a toxic combination — physical retailers in these categories are losing share of a total retail pie that isn’t growing. The inevitable result is that the portion of the pie left available for physical retailers is shrinking rapidly …

The result of these macro shifts is a Darwinian struggle playing out in the malls of America among physical retailers. … The stark reality for brick-and-mortar retailers is that there currently are just too many stores. Remember, these retailers have very high levels of operating leverage, and a meaningful decline in sales can quickly render them unprofitable and eventually unviable.

This is just one small aspect of the 3rd industrial revolution now upon us. It will make America (and the world) a better place, if the fruits are shared. Otherwise we will have a 1% of people like Jeff Bezos, a small middle class, with the mass of low wage workers (some combination of minimum wage, part-time, no benefits).

Job Losses

(2)  How many jobs are at risk?

After long denying that there is a problem, some academics have begun to estimate its impact. One such:  “The Future of Employment: How Susceptible are Jobs to Computerisation?“, Carl Benedikt Frey and Michael A. Osborne, 16 August 2013.

We examine how susceptible jobs are to computerisation. To assess this, we begin by implementing a novel methodology to estimate the probability of computerisation for 702 detailed occupations, using a Gaussian process classifier. Based on these estimates, we examine expected impacts of future computerisation on US labour market outcomes, with the primary objective of analysing the number of jobs at risk and the relationship between an occupation’s probability of computerisation, wages and educational attainment.

According to our estimates, about 45% of total US employment is at risk. We further provide evidence that wages and educational attainment exhibit a strong negative relationship with an occupation’s probability of computerisation.

See the table to the right for a sample of their estimates; see the full list on pages 57 to 72.

Their calculations assume that automation in the 21st century will differ from the waves during the 19th and 20th centuries, which largely affected skilled workers. No surprise, as neither “artificial intelligence” or “expert system” are mentioned (except to say there are as yet no machines of “human-level intelligence”) — a backwards-looking analysis inexplicably typical of people writing about automation. Their estimates are probably far too low.

(3)  A more realistic analysis

The onrushing wave“, The Economist, 18 January 2014 — “Previous technological innovation has always delivered more long-run employment, not less. But things can change.” Excerpt:

Nowadays, the majority of economists confidently wave such worries away. By raising productivity, they argue, any automation which economises on the use of labour will increase incomes. That will generate demand for new products and services, which will in turn create new jobs for displaced workers. To think otherwise has meant being tarred a Luddite—the name taken by 19th-century textile workers who smashed the machines taking their jobs.

For much of the 20th century, those arguing that technology brought ever more jobs and prosperity looked to have the better of the debate. … Industrialisation did not end up eliminating the need for human workers. On the contrary, it created employment opportunities sufficient to soak up the 20th century’s exploding population. Keynes’s vision of everyone in the 2030s being a lot richer is largely achieved. His belief they would work just 15 hours or so a week has not come to pass.

Yet some now fear that a new era of automation enabled by ever more powerful and capable computers could work out differently.

… Answering the question of whether such automation could lead to prolonged pain for workers means taking a close look at past experience, theory and technological trends. The picture suggested by this evidence is a complex one. It is also more worrying than many economists and politicians have been prepared to admit.

The lathe of heaven

Economists take the relationship between innovation and higher living standards for granted in part because they believe history justifies such a view. Industrialisation clearly led to enormous rises in incomes and living standards over the long run. Yet the road to riches was rockier than is often appreciated.

In 1500 an estimated 75% of the British labour force toiled in agriculture. By 1800 that figure had fallen to 35%. When the shift to manufacturing got under way during the 18th century it was overwhelmingly done at small scale, either within the home or in a small workshop; employment in a large factory was a rarity. By the end of the 19th century huge plants in massive industrial cities were the norm. The great shift was made possible by automation and steam engines.

… the lot of the average worker during the early part of this great industrial and social upheaval was not a happy one. As Mr Mokyr notes, “life did not improve all that much between 1750 and 1850.” …

Brave new world

Even after computers beat grandmasters at chess (once thought highly unlikely), nobody thought they could take on people at free-form games played in natural language. Then Watson, a pattern-recognising supercomputer developed by IBM, bested the best human competitors in America’s popular and syntactically tricksy general-knowledge quiz show “Jeopardy!” Versions of Watson are being marketed to firms across a range of industries to help with all sorts of pattern-recognition problems. Its acumen will grow, and its costs fall, as firms learn to harness its abilities.

The machines are not just cleverer, they also have access to far more data. The combination of big data and smart machines will take over some occupations wholesale; in others it will allow firms to do more with fewer workers. Text-mining programs will displace professional jobs in legal services. Biopsies will be analysed more efficiently by image-processing software than lab technicians. Accountants may follow travel agents and tellers into the unemployment line as tax software improves. Machines are already turning basic sports results and financial data into good-enough news stories.

The Economist staff concludes with the obligatory faith-based confident guesses that new good jobs will appear to replace those lost. After all, good new jobs appeared during the first two industrial revolutions. How could the advent of semi-intelligent or even narrowly intelligent machines change history?

“In the long run we are all dead. Economists set themselves too easy, too useless a task if, in tempestous seasons, they can only tell us that when the storm is long past the ocean is flat again.”

— John Maynard Keynes in A Tract on Monetary Reform (1923)

(4)  For More Information

These posts link to a wealth of information and speculation, helping you to prepare for what is to come.

(a)   Preparing for the future: should we be precautionary or proactionary?.
Robot hand holding the 21st Century world

(b) Dynamics of the robot revolution

  1. The coming big increase in structural unemployment, August 2010
  2. The coming Robotic Nation, 28 August 2010
  3. The coming of the robots, reshaping our society in ways difficult to foresee, 22 September 2010
  4. Economists grapple with the first stage of the robot revolution, September 2012
  5. The coming big inequality. Was Marx just early?, 27 November 2012

(c) First signs of the robot revolution appear

  1. The Robot Revolution arrives & the world changes, 20 April 2012
  2. In Friday’s job report you’ll see early signs of the robot revolution!, 5 December 2012
  3. Krugman discovers the Robot Revolution!, 9 December 2012
  4. How do we respond to the Robot Revolution?, 11 December 2012
  5. 2012: the year people began to realize the robots are coming, 3 January 2013
  6. Journalists reporting the end of journalism as a profession, 19 March 2013
  7. The next step of computer evolution: becoming bloggers, 20 March 2013
  8. A book about one of the trends shaping the 21st century: the next industrial revolution (robots), 29 December 2013
  9. The promise and peril of automation, 6 January 2014
  10. Looking at America’s future: economic stagnation, or will computers take our jobs?, 7 January 2014
  11. 50 years of warnings about the next industrial revolution. Are we ready?, 12 January 2014

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24 thoughts on “Experts see that the 3rd Industrial Revolution is upon us. How many jobs will be lost?

  1. “No surprise, as neither “artificial intelligence” or “expert system” — a backwards-looking analysis inexplicably typical of people writing about automation. ”

    The sentence does not parse, there is something missing after “expert system” — I presume you mean something like “are not taken into account”.

    1. Guest,

      Thanks for catching that! Fixed.

      Good news: soon next-gen word processors will catch these mistakes.

      Bad news: the generation after that the WP software will automatically write devastating rebuttals.

      Worst news: the generation after those will block me from publishing posts, as they will all fail the new Turing Test of sentience (can a human write something that can convince an AI that the author is sentient?).

  2. Note that, according to the above list, economists are vulnerable while preachers are not.

    And only yesterday I called for the replacing of economists by Druids.

    In this Brave New World, I may or may not be employable; but I am certainly trendy.

    1. At the risk of being politically incorrect, this is a stab at what that war is going to look like:

      _Out of the Mountains: The Coming Age of the Urban Guerrilla_, David Kilcullen

      http://www.amazon.com/Out-Mountains-Coming-Urban-Guerrilla/dp/0199737509/ref=sr_1_1?ie=UTF8&qid=1390344776&sr=8-1&keywords=out+of+the+mountains

      Hardly the Bible. It’s too early for any such thing; and I’ve said on this blog that we cannot grasp the implications of the unprecedented slum phenomenon. But it does direct our attention to a topic that will get in our faces, I guarantee you.

    2. Duncan,

      Kilcullen is a top expert on these matters, and written some brilliant research. So I’ve wondered if sincere in the garbage he wrote supporting our wars in Iraq and Afghanistan.

      A great subject for research will be the career paths of those writing in support of these wars — almost all of which looks either wrong or delusional now — and those writing against. Some of the hawks’ careers have fizzled, showing no benefit. Others, like Kilcullen, I have not followed.

      I don’t believe any of those writing against have benefited, no matter how correct.

      That was the pattern from Vietnam. That we’re repeating it shows that we’ve learned nothing from these experiences. In that sense, more than the objective failure of the wars, our troops suffered and even died in vain. That does not, of course, tarnish their service (results are our responsibility, not theirs).

  3. A lot of things will have to change. The right wing meme that those who don’t work are bad, evil or lazy will have to be lost or changed. The tax system will have to be revamped as the majority of income and wealth will be created via automation and increasingly smaller amounts earned through wages. I wonder where the consumer for all this stuff will come from since there will be fewer and fewer wage earners with less and less income.

    Very interesting times.

    azcaclark

    1. Carroll,

      I agree on all points. My guess (emphasis on guess) is that this will work out like the first two Industrial Revolutions: eventually, but painfully.

      We forget about the long period of social disruption from 1750 -1940 (when the combination of reaction to the Great Depression and wartime mobilizations led to enduring new political reforms). In many nations this resulted in large-scale violence — more so than the low-level violence in the US.

      Let’s hope we do better this time. Since we have the example of the first two I-revolutions, there is no excuse for failure.

  4. What makes it worse, to me, is that the techniques of propaganda are so much more advanced. The right wing meme is THE dominant one.

    Throw in increasingly sophistocated crowd control technologies and techniques which can make the Syrian shock and awe methodology less necessary in “advanced” societies.

    And the, let’s be honest, complete lack of an alternative world view to neoliberalism. Other than fundamentalist religion, which does not give me a lot of hope.

    Gloomy Monday, sorry Fabius crew! :)

    1. Brian,

      I agree on all points. Many mechanisms of social control are much more advanced than they were in the 1750 – 1940.

      On the other hand, the middle class is far larger — hence potentially more influential if mobilized. And modern communication tech allows faster & uncontrollable dissemination of info and ideas.

      My guess (emphasis on guess) is the necessary policies for mobilization are:

      (1) No violence, which limits the ability of the State to demonize and surpress the organization. That will require strict internal discipline, and willingness to condemn fellow-travelers (potential allies) who use violence. All of this we can learn from MLK.

      (2) Openness. Plans and people will be known to the government, and there is no point wasting resources trying to prevent it — especially since openness has its own advantages.

      But leaders will pay a heavy price, since they will face the full force of the 1%s retailiation. For an organization of young people, like the 1965-1975 radicals, that wasn’t material. But their lack of older leaders (more sophisticated, more connected, more resources) was one reason for their abject failure.

  5. FM, as I’ve mentioned once before, I see a great deal of connection between many of the topics that you discuss on this website and The Zeitgeist Movement. The issue of the ever-increasing loss of jobs due to advances in mechanization — especially since each succeeding advance seems to accelerate the evolution of technology just that little bit more — combined with the lack of emerging labor markets which might be able to absorb all the displaced people is one which is central to their purpose.

    The Zeitgeist Movement advocates (and eventually hopes to implement) an economic model based on the efficient and creative use of planetary resources — especially since we only have the one planet to work with, and most of its resources are finite. I highly recommend the series of short films (about six in all so far) entitled “Culture In Decline” which highlight the problematic trends in our current system and suggest ways in which some of these might be addressed.

    One of the solutions which Zeitgeist advocates is an eventual elimination of labor for wages, since computers will in the not-too-distant future reach a level of development at which they can perform many if not most of the same jobs that humans do (and quite possibly more efficiently than humans can since they’re faster and more consistent, more durable, and don’t suffer from the vagaries of biological or psychological impulses). This would almost certainly necessitate an innovative solution of truly historical proportions such as the establishment of a maintenance income for each individual — or perhaps the elimination of money altogether, especially if more research and effort is put into the study of how to use our resources more efficiently (such as the creation of new materials so that they become easier to reshape into whatever is needed or wanted at the time and can then be recycled for different uses afterward).

  6. FM and Bluestocking:
    Several comments:
    1) I agree that nonviolence is the way to go. I’m not too sure that complete openness about tactics is desirable. There definitely has to be some leadership (look at occupy).
    2) Hedgefund managers have made asas 1M per hour for no useful work whatsoever. If this can be justified, anything can. Nevertheless, overcoming fear of communism (even if small-c) and our residual puritism is a real problem. How do we ensure that the system remains democratic?
    3) Social democracy and liberalism were helped by the (implicit) threat of big-C communism. One of the reasons for passing civil rights laws was competion with Russia in the Third World.

    1. Socialbill,

      I agree on all points.

      (1) “There definitely has to be some leadership (look at occupy).”

      I agree. It’s a point I’ve often made about both Occupy and the Tea Movements. At some point I intend to write about building a leadership cadre.

      (2) “Social democracy and liberalism were helped by the (implicit) threat of big-C communism.”

      That’s a vital point! The mobilization for both wars, the Great Depression, and the Cold War — all of these were the drivers of the massive political reforms that created America’s middle class (and falling inequality). The end of the cold war was the beginning the great rollback.

    2. I sometimes think that one of the things which might have helped drive the social reforms of LBJ’s Great Society in particular was the fact that soldiers in both WWII and Korea came from all levels of society. Men from poor families fought and died alongside men from families that were better off — sometimes much better off and even well-connected politically (think of JFK, George Bush Sr.).

      The men from poor families who survived the war went on to attend college on the G.I. Bill when they almost certainly would not have been able to otherwise, and this education helped them find jobs which helped them become part of the middle class. Having come from humble beginnings themselves, many of these men would have been inclined to support political reform because they could remember what their lives were like before the war and imagine what they might have been like had the war not taken place. The men from wealthy families who fought alongside them and also survived learned that their brothers-in-arms were not what they might have been brought up to believe they were (lazy, unintelligent, lacking in proper morals, etc.) and perhaps gained a glimpse of just how hard their lives really were — and as a result, might have become more inclined to support political reforms in support of their brothers-in-arms.

      Vietnam changed that, because the overwhelming majority of men who fought and died in it were those whose families lacked the money and connections to keep them out of the draft. Men from well-to-do families no longer fought alongside the men from poor families — instead, they were packed off to college or otherwise were kept out of it by virtue of money or connections. The soldiers of Vietnam also faced many challenges which the soldiers of WWII and Korea had not — just one being the fact that a combat soldier in Vietnam could never be certain that the farmer who gave him food one day wouldn’t try to blow his head off the next day. The injustice of Vietnam led to the elimination of the draft in favor of an all-volunteer force — but if anything, this only made things worse rather than making them better since the sons of wealthy families no longer have any reason to fear that they might be even asked to fight, never mind forced to do it. Some of these well-to-do families even began expanding the Military Industrial Complex and exploiting the needs of the all-volunteer force for their own benefit. That’s what the MIC is really about in the end — using war as an excuse to generate a profit, to begin making war because you make bullets rather than vice versa.

      The people who fought in WWII and Korea — the Great Generation — were the last ones to really understand sacrifice at a national level but they’re either dead or facing the last years of their lives. The Baby Boomers who didn’t fight in Vietnam never witnessed the kinds of things their parents did and in some cases were inclined to criticize soldiers returning from Vietnam for what they did even though those soldiers were forced to deal with situation their parents were not. As a result, it’s possible that they never entirely developed a good understanding of what drove the push for political reform. As the subtext of American culture increasingly began to focus on self-absorption, immediate gratification, and conspicuous consumption, it’s really not all that surprising that inequality has increased and support for social programs has declined. You don’t have to look all that hard to realize that the further removed you are from something — whether by space or time or social class or what have you — the less likely you are to care about it.

  7. Perhaps it’s time to read our tattered copies of “Player Piano”. Vonnegut’s vision with more intelligent machines is a terrifying one. Combined with America’s lack of asabiyyah and “Brave New World” levels of apathy, it appears we have a great many challenges as citizens.

    1. Hoyticus,

      “appears we have a great many challenges as citizens”

      Yes, but far less serious challenges than in the past. FDR in 1932: the South victorious in its insurgency to suppress Blacks after Reconstruction, the US economy broke, both Fascism and Communism triumphant — looking superior to the US, etc.

      And the threat of atomic annihilation during the height of the Cold War. I had a boss who was a retired SAC wing commander. When I’d go to him to whine about a “serious problem” he’d immediately stop me. “I flew nuclear bombs, and sometimes had serious problems. Here we never have serious problems.”

      We will need a sense of proportion in the coming years, I suspect.

  8. Quote: ‘This is just one small aspect of the 3rd industrial revolution now upon us. It will make America (and the world) a better place, if the fruits are shared.’

    What kind of specific ‘fruits sharing’ do you envision?

    Will it have any chance of being implemented in the US?

    If people live longer and healthier as the results of both the elimination of the deject poverty and technically advanced medical care, will the resultant over-population negatively impact ‘the fruits sharing’?

    1. kamaaina,

      All great questions!

      (1) “What kind of specific ‘fruits sharing’ do you envision?”

      High social mobility and low levels of inequality. There are many ways this can be accomplished.

      (2) “Will it have any chance of being implemented in the US?”

      Such odds cannot be reliably estimated. We can only hope and try to make it happen. American history since the Mayflower is largely one of defying the odds.

      (3) “If people live longer and healthier as the results of both the elimination of the deject poverty and technically advanced medical care, will the resultant over-population negatively impact ‘the fruits sharing’?”

      Current medical technology appears incapable of extending average lifespans much beyond 100. Given that, collapsing fertility means that world population will peak aprox 2050; we cannot now forecast how far it will collapse. World fertility at 1.5, which seems quite possible, will reduce the population to reasonable levels in a few generations.

      The invention of a male contraceptive pill will, I believe, create another step down in fertility levels. It’s coming, eventually.

    2. In answer to your question, Kamaaina, a population increase resulting from the reduction or elimination of poverty combined with advancements in medical care could potentially be dealt with effectively with the creative combination of human ingenuity and determination with technology. Just within the last two hundred thousand years, modern man has achieved more than any other kind of organism that has ever existed on this planet (including those that have been here longer than we have)…and the majority of those achievements have come within the last two hundred and fifty years or so as a result of the industrial and technological revolution. The fascinating (and also somewhat frightening) thing about technology is the fact that it appears to evolve at an accelerating rate…the discovery and development of one technological advance tends to spur and speed the discovery and development of other advances.

      Let’s focus on how we would feed this putative larger population, since this would be an extremely important issue. Even now, organizations which are dedicated to addressing the problem of world hunger say that it is actually not an issue of food supply — it is one of economic and political policies as much as anything. As an example, according to the USDA, 27% of the food produced in this country every year (millions of pounds worth) goes to waste and is thrown away — and not because it has spoiled or is no longer safe to eat. Most of it goes to waste simply because it was surplus. If you’ll pardon the metaphor, just chew on this for a second…it’s estimated that one out of every six people in this country alone suffers from what the federal government calls “very low food security” (i.e., hunger) and yet more than one quarter of the food we produce is going to waste. At least in this country, the problem is quite obviously not one of food supply. Even if food supply were an issue, one of the ways in which it could potentially be addressed would be the increased use of hydroponics. Hydroponics has a number of advantages over traditional agriculture since it does not require the use of soil as a growth medium, tends to produce high crop yields, and uses less water.

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