The Economic Impacts of Technological Innovation
Exploring how technological innovation affects the job market and how it paves the way for greater economies
When speaking of technology, the first thing that often comes to mind is fast computers or hefty machines. However, economists think more broadly of the term as anything that presents a new way of doing things. It is seen as something that helps to produce things faster, better or cheaper. Keeping this in mind, how does technological innovation affect our economy?
Looking at everyday life, it is clear that perhaps the most direct effect of technology is economic in nature. Technological progress allows for more efficient production of new and better goods and services, as well as, the creation of previously unheard of jobs.
Manual Labour
Looking at technology in manual labour, such as processes like assembly lines, machinery has outclassed human labour for quite some time. However, it has only recently been considered that technology may outperform the mental capacities of humans. Modern technological innovations in the form of advanced microchips and Artificial Intelligence (AI) bring the potential to take the place of human workers. What does this mean for the job market?
Looking At History
An examination of the past gives some perspective on the situation. Looking at the 20th century in America, jobs in factories and agriculture were disappearing at an astounding rate due to technological innovations. Take agriculture, for example; it was reported by the Bureau of Labour Statistics (BLS) that 11,211,000 farm jobs were lost in the US during the 20th century. The job loss is primarily accredited to the replacement of horses and mules with gasoline-powered tractors.
However, with the loss of these jobs came the potential for millions of new jobs in other booming industries, such as manufacturing. Looking at the macroeconomic trend of the past century, it has been overly positive. Specifically looking at 1870 to 1975, a significant increase in jobs, the percentage of people employed, the GNP per capita, and the average earning power of jobs is seen.
The Job Market
In the modern-day, the arrival of new technology is projected to rapidly decrease the demand for many jobs, but it will create more jobs than it eliminates. This concept is known as creative destruction — the deliberate dismantling of established processes to make way for improved production methods.
When technology replaces a human, the outcome ultimately results in rising employment over time and economic growth. How is this possible? Although new technology makes some existing skills, tasks, and occupations obsolete, innovation boosts jobs in other sectors.
Video stores, milkmen, movie projectionists, and loggers are a few examples of jobs that are now considered obsolete. However, with the elimination of menial jobs such as these, a multitude of new positions appear. These include, but are not limited to, computing specialists, social media managers, digital marketers, energy engineers, software and app developers, drone operators, and even YouTube content creators.
This seems to be an unstoppable trend. A report by the Institute for the Future (IFTF) estimated that 85% of jobs that will exist in 2030 have not been invented yet.
Positive Economic Growth
As more individuals become employed and unemployment falls, the spending levels of individuals increase. With this, firms’ revenues rise as individuals consume more goods and services, incentivizing them to hire more workers. This cycle continues and creates an upward spiral of employment, which results in long-term positive economic growth.
To conclude, it can be seen throughout history that technological innovation ultimately leads to strengthened economies, and modern-day innovation should be no different.
