Jobs and the Information Technology Enabled Economy

The impact that information technology is having on the working lives of global citizens is a major concern in most developed countries today. Although job numbers are little changed from the past in many countries, statistics show issues with job security and income levels. Job contracts have weakened from the employees’ point of view (working hours have become less certain with zero hour contracts for example) and income levels have been stagnant for many people for many years.

Expectations of continuously rising income levels and standards of living have not been realised and this has caused social discontent that has been reflected in political voting behaviours. Millennials have entered the job market from school or university and had difficulty getting good jobs with positive career prospects. This has led to significant levels of discontent.

At the same, wealth distribution is becoming a greater concern. Reports have emerged showing that concentrations of wealth are increasing with the rich getting significantly richer, resulting in calls for action to more equitably distribute the existing wealth. This demand is featured within some of the solutions that are proposed for dealing with the economic disruption caused by information technology. In this post, wealth distribution is not the main focus but it will be referred to as we consider policy responses to job related issues.

The way that information technology impacts the economy and peoples’ lives is widely debated. This debate is important because it influences the government policies that will be adopted to deal with it. If it is believed that information technology’s facilitation of globalisation is at the root of the economic difficulties that people are facing today then policies designed to tackle this will be more likely to be adopted by global governments.

There are three main approaches that are taken to understanding the economic impact that information technology is having today. First, there are those who believe that information technology has enabled globalisation which has made it easier for companies to locate more of their activities in developing, lower wage economies and therefor to reduce the number of people that they employ in developed countries where wages and other employment costs are higher.

The globalisation argument lies at the heart of policies that have been supported by populist politicians in North America and Europe. It was a key argument used by those supporting Brexit in the UK and Donald Trump in the US. It is used to argue for protectionist measures that increase import restrictions and limit the ability for domestic companies to move jobs abroad (for example to Mexico or China).

Opponents of this approach argue that globalisation is having much less impact on jobs than is assumed by those who are in favour of globalisation. These opponents argue that automation is likely to have a significantly larger impact and that this is where policy efforts should be directed.

Part of their argument also says that tackling the employment issues in the economy through protectionism will make the problem worse. For decades now, government economic policy in most nations and the establishment of global trading blocks such as the European Union, have been based on the benefits of international trade.

International trade is based on the theory of Comparative Advantage. This theory states that everyone benefits from trade where countries concentrate their economies on activity that they are better than others at, and then trade with each other. Statistics show a clear relationship between economic openness, trade and economic growth in countries. Countries that have been more open to trade have strongly benefitted.

While economic growth continues to be stronger in countries that trade more, a new difficulty has arisen that did not exist before, which is influencing the current debate: although trading countries economies have continued to strengthen, the benefits of the growth that has occurred have been unequally distributed. Some sections of the population have prospered and others have suffered as information technology has influenced employment disruption. While overall national economic growth has continued, many people have continued to suffer job related difficulty.

Information technology has influenced disruption through globalisation. Jobs have moved from developed countries in more traditional industries – especially manufacturing, and they have been lost to automation. At the same time, job growth has been in skill and geographical areas that are less suited to the people who have lost their jobs. Adjustment for many will require retraining and a willingness to physically move to where the new jobs are located.

Those who are opposed to protectionism as a policy response to the situation that many people face today argue that automation is a greater threat than movement of jobs to lower cost economies. They argue that automation is likely to reduce the amount that this will happen in the future and that evidence is already emerging of some jobs returning to developed countries and being done by robots.

If these arguments are correct, protectionism may only make things worse. Reducing international trade does not just result in less jobs moving to other countries but also results in increased costs for domestic companies. A car that is wholly made in the US with no imported components would be much more expensive than it is today, resulting in US cars being more expensive in export markets and higher prices for domestic consumers. The argument here is that protectionism will cause job losses in industries where costs increase and higher prices for domestic consumers, resulting in declining living standards.

The alternative view argues that the impact that information technology is having on jobs should be met with policy that supports economic adjustment. Some argue that the jobs that are moved abroad, or which disappear as a result of automation, will be replaced by new jobs – that the period that the economy is going through at the moment is temporary. Those who support this point of view cite historical examples of major economic change where this has occurred.

Others argue that government support for adjustment is necessary. Providing access to education and training opportunities that will enable people to gain the skills needed for the new jobs is usually at the heart of policies to support adjustment.

There is some debate over whether enough jobs will be created in new employment areas for people who lose their jobs in more traditional areas. Some believe that while new jobs will be created, we are entering an era of less than full employment, where many people won’t be able to get jobs. This has led to discussion on the Universal Basic Income, which is being trialled in some areas at the moment.

It is also important to refer to the concentration of wealth. Some argue for wealth redistribution that will support adjustment within the economy.

This post has explained the debate over the economic impact that information technology is having today. This debate is of critical importance in most countries and is strongly influenced by beliefs about the impact of globalisation and automation and the ability for the economy to replace lost jobs with jobs that will enable most people to have a decent quality of life. Support for policies to address the problems that people face today is based on these beliefs.


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