Some people believe labor-saving technological change is bad for the workers

Some people believe labor-saving technological change is bad for the workers because it throws them out of work. This is the Luddite fallacy, one of the silliest ideas to ever come along in the long tradition of silly ideas in economics. Seeing why it’s silly is a good way to illustrate further Solow’s logic.

The original Luddites were hosiery and lace workers in Nottingham, England, in 1811. They smashed knitting machines that embodied new labor-saving technology as a protest against unemployment (theirs), publicizing their actions in circulars mysteriously signed “King Ludd.” Smashing machines was understandable protection of self-interest for the hosiery workers. They had skills specific to the old technology and knew their skills would not be worth much with the new technology. English government officials, after careful study, addressed the Luddites’ concern by hanging fourteen of them in January 1813.

The intellectual silliness came later, when some thinkers generalized the Luddites’ plight into the Luddite fallacy: that an economy-wide technical breakthrough enabling production of the same amount of goods with fewer workers will result in an economy with – fewer workers. Somehow it never occurs to believers in Luddism that there’s another alternative: produce more goods with the same number of workers. Labor-saving technology is another term for output-per-worker-increasing technology. All of the incentives of a market economy point toward increasing investment and output rather than decreasing employment; otherwise some extremely dumb factory owners are foregoing profit opportunities. With more output for the same number of workers, there is more income for each worker.

Of course, there could very well be some unemployment of workers who know only the old technology – like the original Luddites – and this unemployment will be excruciating to its victims. But workers as a whole are better off with more powerful output-producing technology available to them. Luddites confuse the shift of employment from old to new technologies with an overall decline in employment. The former happens; the latter doesn’t. Economies experiencing technical progress, like Germany, the United Kingdom, and the United States, do not show any long-run trend toward increasing unemployment; they do show a long-run trend toward increasing income per worker.

Solow’s logic had made clear that labor-saving technical advance was the only way that output per worker could keep increasing in the long run. The neo-Luddites, with unintentional irony, denigrate the only way that workers’ incomes can keep increasing in the long-run: labor-saving technological progress.

The Luddite fallacy is very much alive today. Just check out such a respectable document as the annual Human Development Report of the United Nations Development Program. The 1996 Human Development Report frets about “jobless growth” in many countries. The authors say “jobless growth” happens whenever the rate of employment growth is not as high as the rate of output growth, which leads to “very low incomes” for millions of workers. The 1993 Human Development Report expressed the same concern about this “problem” of jobless growth, which was especially severe in developing countries between 1960 and 1973: “GDP growth rates were fairly high, but employment growth rates were less than half this.” Similarly, a study of Vietnam in 2000 lamented the slow growth of manufacturing employment relative to manufacturing output. The authors of all these reports forget that having GDP rise faster than employment is called growth of income per worker, which happens to be the only way that workers “very low incomes” can increase.

William Easterly, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics

11 thoughts on “Some people believe labor-saving technological change is bad for the workers”

  1. The question becomes who will capture the benefits of productivity growth. If automation throws large numbers of people out of work, and there is no mechanism to support them and retrain them, then those people are justified in thinking the system has failed them and try to find alternative solutions.

    In the 1970s, some pundits believed that ever increasing productivity through automation would result in an explosion of leisure time. A significant fraction of the population might have no work at all, but pursue personal enrichment while being supported via a universal basic income.

    Any such hopeful scenarios died with the election of Ronald Reagan. The link between increasing productivity and increasing wealth for the workers was broken. The vacuuming of profits away from the middle and lower classes and up to the 1% began, and has been steadily increasing ever since. Now instead of an explosion of leisure, we expect an explosion of precarity for all the non-wealthy.

    • The unemployment numbers don’t support the luddite view:

      Pundits may have been promoting automation in the ’70’s but it really didn’t start until after the 1980 recession or kick in until the ’90’s, at which point unemployment got so low even unemployables found (and failed at) jobs.

      The same story applied in the late pre-covid era.

      Now with the boomers retiring the real world is looking at 300,000 job vacancies (expcted to *grow* and peak at over 700,000 ca. 2035) and a massive mismatch between skills and job seekers, and value add and salary expectations. Both problems drive the need for *more* automation.

      Luddites were wrong in the past and remain wrong today. Their stated concerns aren’t what drives them but rather Future Shock.

      • This comment is what I call “The Richie Rich View of Economics.” That money going into the pockets of the wealthy is all being squirreled away in their mansion vaults, so that their children can ski down a mountain of hundred dollar bills.

        Nearly all of the money is actually just put back into the economy, where it benefits the “little people.” That extremely expensive parquet floor in the entry hall of a multi-million dollar mansion? It paid for lumberjacks to cut the trees, for mill workers to turn those into the lengths of flooring grade lumber, for the skilled installers to cut the individual pieces out and lay them down.

        There is much production that does not benefit the average consumer, of course. Very nearly every cent spent on government has an enormous amount of waste for non-production. That includes as a major part the military. We need a strong military – but every bit of labor and resources put into an Abrams tank, or a Marine infantryman, is not being used to improve the life of the citizen on the street. Imagine if the nine million employed by just the Federal government, civilian and military, produced only $10K of real consumable value per person per year. That would boost our GDP by almost 5%!

        • A common plaint these days but real adjusted income data doesn’t support it:

          Try looking at the standard of living of the poor in 1960 vs 2019. Improvements are not uniform but *everybody* is better off than their earlier counterparts. Or their equivalents the world over.

          Times have changed and the definition of poor is part of the changes.

          What hasn’t changed is that nobody is guaranteed a middle class living standard without lifting a finger; outcomes are still a function of choices and inputs.

          (BTW, yes, there is a *lot* of government waste in the form of money going to “friends of the party” but if that is the kind of crook the masses vote for, they have little right to complain. They keep electing them, after all.)

          • Good analysis, F.

            Agreed that the biggest problem with the economy now is way too much government spending. It’s not the corporations sucking money from the poor, but rather the combination of federal, state and local taxes making it much more expensive to be poor than it was several years ago.

            As someone once said, “I never got hired by a poor man. It’s always been a rich man that paid me to work.” (Apologies to anyone offended by the gender. PG was quoting the original source.)

            • The spending by itself isn’t bad–some things *need* doing, like arming Ukraine to avoid fighting Russia in Poland or the Baltics, or both–but a lot of current spending isn’t just unnecessary (did the federal taxpayer really need to make Solyndra investors whole?) but actually undercuts the credibility of the government (“Everybody gets $2000 if we win control of the senate”. Or, “$20,000 loan forgiveness for millenials making $100,000 a year”).

              Bad times are just starting and the country is going to need all its financial resources, public and private, to rebuild supply chains, prepare to win the next war, transition to advanced energy and food production, clean up the orbitals (if not the US, who?). Wasting money on the politically connected is not just wasteful of resources that will be needed soon, but also undercuts the stability of the republic.

              Alexis de Tocqueville warned us 200 years ago:

              “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

              The day is here. Now to see if he was right.

  2. What had Carter done in his first term to forge the link between increasing productivity and increasing wealth for workers? What specifically would he have done in his second term? Inflation was 13.5% at the end of 1980, while GDP fell .3% for the year. How did that forge the link?

  3. If productivity is the subject, this may be of interest:

    Those are 2019 dollars, BTW. Hobbes was right.

    Bear in mind that numbers for certain countries (cough*china*cough) are “cooked”. To the tune of 25-40% by recent external analysis, which actually matches the recently revealed population overcount. (The Shanghai police registry got hacked last year and the national population database–name, address, etc– was sold on the darknet. Verified accurate. Only one billion entries, not 1.4B. One child policy at work.)

    Note that the US just exploded in the gilded age and hasn’t looked back. The end of globalization will only expand that lead.

    • Great presentation. I just spent the last few hours watching the same approach applied to about 20 different variables.

    • That was a fun graphic; it was cool to see how different countries or empires would enter or exit the chat as it were. Could be useful for historical fiction writers.

      Also the 1billion entries is someone rounding up on the news reporting end (it’s simpler to write 1 billion rather than a bunch of digits). But of course that also reflects the side effects of the 1 child policy, and the tendency of despotic governments to puff their numbers in general, e.g., “100% of the people voted for the dictator!”

      The part about the Gilded Age reminds me of the now-late Paul Johnson’s observation in “A History of the American People.” He pointed out the enormous economic growth — with a functioning government — in an America without an income tax. I hadn’t known until then that federal income taxes didn’t take hold until the 20th century, although certain interested parties repeatedly tried to impose them sooner.

      • The east india company was more economically powerful than thr restof the empire. And the US quickly matched the Kingdom. Lord North really blew it.

        The other thing that caught my eye is how poor folks were. Subsistence farming (or worse) was the lot of most people before the industrial revolution and the emergence of regulsr technology innovation. And the luddites fought it toothand nail. Still do, sadly.

        As for taxes, Hamilton was the original tax and spend politician.
        He almost killed the republic, triggering the Whiskey Rebellion by cluelessly taxing the “currency” of the “frontier”.

        That bit of economics makes sense in retrospect given the country had no official currency. Might be useful for worldbuilding. The Law of Unintended consecuences has a long history.

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