Sunday, August 23, 2015

How will future technological advances impact on the quality of life of people in high-income countries?

As discussed in earlier posts, I am fairly optimistic about the potential for technological progress to continue to provide widespread economic opportunities for people in high-income countries. In this post I want to consider two arguments advanced by people who are pessimistic about the potential for technological advances to continue to improve the quality of lives of people in high income countries. 

The first argument of the pessimists is that because most people in high income countries are already highly satisfied with their lives, the additional opportunities provided by technological advances are not worth having. As I see it, this fails to recognize that the benchmarks that people use when asked to evaluate the quality of their lives tend to change with changes in their perceptions of what might be possible. It would be unreasonable to expect that peoples’ perceptions of what it means to be living the best possible life will remain unchanged over the next 50 years.

Introspection is probably sufficient to persuade most readers that it is possible to be highly satisfied with life and nevertheless perceive that there is potential for the lives of future generations to become even better in some respects. Some formal evidence that this happens was provided in an article on this blog last year. Using World Values Survey data for a range of high-income countries the article demonstrates that a substantial proportion of those people who claim to be completely satisfied with their lives (above 40% in some countries) are in complete agreement with the proposition that “because of science and technology there will be more opportunities for the next generation”. The corresponding percentages who completely disagree with that proposition are tiny.

The second argument of the pessimists is that the disruptions associated with technological innovations cause a great deal of anxiety and unhappiness. 

It is obvious that many people who lose their jobs or feel that their jobs are threatened do suffer anxiety and unhappiness. As previously discussed here, rising unemployment has been associated with declines in life satisfaction in countries of southern Europe following the global financial crisis.

A recent article by Rainer Winkelmann has drawn several important conclusions about the relationship between unemployment and life satisfaction from German panel data:
  • Over the last three decades, average life satisfaction of unemployed people – around 5.5 to 6.0 on a ten point scale - has always been at least one point below that of employed people.
  • Life satisfaction tends to decline prior to unemployment and does not fully rebound to pre-unemployment levels four years after an episode of unemployment.
  • About half the people who became unemployed experienced no reduction in life satisfaction. Unemployed people experience a substantial reduction in life satisfaction (and find a job more quickly) when they have a strong work ethic.
  • Duration of unemployment seems to have no impact on the life satisfaction of people who are unemployed.
  • There is a strong association between the aggregate unemployment rate and average life satisfaction levels even for employed workers, reflecting the negative impact of perceived job insecurity.

 Australian data also suggests that the level of job insecurity is strongly related to the state of the economy. The Household Financial Comfort Survey (conducted by Me Bank) shows marked fluctuations from quarter to quarter in perceptions of how easy it would be for workers to obtain another job if they become unemployed. In June 2015, casual workers were most pessimistic about finding another job (85% said it would be difficult), followed by self-employed workers (63%) part-time workers (63%) and full-time workers (51%). However, NAB’s Quarterly Australian Consumer Anxiety Index suggests that job security is a much less important source of anxiety for Australians than government policy, cost of living, ability to fund retirement, and health.

Discussions of technological unemployment tend to focus unduly on potential job losses and to overlook the impact of new technology on economic growth. It is far from obvious that technological innovation reduces employment opportunities at an economy-wide level. The chart below shows the annual rates of growth in employment and multi-factor productivity (probably the best measure available of technological innovation) for the period 1995 to 2013 for those high-income countries for which comparable OECD data is available.

 The chart certainly does not show a general pattern of low employment growth in countries with relatively high levels of technological innovation. If anything, it suggests the opposite. The modest growth in employment in Korea may reflect limits on growth in available labour since the unemployment rate in that country has been relatively low (less than 4% of the civilian labour force in each year of the last decade) and a rising percentage of the age 15 to 64 population is in employment.

High rates of growth in employment at a national level will not necessarily prevent the emergence of persistently high levels of unemployment in regions where declining industries have been major employers. This poses a policy problem in helping older workers to cope with the changes in their circumstances. The current policy framework in Australia seems to provide incentives for many such people to migrate from long term unemployment to disability pensions. The problem is likely to be exacerbated by increases in the age at which people become entitled to aged pensions. Past experience suggests that regional development policies do not provide a panacea for regions that have little to offer investors other than an aging unskilled workforce. It is difficult to see the problems being resolved by adopting an NZ style investment approach to removing people from unemployment benefits as proposed in the McClure report (discussed here) but, hopefully, I am wrong about that.

In a chapter in the CEDA report Australia’s Future Workforce? Andrew Scott suggests that one of the lessons learned from the decline of employment in manufacturing locations since the 1970s “is that you cannot just take middle-aged workers out of factory environments, put them into classrooms and then expect them to immediately learn new skills for new jobs in that unfamiliar setting”. He suggests that the approach to active labour market policies adopted in Denmark has much to commend it. I will remain unpersuaded until I see a good cost benefit study of the policies adopted in Denmark, comparing the approach adopted there to a range of alternatives including offering early access to aged pensions (at say, age 60) at a lower than normal rate of benefit, to unemployed people in regions of high unemployment.

To sum up, I don’t think there are strong grounds for pessimism about the ability of technological progress to provide widespread opportunities for people in high-income countries to improve the quality of their lives. It is important to recognize, however, that many people will lose jobs as a result of this process at some point in their lives. Most will readily find alternative employment, but in regions that are adversely affected by technological unemployment some people are likely to have their lives severely disrupted.


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