by Mike ‘Mish’ Shedlock
The Wall Street Journal says there is a “great unraveling” to America’s Dazzling Tech Boom: Not Enough Jobs. Let’s investigate.
The technology revolution has delivered Google searches, Facebook friends, iPhone apps, Twitter rants and shopping for almost anything on Amazon, all in the past decade and a half.
What it hasn’t delivered are many jobs. Google’s Alphabet Inc. and Facebook Inc. had at the end of last year a total of 74,505 employees, about one-third fewer than Microsoft Corp. even though their combined stock-market value is twice as big. Photo-sharing service Instagram had 13 employees when it was acquired for $1 billion by Facebook in 2012.
Hiring in the computer and chip sectors dove after companies shifted hardware production outside the U.S., and the newest tech giants needed relatively few workers. The number of technology startups fizzled. Growth in productivity and wages slowed, and income inequality rose as machines replaced routine, low- and middle-income, human-powered work.
This outcome is a far cry from what many political leaders, tech entrepreneurs and economists predicted about a generation ago. In 2000, President Bill Clinton said in his last State of the Union address: “America will lead the world toward shared peace and prosperity and the far frontiers of science and technology.” His economic team trumpeted “the ferment of rapid technological change” as one of the U.S. economy’s “principal engines” of growth.
The gap between what the tech boom promised and then delivered is another source of the rumbling national discontent that powered the rise this year of political outsiders Donald Trump and Bernie Sanders.
The tech-powered disappointment is subtler than the anger caused by the crushing impact of China’s import invasion and the perceived failures of government institutions like the Federal Reserve in guiding the economy. Instead, it stems from the idea that Americans expected larger economic gains from these amazing new machines and the companies that created them, not a widening between the haves and have-nots.
By the time Mr. Jobs died in 2011, Apple made nearly every one of its products outside America, largely in Asia. Apple halted U.S. manufacturing in 2004 and didn’t resume until 2013, when it began producing Mac Pro personal computers in Austin, Texas.
Apple says it employs about 80,000 workers in the U.S., or two-thirds of the company’s overall workforce. About half the U.S. employees have retail jobs.
American tech workers are getting a smaller piece of the economic pie created from what they produce. As of 2014, employee compensation in computer and electronic-parts making was equal to 49% of the value of the industry’s output, down from 79% in 1999, according to the Commerce Department.
WhatsApp had more than 450 million users world-wide when Facebook bought the messaging service for $19 billion in 2014, turning founder Jan Koum into a billionaire several times over. At the time of the acquisition, WhatsApp had 55 employees.
Economists call the phenomenon “skill-biased technical change.” The spoils of growth go to those few people with skills and luck and who are best positioned to take advantage of new technology.
The five largest U.S.-based technology companies by stock-market value—Apple, Alphabet, Microsoft, Facebook and Oracle Corp. —are worth a combined $1.8 trillion today. That is 80% more than the five largest tech companies in 2000.
Today’s five giants have 22% fewer workers than their predecessors, or a total of 434,505 as of last year, compared with 556,523 at Cisco Systems Inc., Intel, IBM, Oracle and Microsoft in 2000.
Harvard University economist David Deming estimates that the hollowing-out of work spread to programmers, librarians and engineers between 2000 and 2012. As much as $2 trillion worth of human economic activity could be automated away using existing technologies, such as Amazon’s robots, in coming years, consulting firm McKinsey & Co. estimates.
Knightscope Inc., based in Mountain View, Calif., makes robots that serve as night watchmen. About three dozen are on patrol, including at shopping malls, corporate campuses such as Microsoft’s in Mountain View and the new home arena of the Sacramento Kings. Knightscope clients pay $7 an hour per robot.
“Robots don’t complain,” says Stacy Stephens, a Knightscope co-founder and vice president of marketing and sales. “There’s no pension. And there’s no worker’s comp,” he adds.
Downside or Upside?
So is this a downside or an upside?