Prosperity generated by the IT revolution is not being
equally shared, writes Peter Lyons.
Robot arms assemble cars inside Hyundai's plant in India.
Photo by Reuters.
I always book in at the counter when I catch a flight.
The attendants sometimes query why I don't use the automatic
check-in. I tell them I am partially sighted but the truth is
I am also a secret Luddite. At the start of the Industrial
Revolution in England, the followers of Ned Ludd sought to
destroy machines such as power looms that were driving the
huge growth in output particularly in textiles. They feared
losing their jobs. They became known as Luddites, which is a
term now applied to those who resist technological change. It
turns out they may have had a point.
Technological changes often create unemployment. Economists
have long argued that the improvements in productivity and
economic growth outweigh the loss of jobs in sectors
adversely affected. Overall, society is better off, because
more goods and services are being produced and increased
productivity raises average incomes.
This is true in theory, but the theory says little about how
the gains from technological progress are distributed. A
large sector of a society may be shut out of the gains due to
unemployment and a lack of retraining opportunities. The
result is that social inequalities can magnify dramatically.
A small sector of society experiences the bulk of the gains
while the rest receive the crumbs. The IT revolution's
effects on employment and income distribution are starting to
become pronounced. Jobs such as checkout operators, retail
assistants, process workers, clerical staff, secretaries,
even pilots and commercial drivers, are likely to disappear
through automation in the next few decades.
A recent book called Race Against the Machine by Eric
Brynjolfsson and Andrew McFee, explores some implications of
technological change on employment and income distribution in
Western societies. The authors suggest that the link between
economic growth and increased employment appears to have
broken down. The term ''jobless recovery'' has entered the
lexicon of economic jargon. Firms are using machines and
computers to leverage more from less staff.
Unlike the early stages of the industrial revolution, driven
by steam power, then electricity and internal combustion
engines, the IT revolution does not generate widespread
well-paid employment for the masses. Compare employment and
incomes generated by car factories, household appliances,
meat works, road and railway construction versus software
firms, web page designers and laying fibre-optic cables. The
authors point to key implications of the technology
revolution on employment and incomes. It favours high-skilled
workers over low-skilled. Relevant skills-based education
becomes vital to earning a decent living. It creates
mega-winners, such as CEOs and sports and entertainment
Economist Robert Frank called this the ''winner takes all''
effect, where the skills and talents of these individuals can
be broadcast to a far wider audience or client base due to
improvements in IT. As a result, the pay rates of this elite
have rocketed, compared to others. Finally, the technology
revolution favours capital over labour. Firms can easily
relocate to cheaper labour sources. They can also replace
labour with machines, therefore reducing the bargaining power
of workers. In most Western economies the share of national
income earned as profits, rather than wages, has risen in
The implications for policy makers are numerous. It is very
unhealthy to have a large portion of a society shut out of
the benefits of increased prosperity. Education systems need
to be flexible and relevant. Unfortunately, in many
countries, including New Zealand, education institutions and
practices are notoriously resistant to change and
accountability. There is a political stalemate between
politicians, providers and unions that restricts constructive
Another implication is that tax systems should favour
investment in human capital in the form of training and
education. Tax systems should also treat income from capital
in the same manner as earned income by workers. In this brave
new world, the truly wealthy make their money from gains in
asset values, rather than income from their labour. IT
advances offer exciting opportunities for improved
prosperity, including massive environmental benefits. E books
save trees. The advances benefit society in total but the
problem is how these benefits are to be shared.
• Peter Lyons teaches economics at Saint Peters College
in Epsom and has authored several economics texts.