The last few years has seen considerable discussion around the consequences of economic and technological disruption on jobs and livelihoods.  As Oxford University’s Carl Benedikt Frey argues in The Technology Trap, such periods of disruption are far from new, and whilst mankind does eventually adapt to each period of change, there is a consistent phase of each revolution whereby those whose jobs are affected hit back.

As Frey argues, the success of these battles largely rests upon the political clout the affected groups have.  If they have the ear of those in power, then the march of technology is often held back, but if they don’t, then progress steamrolls over them.  With breathless exhortations about the potential for technologies from robotics and AI to big data and blockchain to fundamentally transform the labor market appearing on an almost daily basis, the question must surely be, can we as a society adapt better than our forebears?

Falling demand

A recent study from the London School of Economics highlights the challenge for those people whose skills become less in demand as a result of economic or technological disruption.  They analyze the lifetime earnings of Swedish workers and their employment prospects when demand for their skills fall.

They begin in 1985 by identifying workers whose occupations were about to be disrupted, before then tracking the outcomes of those people over the coming years.  They monitored their earnings, employment/unemployment record and periods spent in training and development over a 30 year period to understand how they responded to disruption and what the implications were.

“We are therefore able to study similar workers who perform similar tasks and have similar expectations of future occupational employment trajectories, but experience different actual employment changes,” the authors explain.

In other words, the researchers were able to determine that there was no real difference in cognitive ability between workers whose livelihoods were disrupted and those whose jobs were not.  Indeed, they were even able to go down to a level of granularity that allowed them to compare people doing similar work but whose occupations were at differing levels of risk.  They cite the example of typists, whose employment dropped significantly, and secretaries/executive assistants, whose prospects flourished.

Occupational decline

The analysis revealed that decline in demand for one’s skills had an understandable impact upon their career earnings, with a drop of between 2 and 5% seen over a 28 year period.  The bulk of this decline was due to a reduction in the time spent in work, but there was also a cost associated with time spent in retraining programs.  What’s more, occupational decline in older workers was associated with earlier retirement.

As is so often the case however, these losses were not evenly distributed, with people whose earning at the time of their displacement was low suffering much bigger losses over the duration of their career.  Indeed, the data showed that those people suffered up to an 11% decline in their earning across their career, with these people also spending longer periods in either training or unemployment.

“In the model, those at the bottom of a declining occupation also have low earnings capacity in other occupations, and therefore find it harder to find reemployment—whether in their own occupations or in other occupations,” the researchers explain.

The importance of occupational mobility

The findings provide a clear reminder of the importance of occupational mobility to help mitigate the losses when a particular occupation enters decline.  It’s perhaps obvious to find that those whose occupations were disrupted were much less likely to remain in that occupation than peers in other fields, but the process of moving is far from straightforward.

While technology drives many of the discussions around worker displacement today, the paper reminds us that there is little that really distinguishes technological disruption from economic or social disruption.  The impact on worker’s careers is very similar in all instances, and indeed, the impact of occupational decline is in many instances less than in instances of sudden reductions in employment, such as when a plant closes.

This is likely to be because the gradual nature of occupational decline allows people to adapt more effectively than the sudden jolt of a plant closing, which can leave many unprepared.

There is much to suggest however that preparation has a limited impact.  For instance, the implications of occupational decline appeared to be consistent in both Sweden and the United States, despite the very different labor market institutions present in each country, which suggests that the attempts to mitigate the risk of disruption in each country is largely failing to reduce the impact on people’s careers.

Despite the relatively low impact of occupational displacement on earnings over a career however, the authors urge us not to become complacent.  They suggest that the technologies of today are moving faster than those in the past, and therefore the disruption may well be faster too.  They may also strike in occupations where considerable investments have been made in developing the skills to thrive, which can make it harder to find alternative employment at a similar income level.

“Helping these workers stay productive when they face occupational decline remains an important challenge for governments,” the authors conclude.

It’s not a challenge that I feel any government has even accepted, much less mastered, but if the disruptions brought by the 4th industrial revolution are half as weighty as advocates predict, then it’s a challenge they really must grasp sooner rather than later.