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FORTUNE.COM // JULY 2019
But then, of course,
it didn’t. Starting in
the 1980s, around the
world, labor’s share
began to fall slowly. In
2000, it began to fall
quickly. Labor share is
now 56% in the U.S.,
which translates into
some $11,000 less in
annual income for the
average household than
with a 65% share. The
decline has been even
steeper in some coun-
tries, notably Germany,
and has occurred also in
developing economies,
including China, India,
and Mexico.
So what’s going on?
The leading suspect
is technology, but the
causal relationship isn’t
as obvious as it may
seem. After all, the tech
advances of the 19th
century were revolution-
ary, and they improved
living standards
dramatically. What has
changed in the past 30
years about the relation-
ship between technology
and wealth distribution?
Recent research
by Daron Acemoglu
of MIT and Pascual
Restrepo of Boston
University outlines an
eye-opening new way
of analyzing technol-
ogy’s effects on workers.
Automation always
eliminates jobs, they
note, and technology
also creates new jobs;
machinery displaced a
lot of farmworkers in
the 19th century but
also created millions
of new jobs in manu-
facturing, for example.
That may be common
knowledge, but compre-
hensive figures on tasks
eliminated and created
by technology were not
readily available.
So the researchers
did some heavy-duty
number crunching and
found them. “Look
at the 40 years after
World War II,” says
Acemoglu, referring to
a period when the labor
share was still hold-
ing steady. “There was
quite a bit of automa-
tion [that eliminated
tasks] but also quite abit of introducing new
tasks—they were almost
identical.” (Think of all
the new jobs in services
as they became a much
larger part of the U.S.
economy in the 1950s
and 1960s.) “Then the
sea change in the last
30 years—automa-
tion gets a little faster,
but the introduction
of new tasks gets very,
very slow. That’s the big
headline finding.”
It’s also the mystery.
The significant implica-
tion of this research:
For the first time in
modern history, auto-
mation isn’t necessarily
good for workers over-
all. “Our evidence and
conceptual approach”
do not support “the
presumption that tech-
nological change will
always and everywhere
be favorable to labor,”
Acemoglu and Restrepo
write. “If the origin of
productivity growth in
the future continues to
be automation, the rela-
tive standing of labor
will decline.”
Again, why? For non-
economists observing
the world around us,
it’s hard not to conclude
that the big-picture
explanation involves
technology’s increasing
power—a combination
of Moore’s law, ad-
vanced algorithms, and
universal connectivity,
all at ever-falling cost.
Maybe tech has crossed
some threshold relative
to human capabilities.
If so, capital wouldn’t
augment labor withtechnology, as it has
always done, but some-
times would have an
incentive to fully substi-
tute for it. The number
of non-automatable
jobs, existing or still un-
imagined, would dwin-
dle. Daniel Susskind of
Oxford University has
proposed an economic
model based on a new
type of capital along
these lines, “advanced
capital,” that is purely
labor-displacing. His
model leads to a sce-
nario in which “wages
decline to zero.”
Virtually no other
researcher is ready to go
there. But the increas-
ingly mainstream
view—that technology
can still make workers
better off but doesn’t
necessarily—reflects a
world-changing shift
in the way automation
affects labor. It requires
new assumptions by
business and govern-
ment leaders, investors,
and workers. It suggests
that voters may demand
public policy that con-
trols technology’s effect
on workers, since tech
can’t be counted on to
boost workers’ well-
being overall.
In a 2013 lecture,
former Treasury
Secretary Lawrence
Summers said, “This
set of developments is
going to be the defin-
ing economic feature of
our era.” That’s looking
truer every day. A major
societal realignment is
in its early stages. Brace
for the tumult.