Written by Steve Beeman, Beeman Intelligence Group
Washington releases employment statistics every month and the country responds as if it were the nation’s economic scoreboard. When the numbers go up, politicians celebrate. When the economy goes down, experts predict a recession. Cable news committees spend hours debating whether the unemployment rate should increase or decrease by a tenth of a percentage point. But the truth is that employment statistics are slowly becoming a false scoreboard.
The real economic story of the next generation will not be about how many people are working. What matters is how productive these people are and, increasingly, how much of the economy can function with far fewer workers than was once needed. But beneath these monthly headlines lie far more important questions about the future of the American economy.
What happens if we simply need fewer workers? This question may sound disturbing, but it lies at the intersection of two powerful forces that are already reshaping the future of the economy: demographics and technology. Let’s start with demographics. In 1960, each retiree in the United States was supported by about five workers. Today, that number is closer to three. Within a few decades, there could be two workers for every retiree. This is important because the modern welfare state, from Social Security to Medicare, was built at a time when the workforce was far larger than the retired population. Fewer workers supporting more retirees puts greater pressure on government finances. Arithmetic is so unpleasant that politicians rarely discuss it honestly. The end result will be either reduced benefits, increased taxes, or sufficient productivity gains to offset the imbalance.
That’s where technology comes into the story. For more than two centuries, technological advances have steadily increased the productivity of American workers. In 1900, about 40 percent of Americans worked in agriculture. Today, less than 2 percent of the population produces far more food than the nation consumed a century ago. Mechanization dramatically changed agriculture, moving millions of workers to other sectors of the economy. Manufacturing has undergone a similar transformation. Improvements in automation, robotics, and production technology have enabled factories to produce more goods with fewer workers.
Historically, when technology eliminated jobs in a field, entirely new industries emerged to absorb the displaced workers. Railroads, automobiles, aviation, computing, and the Internet have all created vast new employment opportunities. But the current wave of technology arriving, artificial intelligence and advanced automation, may be different. Previous revolutions replaced manual labor. AI is also starting to replace cognitive labor. Tasks once performed by accountants, analysts, programmers, marketers, and even some legal professionals are now assisted or partially performed by intelligent software. A single expert equipped with the latest AI tools can often produce results that once required an entire team. This brings us to one of the most important economic concepts that most people have never heard of: productivity.
A country’s economic output is determined by two things: the number of people working and the productivity of those workers. If productivity increases fast enough, fewer workers can produce more economic output. Imagine an economy in which 100 workers each produce $100 of output. Total production value is $10,000. Now imagine that technology has increased productivity so that each worker now generates $150, but the workforce has shrunk to 80 people. Total output increases to $12,000 even though fewer people work.
This is the quiet possibility that is emerging in the modern economy. Artificial intelligence and automation have the potential to significantly increase output per worker. This productivity increase could offset the demographic challenge of a shrinking workforce. In fact, we are already seeing early signs of this change. Today’s technology companies produce amazing levels of output with relatively few employees. Some companies generate well over $2 million in revenue per employee. Their value comes from software, intellectual property, and scalable digital platforms, not from large numbers of workers. This raises deeper questions about the future of our economy. Who benefits when machines and software increase their share of economic value?For most of modern history, income came primarily from wages. People worked and earned wages. But in a world where technology drives much of economic activity, ownership may become more important than employment. Corporate ownership. Ownership of Intellectual Property. Ownership of digital platforms and production technologies. Those who own the productive assets of the future economy will capture much of their value.
However, this change does not necessarily mean less opportunity. In many ways, modern technology has the potential to empower individuals more than ever before. Just as tractors enabled one farmer to feed hundreds of people, artificial intelligence may enable one entrepreneur or small team to create enormous economic value. Productivity tools are becoming cheaper, more powerful, and more widely available. Individuals can now build businesses, create content, design software, and reach global markets with resources that were unimaginable just a generation ago. It may ultimately become the most important economic change of our time. The debate over employment and unemployment continues each month as the government releases its latest report. But a larger story is quietly unfolding beneath these numbers. Future prosperity will not simply depend on the number of people employed. It depends on how productive those people are. And perhaps more importantly, it depends on who owns the tools that create that productivity. That is the next generation’s economic problem. And while Washington debates the next jobs report, the real transformation of the American economy has already begun.
