Software Technology, Job Disruption and Systemic Unemployment
Saturday, January 21, 2012 at 10:38AM 
How many programmers does it take to eliminate 10,000 jobs? It’s probably a lot fewer than you think. Over the past decade entire sectors of the world economy have been permanently altered by the disruptive power of software driven startups.
The most notable example is probably Craigslist a small San Francisco startup. Founded in 1995 by Craig Newmark, Criagslist grew from a small apartment based dot-com into the industries leading purveyor of classified ads and in the process toppled the newspaper industry’s control over the classified market. The loss of the lucrative classified revenue stream coupled with online news outlets caused approximately 450 newspapers to shutdown while shedding over 40,000 jobs since 2007. Craigslist employs approximately thirty with a technical staff of twelve.
In late 2011 Borders finally closed its doors laying off approximately 16,700 jobs. The cause: Amazon.com and the evolution of the eBook embraced by Apple, Amazon and Barnes and Noble. Add to this the fact that over 1,500 independent bookstores have closed in the last seven years.
A slumping economy coupled with software delivered online ads has forced ad agencies to cut over 125,00 jobs since 2008 while Internet ad revenues rose to nearly $15 billion in first-half of 2011.
In their book Race Against the Machine authors Erik Brynjolfsson and Andrew P. McAfee write that during the last recession the economic downturn prompted many businesses to look harder at substituting technology for people, where possible. Since the end of the recession in June 2009, they note, corporate spending on equipment and software has increased by 26 percent, while payrolls have been flat.
In an August, 2011 puff piece Marc Andressen explains why software is ‘eating the world’. He describes a dozen industries disrupted by ‘software company’ startups indicating that more productive, free software tools coupled with the power and scale of cloud computing is responsible for this trend. And the trend will accelerate and so will the rate of ‘forced’ unemployment.
Perhaps the software startups should be thought of as serial job killers capable of putting hundreds of thousands out of work within a matter of years. Classical economists would have looked at this as a healthy state of events eliminating labor inefficiency in one sector of the economy freeing and then deploying that labor (ceteris paribus) to other sectors where it could be put to more productive use. But, that’s not been the case.
A self proclaimed serial job killer John Jazwiec notes that “any job that can be eliminated though technology or cheaper labor is by definition not coming back. The worker can come back. They most often come back by being underemployed. Others upgrade their skills and return to previous levels of compensation. But as a whole, the productivity gains over the last twenty years, have changed the landscape of what is a sustainable job.”
So while inexpensive labor may, in some cases, be a substitute for productivity enhancing technologies it is clear that software’s voracious appetite and the automation of all tasks that were once performed by humans is the foundation of systemic unemployment
The cure? Well that will only come in another, better educated America. ”Where does the before-gainfully employed professional learn how to compete for jobs?”, writes Jazwiec. “Monster dot com? LinkedIn? The unemployment office? What infrastructure exists to retrain professionals to compete in a free agent job market, where only creative unique value contributors thrive?”
Indeed.
In the meantime there is hope. If you’d like to land a new job or possibly future proof your employment prospects just get online and learn to program. Sites like Code Academy, Udema and Udacity may make training and retraining the underemployed more productive and more affordable than every before.
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Reader Comments (2)
I tweated this post yesterday indicating that I think disruptive technologies have a short term detrimental effect on economic sectors they infect. I suggested that, based upon this Blog post, 8% unemployment was very likely to continue.
I received a comment today via Twitter from @thinkdisruptive that read:
"No, it's just the opposite. Disruptive innovation is the only way to create good lasting jobs + get out of the mess we're in."
I'm glad the point was raised because I believe there is a fundamental misunderstanding of the economic impact that disruptive technologies have:
1. They are good for the consumer because all truly disruptive innovations provide lower prices, more productivity and less friction on the buy side.
2. They displace the older more expensive way of doing things; often by displacing preexisting competitors and the workers they employe.
3. Free up economic resources (labor, capital etc) so that it can be put to better use in other sectors of the economy.
All positive benefits, except that item 3 takes time. For example, individuals who have worked in newspapers for years found in extremely difficult to find work after layoffs in that industry occurred. The disruption there was the web, Craigslist et al.
What's more, true disruption often calls for a different, more highly trained skill set than what can be found in the displaced business models. So in order for that labor to be absorbed by the rest of the economy laborers must be trained, retrained and relocated. This takes time, investment capital and patience. Many times workers settle for job at a lower wage, which produces less disposal income and in turn further dampens an economic recovery.
So even though technology driven disruption is positive in the long run, it can wreak havoc in the short run giving rise to systemic unemployment.
Hi Chuck:
These are common shibboleths/memes, but that doesn't mean they are correct. A more detailed analysis of reality is necessary to demonstrate that these superficial arguments are the "fundamental misunderstanding of the economic impact of disruptive innovations", and not the other way around.
Posting a quick note today because I don't have time to respond at length right now, but will post article on my own blog detailing the opposite, and let you and your readers know when it's there.