The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies

by Erik Brynjolfsson

we’re at an inflection point—a point where the curve starts to bend a lot—because of computers. We are entering a second machine age.

Rapid and accelerating digitization is likely to bring economic rather than environmental disruption, stemming from the fact that as computers get more powerful, companies have less need for some kinds of workers. Technological progress is going to leave behind some people, perhaps even a lot of people, as it races ahead.

As we’ll demonstrate, there’s never been a better time to be a worker with special skills or the right education, because these people can use technology to create and capture value. However, there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate.

The World Bank estimates that three-quarters of the people on the planet now have access to a mobile phone, and that in some countries mobile telephony is more widespread than electricity or clean water.

Between 1997 and 2001 the economist Robert Jensen studied a set of coastal villages in Kerala, India, where fishing was the main industry.10 Jensen gathered data both before and after mobile phone service was introduced, and the changes he documented are remarkable. Fish prices stabilized immediately after phones were introduced, and even though these prices dropped on average, fishermen’s profits actually increased because they were able to eliminate the waste that occurred when they took their fish to markets that already had enough supply for the day. The overall economic well-being of both buyers and sellers improved, and Jensen was able to tie these gains directly to the phones themselves.

The journalist A. J. Liebling famously remarked that, “Freedom of the press is limited to those who own one.” It is no exaggeration to say that billions of people will soon have a printing press, reference library, school, and computer all at their fingertips.15

“Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.” —Milton Friedman

In fact, it would take the average American only eleven hours of labor per week to produce as much as he or she produced in forty hours in 1950.

“The Gross National Product does not include the beauty of our poetry or the intelligence of our public debate. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion. It measures everything, in short, except that which makes life worthwhile.” —Robert F. Kennedy

A few years ago, we had a very candid discussion with one CEO, and he explained that he knew for over a decade that advances in information technology had rendered many routine information-processing jobs superfluous. At the same time, when profits and revenues are on the rise, it can be hard to eliminate jobs. When the recession came, business as usual obviously was not sustainable, which made it easier to implement a round of painful streamlining and layoffs. As the recession ended and profits and demand returned, the jobs doing routine work were not restored. Like so many other companies in recent years, his organization found it could use technology to scale up without these workers.

as technical advances increase labor productivity, employers can afford to pay more for each worker. In some cases, this is reflected directly in higher wages and benefits. In other cases, the prices of products and services fall, so the real wage of workers increases as they are able to buy more with each dollar.

“Labor share averaged 64.3 percent from 1947 to 2000. In the United States, the share of GDP going to labor has declined over the past decade, falling to its lowest point in the third quarter of 2010, 57.8 percent.”36 What’s more, this is a global phenomenon. Economists Loukas Karabarbounis and Brent Neiman of the University of Chicago find that “the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries.”37 They argue that this decline is likely due to the technologies of the information age.

This is often characterized as the 80/20 rule, where 20 percent of the participants get 80 percent of the gains, but it can be more extreme than that.22 For instance, research by Erik and his coauthors found that book sales at Amazon were characterized by a power law distribution.

If a worker in China can do the same work as an American, then what economists call “the law of one price” demands that they earn essentially the same wages, because the market will arbitrage away differences just as it would for other commodities. That’s good news for the Chinese worker, and for overall economic efficiency. But is not good news for the American worker who now faces low-cost competition.

Michael Spence, in his brilliant book The Next Convergence, explains how the integration of global markets is leading to enormous dislocations, especially in labor markets.

Frank Levy and Richard Murnane’s excellent book The New Division of Labor was by far the best research and thinking on this topic when it came out in 2004,

Voltaire: “Judge a man by his questions, not his answers.”

As futurist Kevin Kelly put it “You’ll be paid in the future based on how well you work with robots.”7

Entrepreneurship, then, is an innovation engine. It’s also a prime source of job growth. In America, in fact, it appears to be the only thing that’s creating jobs. In a study published in 2010, Tim Kane of the Kauffman Foundation used Census Bureau data to divide all U.S. companies into two categories: brand-new startups and existing firms (those that had been around for at least a year). He found that for all but seven years between 1977 and 2005, existing firms as a group were net job destroyers, losing an average of approximately one million jobs annually.13 Startups, in sharp contrast, created on average a net three million jobs per year.

“Work saves a man from three great evils: boredom, vice, and need.” —Voltaire

“Work saves a man from three great evils: boredom, vice, and need.”6 A guaranteed universal income takes care of need, but not the other two. And just about all the research and evidence we’ve looked at has convinced us that Voltaire was right. It’s tremendously important for people to work not just because that’s how they get their money, but also because it’s one of the principal ways they get many other important things: self-worth, community, engagement, healthy values, structure, and dignity, to name just a few.

The consequences of high neighborhood joblessness are more devastating than those of high neighborhood poverty. A neighborhood in which people are poor but employed is different from a neighborhood in which many people are poor and jobless. Many of today’s problems in the inner-city ghetto neighborhoods—crime, family dissolution, welfare, low levels of social organization, and so on—are fundamentally a consequence of the disappearance of work.11