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Automation Is Streamlining Services and High Tech -- But At What Cost?

Sept. 1, 2004 -- In 19th-century England, craftsmen donned masks and rioted to force the destruction of textile machines that were stealing their jobs. The rebellion was crushed and the followers of Gen. Ned Ludd -- or Luddites -- have come to be viewed as hapless rubes standing in the way of progress. But they had a point: Automation causes unemployment.

The wave of automation now crashing onto the economy looks especially broad and powerful. Although its full impact is unclear, it could cause worker dislocation on a scale not seen since the Industrial Revolution, experts say. Eventually, technology creates more jobs than it takes away, they add. But in the short term, it's affecting more sectors of the labor market than in past eras of rapid technological change.

Technology's effect on job loss is "very significant," says Sandra Polaski, an economist and senior associate at the Carnegie Endowment for International Peace in Washington. "It's not just the same old thing that's been going on forever? [It's] a very big pulse of new energy, of new ways of doing things."

Take industrial robots. Over the past 10 years, companies have spent some $100 billion installing them. Nearly 1 million robots are now on the job. The investment has proven spectacularly effective. The productivity of these machines has risen about seven percent a year for the past decade.

But the human cost has been immense. Automation has eliminated some 10 million jobs, mostly in manufacturing, over the same time period. And the traditional advice to workers -- join the computer-based "knowledge economy," or move to the service sector -- looks suspect.

These havens aren't safe anymore. "Smart systems," computers that can do relatively routine tasks well, are beginning to gobble up jobs ranging from check-out clerks at Home Depot to airline ticket agents and hotel desk clerks -- even to insurance underwriters and software customer support staff.

"Machines are having greater success at things like writing software," says Harvey Cohen, president of Strategy Analytics, a research and consulting firm in Boston. "And yet 10 years ago, the government was advising people that the future was in areas like software."

Policymakers must focus on this shift and its impact on society, Mr. Cohen says. They have to figure out what steps are needed to mitigate its ill effects. In the long term, he argues, America in particular has more to fear from automation than the outsourcing of jobs overseas.

Cohen concedes that he can't back up his claims with solid numbers -- yet. "We just don't have data yet on how [automation] will affect the job market over the next decade," he says. But a look at the recent past suggests a not-too-rosy future.

When the seven "Baby Bells" emerged from the 1984 breakup of AT&T, the companies embarked on a crash course of modernization from analog to digital technology. Over the past two decades, they also shed about half of their jobs. Today's phone companies use computer-controlled, highly automated systems that often diagnose and even repair themselves.

"One could argue that 300,000 to 400,000 jobs, some of the best the country has ever created, have disappeared from the telecommunications sector," Cohen says. "And the benefit we got was lower phone bills."

Similar trends are showing up in the service sector. "It's not unlike the industrialization that took place in manufacturing a century or so ago," says Uday Karmarkar, a professor of technology and management strategy at the University of California at Los Angeles. Businesses have found "you can shift many things to the customer. You can shift many things to a computer."

With the advent of e-mail, the letter-delivery business is going to disappear, he predicts. FedEx and the U.S. Postal Service are "more and more in the small package business now. We'll see kiosks replacing people, whether it's at airline counters or anything else. We already have gasoline pumps that take credit cards. You'll see some replacement in grocery stores. Travel agents. Tellers in banks. People who do accounting services."

It's already happening. Kinetics Inc., a maker of self-service kiosks, has delivered some 4,000 check-in stations to major airlines across the United States including Continental and Northwest since 1996. Airlines say as many as 70 percent of fliers now check in at unmanned kiosks. Not only can the machines quickly issue boarding passes (average time: about 1 minute), they're constantly being upgraded to do more, meaning fewer times when customers need to seek out a live ticket agent.

High-value jobs are also being cut. For example, in recent years, mergers and acquisitions, as well as the increasing reliability of computer systems, have led corporations to consolidate their computer systems. In the process, they've winnowed out some highly paid positions, says Andrew Efstathiou, business and IT services program manager at the Yankee Group, a research firm in Boston. "Three or four years ago, those people were extremely well paid. [Now] there are fewer jobs in that space, and they're not quite as well paid as they used to be."

Job-stealing technology has crept in elsewhere in the computer world. Already, an e-mail to AOL asking for help likely will be "read" and answered, at least at first, by an automated system, which is never offended by an angry customer, Cohen says.

Even in a creative field like journalism, an automated system could follow set formulas and write routine articles, such as traffic reports and obituaries. "That would increase the productivity of the newspaper, but at the same time it subtly eliminates particularly the entry-level jobs," he says.

If American workers feel anxious about automation, they've got plenty of company overseas. Today's wave of new technology has twinned with another powerful development -- the collapse of the cold-war socialist economic bloc -- to create unprecedented pressure on jobs worldwide, says Polaski of the Carnegie Endowment.

Automation has cut jobs just as millions of Chinese, Indian and former Eastern bloc workers have come into more direct competition with American workers, partly because of improved telecommunications. These factors have caused an "historically unprecedented skewing" of the relationship between employer and worker, she adds.

So far, though, automation doesn't appear to have had a deep impact on job loss. For example, despite its airline kiosks and a tough travel economy, Continental says it has seen only a 4 percent decrease in ticket agents since 9/11. Kinetics is also running a pilot program at 55 McDonald's restaurants, where customers can order food at kiosks. Some restaurants have actually had to increase employment in the kitchen because of the faster customer turnover out front, says Jim Brown, a spokesman for Kinetics in Lake Mary, Fla.

Home Depot, which has 850 stores with self-checkout lanes, has put people who had run registers "in the aisles, helping people find the stuff in the store, allowing them to upsell [customers] to a better-quality product for the job," says Greg Buzek, president of the IHL Consulting Group in Franklin, Tenn., which studies retailers. Publix supermarkets is using freed workers to upgrade their bakery and deli departments and take groceries to customers' cars, he adds.

Job losses at service counters have been minimal so far, says Mr. Efstathiou. But eventually, automation will have an extensive effect, he adds. Even more significant for retail jobs will be the movement of commerce online, from banking to retailing to moviegoing, reducing the need for people to visit bricks-and-mortar stores.

For workers caught in the change, "It's a painful process," Professor Karmarkar says. New technology becomes irresistible to businesses because it boosts productivity: That's bad for workers who lose jobs, but good for consumers who receive faster service and better products at lower prices.

And it's perplexing for lawmakers. "There's going to have to be a multifaceted approach to this problem," he says, "and it's not going to be easy to get a bead on it."

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By Gregory M. Lamb

[original article]

Posted by thinkum at September 1, 2004 01:53 PM