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Into the Frey

Principal Advisor, Productivity Commission
14 October 2019

If you’ve read anything about technological change and the future of work – or even if you’ve just Googled the topic – chances are you will have come across Carl Benedikt Frey.

Frey is a Swedish-German economic historian whose pioneering 2013 study (co-authored with Michael Osborne) estimated that 47% of jobs in the United States were “at risk” of replacement by automation. This work spawned a tsunami of ‘automation’ studies across the world, each predicting various levels of job displacement and doom (including in New Zealand).

Regular readers of this blog will be aware that we’ve been quite sceptical of the merits of such studies (for example, here, here, here, here and here), and we raised questions in our first Draft Report about the simplistic and misleading way such reports can be used. So you might think that we wouldn’t be very interested in Professor Frey’s more recent work. But you’d be wrong.

In fact, Professor Frey has responded to the use of automation studies in much the same way we did, complaining that many people had misinterpreted his paper to conclude that automation will leave half the population unemployed. In reality, he noted, levels of automation will depend on many factors such as cost, regulation, political pressure and social resistance. This led The Economist magazine to dub Frey an accidental doom monger.  

In response to the widespread misreading of his earlier paper, Frey recently published a book which explores the historical impact of technology on work in more depth and points to some possible lessons from the past.

  • People’s willingness to accept technology depends on how they are affected by it. If the technology reduces incomes or economic opportunities, then it may be resisted. Frey notes that popular or elite resistance to technology (driven by fears of unemployment and social disruption) is one important reason why productivity and income growth were so low for most of human history. Frey dubs this dynamic ‘the technology trap’ – where introducing a technology could improve overall productivity and incomes, but its entry is opposed because of concerns about the short-term social impacts.
  • Earlier technology-driven disruptions to labour (eg, the introduction of mechanical spinning looms) came to end, with new jobs filling the gaps created. But this process took time. Frey thinks there “are good reasons to be optimistic about an AI-induced productivity revival, which, besides making us richer on average, would help offset some of the negative effects replacing technologies have on parts of the labor force”, but worries that this could take many years to bear fruit. 
  • Frey concludes that, if we want to reap the benefits of technology, we need to set up policies that help those whose roles may be affected to adapt and adjust. Among the potential policy candidates he lists are retraining assistance, better public transport, occupational regulatory reform, grants to help people move closer to work, wage insurance and other forms of tax relief.

Could there be something in Frey’s work for us to consider in New Zealand?

Source photo: www.carlbenediktfrey.com

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