Saturday, October 27, 2012

Does New Technology Create Net Jobs, or Destroy Them?

Most of us believe that technology creates net jobs. But history might suggest the net impact is more mixed. Agricultural automation allowed farmers to do vastly more work with vastly less people, for example. 

And it is possible that, on a net basis, software and hardware businesses, while creating new jobs, might displace more jobs, overall, than they create. 

Some might argue the same also is true of broadband access, which virtually all of us might suggest is essential for learning and working in the 21st century. But some studies suggest the answer is quite nuanced. 

One study suggests there are clearest benefits to "high technology" firms, fewer benefits for other firms, and limited benefits for consumers. Other studies also suggest there is a nuanced or subtle mix of benefits. 

Consider the example of "rural" broadband, a seemingly clear case of how high speed Internet access can boost economic activity. The argument is that businesses will not locate in areas where high speed access is not available. 

That arguably makes sense. But think about it: places where high speed access is best tend to be places where there are lots of people, lots of economic activity, the best transportation facilities, the closest distance to big markets, the biggest pools of skilled workers and the largest populations of consumers. 

For that reason, one might argue that the best high speed Internet access follows people, rather than people following high speed access. It is an observation that cannot be scientifically tested, but correlation is not necessarily causation, in other words. 

Some also might argue that the ability to work from home also has a negative impact on potential job creation in a particular rural area, since the connectivity might allow a job to be created remotely, even if the employee lives in a remote area and telecommutes.

Any many would argue that the impact is hard to discern, either way. That is not to say promoting broadband is wrong. We all agree it is important infrastructure. What is not so clear is whether spending too much on areas where broadband delivery is not so good will actually change very much in those areas. 

Social equity is a praisworthy goal. But there is a difference between arguing that residents in rural areas should have substantially the same service are residents of urban areas, and arguing that providing such access equity will actually do much to boost economic activity in rural areas. 

Talk to anybody in the business of rural communications and you quickly will find there are few customers of any type, business or consumer, to serve. And without a critical mass of people, many businesses simply cannot afford to locate in a rural area, no matter what the potential benefits might be. 

There still is an income effect, but less than if a company were physically located in a rural area. One example is offshore call centers, or offshore software development. Because of high speed communications, jobs that might otherwise be sited in one country are actually sited in another country. 

The bigger issue is now whether high speed access supports existing companies and jobs, or creates some number of new jobs that did not exist before. The larger question is whether those new jobs actually destroy other jobs in the broader economy, as agricultural mechanization has done. 


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