Make more with fewer
By ET
There is an interesting article in New York Times. Profits are soaring but employment figures are not. This dynamic points to significant future shifts down the road for Silicon Valley companies like Electronic Arts and Cisco. Interestingly, the culprit isn’t just outsourcing. Huge leaps in worker productivity and automated processes are also responsible for the decreased need for new labor.
Professor David Autor at MIT Econ department and Professor Erik Brynjolfsson at MIT Sloan have written extensively on the shifting of worker roles and IT’s contribution to productivity.
In my opinion, this shift will continue to be a big thing in the future, the sloppy employment figures should just be a short term phenomenon.
Outsourcing indeed moved a lot of job opportunities overseas, but this is simply because it is more cost effective for firms to do so. In a free market, the invisible hand is making the connections between resources and firms, although it reduces the domestic employment, firms would still want to embrace outsourcing simply because it is more efficient for them to do so. In a famous paper by Hayek written in 1945, he wrote: ” If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic. … This, however, is emphatically not the economic problem which society faces. ” His main argument is that instead of centrally planned, the society works in a much more decentralized way that the optimal decisions are made through information obtained vertically or horizontally through the price system across firms. Isn’t this a good way of thinking about the outsourcing debate we are experiencing nowadays?
One more word for the productivity: for both leaps in worker productivity and automated processes , I see great opportunities for information technology and workers related to it. The solution to the ugly employment figure above is to educate and train people to better utilize IT and design new IT applications. How? Professor Autor has a paper Wiring the Labor Market that discusses this in detail.
