Do Technological Improvements Create Unemployment?

In today's world there exists a widespread belief that new technology such as computers and machinery are creating massive unemployment and rendering human labor obsolete. This is not true. Ideally, having machines and computers do all our "dirty work" would make our lives much better. After all, isn't this why our primitive ancestors created the wheel?

Do technological advances create unemployment? According to Henry Hazlitt in Economics in One Lesson, the belief that on net balance new machines create unemployment is among one of the biggest fallacies in economic thought.

Ever since man discovered fire, the purpose of technological advancement has been to make life easier for everyone. If we accepted the assessment of technophobes, we'd be in quite a predicament. Why contact someone via the telephone when we could hire somebody to hand-deliver our message? Why send cargo from Philadelphia to Boston by railroad when we could hire an enormous number of men to carry it on their backs? The anti-technology argument seems ridiculous when you look at it this way.

What really happens when technological improvements and labor-saving machinery are introduced? Hazlitt provides an interesting scenario. A clothing manufacturer buys a machine that makes men's and women's overcoats for half as much labor as was previously used. Thus, half his labor force is dropped. While this may look like a clear loss of employment, one must remember that the machine itself required labor to make. Here, as one offset, are jobs that would not otherwise have existed. In the long run, the manufacturer will have increased his profits with the use of the machine. Hazlitt then states:

The manufacturer must use these extra profits in at least one of three ways, and possibly he will use part of them in all three: (1) he will use the extra profits to expand his operations by buying more machines to make his coats; or (2) he will invest the extra profits in some other industry, or (3) he will spend the extra profits on increasing his own consumption. Whichever of these three courses he takes, he will Increase employment.

The consumers who buy the coats also save money. The machine has reduced the price of the coat, allowing the consumer to spend that saved money on other goods, thus providing increased employment in other areas. The bottom line is that machines bring an increase in production and an increase in the standard of living.

The technophobes see only the people who are being unemployed with each technological advance. They fail to see the new jobs created in other areas. 

Does the gain in employment from technological advances exceed the loss? In some cases, there is no doubt that the employment created by new technology is less than the unemployment destroyed by the decline of the products they displace, but in the majority of instances, the reverse is true.

We must look at the long-run picture and the opportunities that arise from new technology. New-product technology is a net creator of jobs. These innovations do not merely replace the old products they dislodge from the market, but instead develop new and expanded markets of their own. The most successful product innovations, like the telephone, automobile, and television leave their predecessor products or services so far behind in terms of both output and employment that the comparison is almost impossible.

What worries technophobes the most is the one thing that should make them the happiest. Man’s struggle with needless sweat and toil will be replaced by technology, much as the wheel enabled our ancestors to save time and energy.

There will always be those who insist on looking only at the short-term effects, while ignoring the long-run rewards. New and better ways of doing things have the potential to render hard, tiresome labor obsolete. If this happens, we will all be able to engage in meaningful work and play that enable us to make the best use of our natural abilities.