The Cato Institute recently released a fascinating study explaining why fears about job losses via automation may be exaggerated. Many people today fear that our technological innovations, particularly automation, will result in permanent job losses. The fear especially applies to low-income jobs, which usually act as an entrance into the workforce for young people or others. This data, including new figures from the twentieth century, shows that this may be an historically misplaced fear.
According to the study, in the 1920s, one prominent means of entering the workforce for young people – particularly white, American-born women – was working as a phone operator. At its peak, this job accounted for 4% of the 3 million working women in this demographic, roughly comparable to our current cohort of cashiers, office workers, or customer service representatives. In 1920, phone operation in its industry “was the third‐largest occupation‐industry pair for white, American‐born women younger than 25 and the single largest for those under 20.” AT&T became the largest general employer in the country, employing 1% of the workforce.
Needless to say, many families across the country relied on jobs as phone operators. However, over time, AT&T began to use automated systems that made operator jobs obsolete. By 1940, 60% of telephone interactions through AT&T were direct dial, not through an operator.
With new data found through genealogies (taking into account female name changes due to marriages), among other things, the Cato study shows how this innovation affected that workforce. The decline in phone operation employment for the aforementioned demographic (young, white, American-born women) was quick and permanent, with 50% to 80% of jobs lost. This was around 2% of the employment for that group that suddenly went away. The automation shock was large by all measures.
However, the study finds that this had little to no long-term effect. Future employment was sustained, and there was no major substitution into child-bearing or marriage. Instead, other occupations like secretaries and restaurant workers became more prominent. On average, women aged 19-22 took jobs of roughly the same salary, while those 16-18 were more likely to take lower-paying jobs.
The study concludes that now, as in the 1920s, the fears of permanent job loss due to automation may be misplaced. Local economies can absorb the shock and, over time, incorporate new generations young workers into new markets. However, automation has the capacity to take away certain occupations permanently (though it cannot eliminate total employment). The telephone operators of the 1920s appear to be a strong example.
Here is a key conclusion from the study: “The negative shock to labor demand was instead counteracted by growth in other occupations.” In other words, advances in technology led to both losses and new opportunities. What matters is giving young people the necessary skill sets to transition into new and emerging opportunities as industries change. The key difference between market absorption of young employees in 1920 versus today is speed and learning curves. Technological innovation today happens fast. Therefore, in our current market environment, we will need to figure out ways to re-educate and retrain those in transition very quickly – especially in geographic regions where new markets may be absent. When the entrepreneurial spirit of the human person is given freedom to thrive, automation becomes a net positive, because human creativity is unlocked and new opportunities emerge that make people’s lives better.