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 / Summer 2005 / Issue 39(originally published by Booz & Company)


Eurosclerosis Revisited

But what does that abstraction — organizational change — mean in practice? It often means a transformation of the work people do every day; among the most dramatic examples was the introduction of the assembly line and its transformation of work in the early part of the 20th century.

Economists Frank Levy and Richard J. Murnane explore the effect new technologies are having in the 21st-century workplace in their recent book, The New Division of Labor: How Computers Are Creating the Next Job Market. Using many concrete examples, and drawing on psychological research as well as economics, they put flesh on the statistical evidence that new technologies raise productivity through the reorganization of work. Computers are good at the fast and efficient repetition of either simple manual tasks or routine cognitive work, but they are bad at tasks that require flexibility, accumulated expertise, and judgment.

Thus the beneficial use of ICTs requires a shift: People should be moved from routine work to work that uses their uniquely human intellectual capabilities. Computers and people then complement each other. The authors give as one example the reorganization of tasks performed by clerks in a New England bank. Traditionally each clerk had specialized in a narrow task such as verifying signatures or processing overdrafts. Reorganizing the work by customer account allowed 530 workers to do what 650 had done previously. Introducing scanning of paper checks so they could be accessed on a screen subsequently reduced the number needed to 470.

This analysis of computerization, of course, emphasizes the efficiency gained by transitioning such “piece” work from people to computers, and exposes the short-term downside — the displacement of workers. But in the longer term, this shift is beneficial not only for the bank, but also for the employees. What had been a boring, repetitive job — such as comparing signatures on checks with the records all day, every day — became a more satisfying one involving greater variety, responsibility, and intellectual stimulation. For this work, employees must be more skilled, but they are also better compensated. This is the theme of the second part of the Levy and Murnane book. They note that American workers who use computers command a wage premium of about 15 percent over workers who do not. This is not merely due to their computer skills. The book also cites a German study that found that workers in Germany who use pencils also earn wages higher than workers who do not. It is not the ability to operate the technology per se that brings the rewards, but the other skills being applied by those people, such as expert knowledge, the capability to engage in sustained reasoning, and the ability to communicate complex ideas.

The problem, however, is that too few people are acquiring the educational skills employers need. And while the pay of more-skilled knowledge workers has risen, earnings of the less-skilled workers have fallen. As a result, earnings inequality has increased dramatically in the United States during the past 20 years, with a decline during that period in the real incomes of those people with no or low qualifications. This issue, Messrs. Levy and Murnane conclude, is a far more challenging by-product of computerization of work processes than downsizing. “Sustained shifts in the demand for labor lack the drama of mass unemployment. But these shifts, if ignored, can lead to extraordinary pain for many workers and ultimately threaten the fabric of our society,” they write.

This conclusion is one that worries many on the Old World side of the Atlantic. Europeans tend to place more value than Americans on equality, or what is often in Europe called “social cohesion.” Many Europeans believe the merit of faster growth in the New Economy is simply outweighed by the consequent increase in earnings inequality. They see it as valid to choose a different political trade-off, which means they will resist changes in the organization of work even when it would boost investment spending and growth.

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Transatlantic Economic Trends Resources: Works mentioned in this review

  1. Dale W. Jorgenson, Mun S. Ho, and Kevin Stiroh, “Will the U.S. Productivity Resurgence Continue?” New York Federal Reserve, Current Issues, December 2004, Volume 10, Number 13; Click here.
  2. Frank Levy and Richard J. Murnane, The New Division of Labor: How Computers Are Creating the Next Job Market (Princeton University Press, 2004), 200 pages, $24.95
  3. Michael J. Mandel, Rational Exuberance: Silencing the Enemies of Growth and Why the Future Is Better Than You Think (HarperBusiness, 2004), 224 pages, $24.95
  4. André Sapir, Philippe Aghion, Giuseppe Bertola, Martin Hellwig, Jean Pisani-Ferry, Dariusz Rosati, Jose Vinals, and Helen Wallace, An Agenda for a Growing Europe: The Sapir Report (Oxford University Press, 2004), 208 pages, $95.00
  5. Organization for Economic Cooperation and Development, ICT and Economic Growth: Evidence from OECD Countries, Industries and Firms (2003), 104 pages, free; Click here.
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