What the hell do hot dogs have to do with The Future of Work? Economist and Nobel Prize winner, Paul Krugman has the answer.
Rest assured, the answer is plenty! However, as with any economic evolution and technological progress, we’ll have to endure some pains along the way and a lot of people will be displaced from their current jobs. Today, in eg. agriculture we have a surprisingly few number of farmers supplying us with food in the western world. In manufacturing we also have much fewer workers supplying us with goods. And in retail, in the coming years fewer store clerks are going to hand over products in physical stores.
However, and I learned this from a simple parable put forward by no other than Nobel prize winning economist, Paul Krugman, with overall productivity and automation we’re most likely to have more gains than pains in the long run.
The hot dog parable about technological progress
The parable is this – in brief summary, the whole story is a bit longer: if you imagine an economy only producing hot dogs and buns and hot dog productivity were increased due to technological advancements, ie. automation, workers would be reallocated to the bun part of the economy part to keep up supply and demand. If bun productivity also goes up and beyond hog dog productivity, the economy doesn’t break down, it only ends up producing even more hot dogs and buns overall by balancing automation and workforce once more. This is more or less what has actually happened between the manufacturing and service industries in the past decades. In transition periods there will be losers for sure. Right now we’re seeing automation at a rate where it’s definitely a challenge for new jobs to be created at the same rate as those that are displaced.
However, even in the case of complete automation of both hot dogs and buns in that particular parable, we’re most likely to see the advent of whole new types of services and job creation in transformed or completely new industries. Or, to put it a different way: Productivity growth in one sector can very easily reduce employment in that sector. But to suppose that productivity growth reduces employment in the economy as a whole is a very different matter.
As our basic demand and consumption of physical goods in the advanced countries is getting increasingly fulfilled by automated supply in manufacturing and logistics, we will – as consumers being driven by our own human nature – start to seek out even more services. This will lead to a new, much more digitally enabled economy, where everything that is now a consumer product – or industrial for that matter – is just a product waiting to be made into a service. Services are great for both consumers and companies alike because they offer recurrent revenue to companies and they make more products available to those who cannot afford ownership.
Two major industries that I would imagine would produce a plethora of new service jobs in the future would be within health care and entertainment. As we get both older and many people become more well-off around the globe, our desire to stay perfectly healthy for a longer period of our time on earth will only increase. With many conventional jobs continuously being automated, there’ll also be a growing demand for something that’ll both keep the new precariat and the wealthy occupied and stimulated, so expect a sprawling increase in entertainment services – and perhaps a new definition of what the entertainment category might cover in the near future.
I believe strongly that these are some of the arenas where the next big reallocation following major job displacement in the automated industries are going to take place. It’s not going to be smooth sailing all the way and there’ll be some nasty side effects on display but it’s the direction that both he General Economy, The Digital Economy and it’s cousin, The Gig Economy, is taking and it will dramatically disrupt and transform both the future of work and our entire labour market in the next decade.
If you wish to know more about the forces that are fast forwarding this technology-driven progress and the implications for your industry and company, then perhaps you would be interested in booking me for an appearance at your next board, management meeting or team day. I have a keynote speak prepared on very subject that adresses many of the questions in play when it comes to The Future of Work.
Kim Jong Andersen, Executive director, EY