Is This Time Different?

Beyond the Hype: Confronting the Real Challenges of AI and Job Displacement

Whenever we dare suggest that AI and robotics will displace human workers, we are labeled as doomsayers and Luddites. We are swiftly reminded that historical advancements in machinery and automation have not had a detrimental impact on employment, in fact, they have often coincided with job growth. To a large extent, this is true. However, it begs the question. Are these job gains always equitable?

Fifteen years ago, I firmly believed that this time would be no different. I maintained that automation would ultimately boost productivity and lead to a net increase in jobs. I conducted extensive research and wrote numerous articles and papers on the topic, even critiquing alarmist headlines proclaiming that 47% of jobs were at risk of being computerized. One of the authors of that study later admitted, 'I think a lot of the risk to professions has been overhyped.'

Then I encountered Asimo, Honda's advanced humanoid robot, and began to reconsider my position. Perhaps this time was different. In April 2014, I wrote an article highlighting prescient research that garnered over 200,000 views and attracted mainstream media attention. The study, by Sturat Elliot, indicated that automation and robots could potentially replace up to 80% of existing jobs. This prompted me to re-examine the historical narrative surrounding technological advancements. Was the Industrial Revolution truly a period of unmitigated prosperity for all?

Inequality

Digging through the economic history books I was reminded of Engels' Pause, a period in economic history where productivity and capital accumulation increased, but real wages stagnated, leading to a surge in inequality. This phenomenon, first observed by Friedrich Engels during the 19th-century Industrial Revolution, highlights a critical phase where technological progress disproportionately benefited capitalists while leaving laborers behind.

Engels' Pause unfolded during the early stages of the Industrial Revolution, characterized by the rise of mechanized textile production and other groundbreaking technologies. While these innovations undoubtedly boosted productivity and profits, they also exacerbated income inequality, resulting in decades of stagnant real wages. The enduring relevance of Engels' Pause lies in its ability to illustrate how institutional and societal responses can shape the impacts of technological change, a dynamic we face once again amidst the disruptions brought about by AI, robotics, and automation.

What is the Pause?

Friedrich Engels’ seminal work, The Condition of the Working Class in England (1845), provides the foundation for this concept. Engels documented the impact of transformative technologies such as mechanized textile looms, the steam engine, and improved iron production methods, which significantly increased productivity but disproportionately benefited the owners. Real wages stagnated, and the laboring classes endured severe socioeconomic dislocation amidst burgeoning industrial wealth for a few.

‘‘Since the Reform Act of 1832 the most important social issue in England has been the condition of the working classes, who form the vast majority of the English people. . . What is to become of these propertyless millions who own nothing and consume today what they earned yesterday?. . . The English middle classes prefer to ignore the distress of the workers and this is particularly true of the industrialists, who grow rich on the misery of the mass of wage earners.”

~ Friedrich Engels, The Condition of the Working Class in England

Measuring real wages during this period reveals the complexities of assessing living standards, as stagnant wages often masked deteriorating working conditions and the concentration of wealth among industrialists. Scholars such as Robert C. Allen later quantified this “pause,” illustrating how the first half of the 19th century saw significant gains in output per worker (productivity) while real wages lagged far behind.

Engels’ Pause was not perpetual. By the mid-19th century (after 30 to 40 years), wage growth began to align with productivity gains, largely driven by capital accumulation reaching a steady state and labor’s growing bargaining power. This transition offers a critical lesson. Structural adjustments, whether institutional or economic, are painful for the vast majority of workers.

Parallels Today

Fast forward to the 21st century, and the specter of Engels’ Pause re-emerges, this time with AI, robotics and automation as the catalysts. For example, Meta has announced it will part with 5% of it's staff, Mark Zuckerburg made it clear that mediocre employees will be the first out the door and mid level software engineers will likely follow closely behind. What is mid-level? It is those encapsulated in Tyler's book Average is Over. Businesses will cull those exhibiting mediocrity and, as Zuckerberg said, sometime in 2025 AI will do the jobs of mid level software engineers.

These technologies drive transformative changes across industries, with AI-powered tools reshaping logistics, healthcare, and customer service, while automation continues to replace roles in manufacturing and retail. For instance, automated warehouses employ fewer workers, and self-checkout systems have reduced cashier positions. Algorithm-driven tools have automated tasks in fields ranging from legal research to journalism. While some workers transition to roles requiring advanced technical skills, many will find themselves relegated to lower-paying, precarious gig work, underscoring the uneven impacts of these shifts on the labor market.

Moreover, the “pause” is exacerbated by policy inertia and inadequate adaptation of educational systems to prepare the workforce for emerging industries. As Didem Ozkiziltan’s research highlights, governments’ failure to govern this technological transition effectively, through robust labor market policies or universal skills training, risks deepening economic inequality and fostering societal unrest.

Lessons from History

Engels’ Pause underscores a pivotal truth, technology’s economic benefits are neither inherently equitable nor inevitable. Institutions play a decisive role in shaping outcomes, beyond just trade unions and political enfranchisement. Government policies, educational reforms, and robust social safety nets are crucial in mitigating the challenges of technological change. For example, targeted education programs, as in the case of Singapore, can equip workers with skills for emerging industries, while universal healthcare and income protections provide a buffer against job displacement. Additionally, addressing globalization and international competition, which exacerbate wage stagnation and job insecurity, requires coordinated policy efforts to ensure that economic gains are shared equitably. Mark Carney, former Governor of the Bank of England, analysis highlights how aligning institutional frameworks with technological progress can mitigate transitional costs and foster inclusion. Carney warned:

“If it is similar to previous industrial revolutions, it seems likely there will be a period of technological unemployment, dislocation and rising inequality.”

The lessons of Engels’ Pause resonate urgently today. The concentration of economic gains in the hands of capital owners and the stagnation of real wages for the majority threaten not only economic stability but also social cohesion and may lead to civil unrest. The rise of platform economies, gig work, and AI-driven labor displacement intensifies these challenges. For instance, ride-hailing services and food delivery platforms have redefined employment as temporary and task-based, often stripping workers of traditional benefits like healthcare and job security. This follows historical patterns of labor displacement during the Industrial Revolution, where workers faced precarious conditions in newly industrialized settings. However, the gig economy also introduces unique regulatory challenges, such as ensuring fair wages and rights for independent contractors. Yet, as Carl Benedikt Frey argues in his book The Technology Trap, this trajectory is not deterministic.

Policies fostering skills development, targeted regulation to protect workers, redistributive taxation, and social safety nets can bridge the gap between productivity growth and equitable income distribution.

We Must Prepare

Engels’ Pause serves as both a cautionary tale and a guiding framework for navigating the complexities of modern technological upheaval. To address the challenges of today’s technological transformations, policymakers must prioritize investments in education and reskilling, enforce labor protections in emerging industries, and design redistributive measures such as progressive taxation to reduce inequality. Additionally, fostering international cooperation to regulate AI and Robotics and manage globalization’s effects will be critical.

A new industrial revolution has started. This leads to a broader, societal question: How do we prepare people for a world where adaptability and empathy are the only true security? The answer lies partly in education, but not in the narrow sense of standardized curriculums and rote memorization. It also lies in business and governments. We need to foster an environment of intellectual agility, where learning is seen as a continuous, iterative process rather than a finite achievement. And we all need to take Tyler Cowen’s advice and move far beyond mediocrity.

Stay curious

Colin

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