Media Briefings

WHEN NEW TECHNOLOGY LEADS TO JOB LOSSES AND URBAN DECLINE

  • Published Date: April 2014

Between 2000 and the start of the economic downturn in 2007, the negative impact of changes in technology explains about 4% of reductions in employment across Britain. This effect was mainly concentrated in non-urban areas and places that specialised in mature industries. The percentage rises substantially when taking account of the proportion of individuals with intermediate skills employed in routine activities, ranging from about 7% in non-urban areas to almost 8% in regions that specialised in low value added activities.

 

Places characterised by weaker agglomeration economies, mature specialisations and weaker technological capabilities were particularly exposed to the negative impact of changes in technological scenarios. In these contexts individuals lacking of distinctive skills paid the greatest costs.

 

These are among the findings of research by Luisa Gagliardi, to be presented at the Royal Economic Society’s 2014 annual conference. Her study explores how the evolution of technology has led to job losses and driven the decline of industrial cities like Liverpool and Detroit, where mature industries failed to make the transition towards high value added activities.

 

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Recent changes in dominant technological paradigms have negatively affected employment levels in Britain. Places that specialised in mature industries, which failed to make the transition towards high value added activities, have been overwhelmingly affected by these trends.

 

In these contexts, job losses due to shifts in technological trajectories have remained persistent over time. Individuals without distinctive skills and employed in routine activities have been those paying the greatest costs in term of employment outcomes, since they faced extraordinary challenges in returning to the job market. This evidence contributes to the debate on the relationship between employment and technological change, helping to explain some striking empirical facts.

 

Places like Liverpool and Detroit, for example, despite being centres of excellence thanks to a strategically located harbour and a world-leading car industry respectively, experienced decades of industrial decline. The evolution of technology, which reduced transport costs and routinised car production, lowered their competitive advantage accompanying them towards the sunset boulevard. Liverpool lost thousands of jobs over less than two decades; Detroit is still the most cited example of a declining city.

 

Nonetheless, other areas in the same countries, despite being subject to similar changes, were less affected or more able to put in place adequate adjustment mechanisms to keep climbing the innovation ladder.

 

By investigating employment outcomes at local labour markets level, this study suggests that differences in the degree of exposure to technological changes, due to distinctive regional specialisation profiles, and in the capability to put in place adequate compensating mechanisms, by diversifying the local economy and exploiting emerging opportunities, may generate heterogeneous territorial responses to aggregate technological shocks, accentuating the gap between winners and losers.

 

The study estimates that between 2000 and 2007, the negative impact of changes in international technological trajectories explains about 4% of employment reduction across Britain. This effect is mainly concentrated in non-urban areas and places that specialised in mature industries. The percentage rises substantially when the segment of individuals withintermediate skills, employed in routine activities, is taken into account, ranging from about 7% in non-urban areas to almost 8% in regions that specialised in low value added activities.

 

Different places show heterogeneous reactions to changes in technological trajectories. Those characterised by slacker labour markets, weaker agglomeration economies, mature specialisations and weaker technological capabilities are likely to be more strongly affected by these trends. In these contexts, individuals without distinctive skills experience the full cost of these changes, raising concerns about the emergence of hot spots of unemployment and social deprivation across specific segments of the population.

 

Nowadays, those places that have been able to exploit the opportunities associated with technological changes are also those showing the best economic performance and the highest employment perspectives in both manufacturing and services.

 

Policy-makers should therefore take more serious account of the implications associated with the spatial dimension of labour markets. Heterogeneity in territorial responses remains a key dimension to account for, since it may substantially challenge the functioning and the effectiveness of nationwide policies.

 

ENDS

 

 

Notes for editors:

‘Employment and Technological Change: On the Geography of Labour Market Adjustments’ by Luisa Gagliardi, London School of Economics

 

For further information, contact:

Luisa Gagliardi07760 807166, l.gagliardi@lse.ac.uk

Romesh Vaitilingam: romesh@vaitilingam.com, +44 7768 661095