The impact of technical progress on employment

Many people seem to think that the decrease in the number of jobs in the manufacturing

sector is largely due to imports from low wage countries. However, some have countered that

employment in that sector has decreased as much because of technical progress as anything.

We've explored how much of an impact on employment imports could have had. Now let's think

about the role that technical progress has played in reducing job opportunities in the

manufacturing sector.

First let's see what's happened to the number of full-time equivalent employees (FTEs) in

the manufacturing sector. According to data from the Bureau of Economic Analysis, an agency

in the Department of Commerce, the number of FTEs fell from 17,246,000 in 1998 to

12,515,000 in 2019. I think there's no denying that imports had a significant effect on

employment in manufacturing, but it's also very likely that technological advances had a big

impact as well.

Let's see this by looking at a specific industry, the steel industry. We'll confine our

attention to the production of a single product, what's referred to as raw steel. Raw steel comes

in three shapes: billets, blooms, and slabs. These are big pieces of steel that are rolled and

formed into wire, pipe, re-enforcing steel bars, the sheets of steel that go into cars, etc.

Up until the late 60's, almost all the steel produced in the U.S. was produced in open

hearth furnaces (OHFs). But at that time, open hearths began to be replaced with oxygen

furnaces (OXFs), a type of furnace that was developed in Austria around 1950 (the open hearth

dates back to the end of the 19th century).

Let's about steel production in the U.S. before and after the introduction of the OXF.

Back in 1950, the U.S. produced about 100,000,000 tons of raw steel. Coincidently, the U.S.

produced about 100,000,000 tons of raw steel in the mid-90's, by which time OHFs had been

replaced with OXFs.

The fact is, steel can be produced in an OXF must faster than in an OHF. A 200 ton OHF

produces 200 tons of steel every 8 hours. A 200 ton OXF produces 200 tons of steel every 2

hours.

OK, first question. Furnaces are operated continuously, 24 hours a day,365 days a year.

So how many OHFs are needed to produce 100,000,000 tons of steel a year?

Put that number

in 1) (round this number up and use that number to answer 3) and 5)).

How many OXFs

are needed to produce 100,000,000 tons of steel a year?

Put that number in 2) (round this

number down and use that number to answer 4) and 6)).

An OHF is operated by 3 people. An OXF is also operated by 3 people. Assume that

each person employed works 8 hours a day. So how many jobs are there operating OHFs when

100 million tons of steel are produced?

Put that number in 3).

How many jobs are there

operating OXFs when 100 million tons of steel are produced?

Put that number in 4).

Now both types of furnaces needed to be loaded with raw materials. The individuals

loading furnaces form what's called a charging crew. Suppose a charging crew also consists of

three people. Also suppose that a charging crew is needed for every 6 OHFs operating and a

charging crew is needed for every 2 OXFs in operation. How many jobs on charging crews are

there when OHFs are being used to produce 100 million tons of steel?

Put that number in 5).

How many jobs on charging crews are there when OXFs are being used to produce that much

steel?

Put that number in 6).

Remember, if 6 OHFs are in operation, they would require 3

crews per day. Furnaces are operating 24-7 and a person only works 8 hours a day.

Add the number of OHF operators to the number of people working on crews charging

OHFs. Add the number of OXF operators to the number of people working on crews charging

OXF. What is the percentage decrease in the number of jobs operating and charging steel

making furnaces as a result of converting from open hearth production to oxygen production?

Put that number in 7) (figure that percentage to 1 decimal place).

What do we see? Technical progress can result in the loss of jobs. Put that under the

heading of "can 20,000 Luddites be wrong?" (If you want to know what that is alluding to,

google it.)

Well, what actually happened in the U.S. steel industry, employment-wise? Answer: as I

said, steel production in 1950 was about 100 million tons and also about 100 million tons in

1995. But in 1950, 1,000,000,000 hours of production worker labor were used (1 billion hours).

In 1995, only 200,000,000 hours were used. That's an 80% decrease.

OK, last question: By how many dollars did the adoption of new technologies reduce the

average cost of producing 100 million tons of steel? Note that

Average cost = (wages paid to production workers + all other costs)/100 million

= (total wages/100 million) + (all other costs/100 million)

Assume that all other costs are the same.

Now, according to the BEA a worker in the steel industry was paid about $20 an hour in

1995 (ball park). So how many dollars less was the average cost of producing a ton of steel

because of the adoption of new technologies that reduced the employment of production

workers?

Put that dollar amount in 8).

(Hint: you have to figure average cost with the old

technologies and with the new technologies. Keep in mind, other costs are the same with both

technologies so in calculating the change, you don't need to know what they are.)

Answers:

1) Number of OHFs = ________________

2) Number of OXFs = ________________

3) Number of jobs operating OHFs = __________________

4) Number of jobs operating OXFs = __________________

5) Number of jobs charging OHFs = __________________

6) Number of jobs charging OXFs = __________________

7) % decrease in jobs due to the adoption of oxygen technology = ___________

8) Decrease in the AC of producing a ton of steel due to technical progress = ____________

9) The Luddite movement was said to be named after whom? ______