Analysis: Rise of the machines: America's jobs challenge

For decades, American workers and their machines advanced in tandem. As companies invested in technology, more workers were needed to operate machines.

That relationship is now looking unsteady.

Since 1999, business investment in equipment and software has surged 33 percent while the total number of people employed by private firms has changed little.

The gap between man and machine widened even further after the 2008-09 recession, helping explain why the United States is struggling to bring down an unemployment rate stuck above 9 percent.

The revolution in information technologies is taking a deeper and deeper hold in the U.S. economy.

Throughout history, technology revolutions have paved the way to forms of employment: Britain's 19th century industrial revolution threw artisans out of work but eventually created mass employment in factories.

But a decade-long drought in jobs in the United States is raising questions whether there is a fundamental shift in the structure of the labor market.

"Labor and capital are out of sync," said Tyler Cowen, an economist at George Mason University in Fairfax, Virginia. "It seems be a growing and strengthening trend... (and) suggests there is this longer-term structural change."

To be sure, some of the struggles of the U.S. labor market reflects displacement rather than the disappearance of jobs, as improvements in technology have spawned the outsourcing of operations ranging from call centers to engineering departments in lower-wage countries.

But the spread of IT from America's factory floors to the massive service sector creates a double-whammy for workers, Cowen said.

Retailers are in the midst of the technology revolution. Research firm VDC Research estimates retailers worldwide will spend 12 percent more on installing self-check-out kiosks -- which require fewer staff -- by 2015.

In Massachusetts, supermarket chain Stop & Shop is piloting a program that allows shoppers to use their smart phones to scan groceries as they pull them off the shelves -- a move that could lead to even fewer check-out clerks.

The advance of technology throughout the economy poses a challenge for policy makers fighting high unemployment. As technology reduces the number of workers needed to produce the same amount of goods and services, the economy must grow at an even faster pace if new jobs are to be created.

JOBLESS RECOVERIES

In the 1990s, the rate at which companies boosted equipment and software investments more than doubled and output per hour surged. Employment growth generally tracked the higher rates of productivity for a time, as it had for generations.

Then something happened. After the 2001 recession, private employment growth essentially flat-lined while technology investment continued its giddy rise.

Since the Great Recession, technology investment has rebounded even more strongly and is growing more rapidly as a share of the economy than in any recovery in at least six decades.

Private employment, however, is not rebounding in tandem. At the current pace of job creation, it would take years for employment to return to pre-recession levels -- let alone absorb new entrants to the labor market.

The travel industry is a key example of how on-line technology has revolutionized a business sector.

The chief executive of Travelocity, a privately held company based in Dallas, noted how the company can sell dramatically more airline tickets and hotels rooms with fewer employees than an old-fashioned travel agent.

Online retailers also can innovate rapidly. Just a few employees with computer skills can change a market with dizzying speed.

"With the Internet, five people in a room can get together on something and put it up to 1 percent of your visitors to test and see how it goes," said Carl Sparks, Travelocity's CEO.

The reshaping of commerce has extended far beyond online retailing. Bar code scanners made by Honeywell International Inc have sped up passenger check-ins at airports and improved the tracking of goods in warehouses.

The U.S. manufacturer expects its scanners will increasingly be adopted in hospitals, improving the productivity of nurses administering drugs, said the firm's product management director, Taylor Smith.

The rapid pace of technological advances has led some economists to speculate that information technology is a factor behind the recent trend of jobless recoveries.

"The technology now is different," said Mark Thoma, an economist at the University of Oregon. "We're way more able to replace people with smart equipment, and it's going up into new levels of the population. It's not just the manufacturing workers. It's white collar workers, too."

FUTURE JOBS

Innovation is nothing new. Nor are job layoffs as companies cut employees during recessions -- part of what economists call the "creative destruction" process that eventually rechannels less productive resources into the jobs of the future.

The labor market stagnation over the last two years is also probably due in large part to the ferocity of the recent recession, the worst to hit the United States since the Great Depression, economists say.

But the growing gap between technology investment and job growth over the past decade suggests that the traditional link between capital investment and employment is under duress.

The chairman of Google Inc, Eric Schmidt, has called the labor market a "national emergency" and argues that the U.S. government should urgently find a way to stimulate demand.

Higher profits due to technology advances are not enough to spur hiring, he said. As a nation, he said, "We're stuck."

On-line travel firms, however, show a glimmer of how technology can help create fresh demand -- essential for the creation of new jobs.

The industry has embraced smart phones and iPads in the newest twist to push last-minute travel deals -- perhaps spurring consumers to take an extra trip and boost business for airlines and hotels.

It's a technology trend that could help the whole travel market grow, albeit incrementally.

"We are hiring more engineers in the mobile space to build more mobile products," said Travelocity's Sparks. "We hire more people in marketing to handle that."

(Editing by Leslie Adler)