February 15, 2008

Research by Uday Karmarkar Shows Impact of Information Technology on the Global Economy

Sharp decline in new jobs noted this century in U.S.


Uday KarmarkarLOS ANGELES - Uday Karmarkar, L.A. Times Chair in Technology and Strategy, studies the impact of information technology on business practice and the economy in the U.S. and other countries. Since 2004, Karmarkar and colleagues in several countries have conducted annual surveys to monitor the impact of information technology around the world as part of the UCLA Business and Information Technologies Project (UCLA BIT). The studies have identified a variety of striking economic and demographic trends.

Many of the findings concern changes in employment. "The job picture in the U.S. has changed significantly since the year 2000," he says, "and it is a little unsettling. In the last few decades, there have been two big movements in the economy - one is toward services and the other is toward information.  The last is more recent and is now the dominant factor. Both of these movements are changing employment patterns."

Karmarkar explains that the last half of the Twentieth Century saw a large growth in service employment in the U.S. "Prior to the year 2000," he says, "some 2.5 million new jobs were created each year." But U.S. job growth came to a sudden stop in 2000. "In effect," says Karmarkar, "Ten million jobs that we expected based on a straight line projection from 2000 until now did not appear, so there's a gap between where we could have been and where we are. We didn't lose jobs in services; they just didn't appear, which is just as bad."  Usually, such slowdowns in job creation have been relatively short lived with a recovery to previous levels of growth.  But this time, the picture may be different.

Karmarkar points to new uses of information technology - especially in information intensive service industries. "Information technologies are changing the nature of service industries," he says. "More and more things are being automated or transformed to self-service. Counter jobs are being lost as we go to kiosks and web-based transactions. Banking and financial sector jobs are being threatened all the way up to pretty sophisticated levels and, regrettably, this is going to continue."

So Karmarkar and his colleagues are studying the scope of this problem, anticipating how companies might adjust and pondering what skills will still be needed in the workforce. One type of job that continues to grow is what Karmarkar refers to as knowledge work. This includes everyone who creates or disseminates information. "The proportion of workers in that area has been growing for quite a while," he says. "It's kind of a paradox that the number of these jobs in the U.S. continues to grow even though this work is subject to automation, outsourcing and off shoring."

It's unclear how the U.S. job supply will fare as information technologies become increasingly sophisticated. But Karmarkar says one thing that may help future workers is the imminent retirement of baby boomers. As baby boomers retire, he says, they could release roughly a million jobs a year. But there is still a question of whether workers will have the right skills for these jobs.

Karmarkar expects the greatest demand for workers who are creative, highly educated, technologically savvy and able to work well with customers. "These are the kinds of skills that are hardest to outsource or automate," he says.

Karmarkar expects continued demand for MBA skills in the U.S. job market. "There will be a tendency to focus on personal qualifications like leadership, negotiation skills, interpersonal skills and cross-cultural skills," he says. "These skills involve what we call tacit knowledge, which cannot easily be codified, converted to software, off-shored or automated."

One of the most serious economic issues lying ahead, according to Karmarkar, is that the many workers around the world retiring soon will need to be supported. Some nations, such as Italy, face this problem acutely. "In 2020," he says, "the biggest segment in Italy's population will be women over 80. The second largest group will be men over 80. And they will have a very small workforce to support this population."

Germany, Japan, France, and Scandinavian countries face similar scenarios where, as Karmarkar says, "The demographic pyramid is starting to look upside down." The U.S. on the other hand, he says, appears to have enough workers to support retirees, providing they have skills that fit the available jobs. "There is a base to the population pyramid in the U.S.," he says. "But even here, it's not really a pyramid, it's more of a cylinder."  Under these circumstances, legacy notions of social contracts, based on a certain demographic picture, are not sustainable.

Are the vast populations of China and India also facing job shortages? Karmarkar says that both countries are rapidly creating the economic infrastructures needed to support job growth. "Individuals in those countries were very unproductive," he says. "But they were not incapable. You could take somebody out of one of those countries, put them in a developed economy, and they'd do very well. But the economic systems just weren't there. It takes some time to get the machinery running."

So Karmarkar expects China, India and other emerging economies that have primarily been agricultural to create new jobs in physical services like transportation, energy, warehousing and construction. Other growth areas include services to support a growing workforce - such as health care and education.

"The Chinese picture is interesting," says Karmarkar, "because manufacturing employment is actually dropping. What was done unproductively in China 20 years ago is done with world class efficiency today. So they don't need as many people."

So, while the U.S. economy must create jobs in more complex information and knowledge-based services, Karmarkar believes that China's information sector will be dominated by infrastructure services for the next decade or two. "They are growing very fast," he says. "China has the world's largest telecom sector. It has the world's largest number of web surfers." So the emergence of an information economy in China seems inevitable, if not imminent.  However, jobs in China will first come from physical services such as retailing, transportation, and construction.

Karmarkar and his colleagues plan to continue monitoring economic trends such as those described here with follow-up surveys every two years. The most recent book describing this research project is available at Amazon.

Visit the Business and Information Technologies Project Website

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