Computers and Employment:

Shella McConnell

Sheila McConnell Is an
economist in the
Division of Monthly
Industry Employment
Statistics, Bureau of
Labor Statistics.

An Ove

The role of computers
in reshaping the work force

Today’s versatile computers have some impact
on nearly every occupation and industry

in the U.S. economy, unlike past technology
which usually affected only specific jobs

omputers may be the most profound tech-

nology since steam power ignited the

Industrial Revolution. Computer technol-
ogy is altering the form, nature, and future course
of the American economy, increasing the flow of
products, creating entirely new products and ser-
vices, altering the way firms respond to demand,
and launching an information highway that is
leading to the globalization of product and finan-
cial markets.

In addition to affecting the methods of pro-
duction among firms, computers are changing the
relationship between labor and organization. The
traditional pyramid-shaped organizational struc-
ture of most corporate firms is the by-product of
the Industrial Revolution, which moved work
from the individual or family unit to an organiza-
tional structure.

Computer technology challenges the tradi-
tional management hierarchy, moving many or-
ganizations from a pyramid-shaped structure to a
flatter structure. Historically, decisions were
passed from top management to the next man-
agement layer; today, computers permit compa-
nies to communicate throughout their organiza-
tions instantaneously, without regard for tradi-
tional management structures.' Such wider dis-
tribution of authority in some companies has put
new emphasis on enhancing labor efficiency by
replacing fragmented work with integrated work

tasks. This can lead to upgrading worker skills,
as shifting flexibility among the production of
various goods and services requires a more highly
trained work force.?

This issue of the Monthly Labor Review ex-
plains how computers have affected jobs in se-
lected manufacturing and services industries and
in high-tech defense industries, and discusses an
emerging market made possible by computers—
the home market. This article presents an over-
view of the six articles included in this series; it
begins by summarizing some of the rapid changes
that have occurred in computer technology over
the years.

Rapid computer technology

In the last 20 years, there have been dramatic
changes in computer technology. In the 1970s,
computers were time-sharing mainframe and mini
computer systems which allowed dumb terminals
to share information and computing services.’
The 1980s saw personal computing. The mi-
croprocessor-based computer brought comput-
ing power to the individual at the office and
home. The development of user-friendly software
applications allowed for more uses; however,
for the most part, computing was still done in
isolation. The use of local-area networks in
the workplace helped users communicate beyond

Monthly Labor Review August 1996 3



Computers and Employment: An Overview

the desktops, but only to other users within the organization.‘

Network computing arrived a decade later, ringing in the
age of the information highway. The Internet, a confederation
of interconnected networks, connects millions of computers
using existing telephone lines.' With the help of special soft-
ware, a powerful new computing platform on which to build
brand new computing applications is open to all types of com-
puters. Network computing is possible because of speed and
cost of the technology. The power of the devices and networks
tun by microprocessors and software is increasing at a rate
never seen before, roughly doubling in performance every 18
months or so.” This trend has caused the unprecedented re-
duction in the cost of microchip-based technology, allowing
computers to be used more widely and rapidly.

The decline in costs has assumed a central role in the use
of computers. As the production costs of hardware and soft-
ware fall in comparison to the development cost, it makes
sense for firms to sell their products at a lower cost to estab-
lish a market hold.

Production flexibility in manufacturing

Semiconductors, Computers have reshaped manufacturing
plants, allowing manufacturing firms to serve many markets
and produce a wider range of goods. Computer technology
helps engineers, managers, and workers schedule the flow of
materials, control quality, and change production lines as the
demand for products changes.* It allows manufacturers to re-
spond quickly to demand, and deliver a larger variety of prod-
ucts more quickly. With computers, retailers can gather and
aggregate sales data electronically, convert the data into or-
ders, and transmit the information to manufacturers. Manu-
facturers with computer links to production systems, distribu-
tors, and customer networks can respond quickly to the mar-
ket. For manufacturers, customized runs can now compete
‘on a cost basis with production runs of standardized products
with dedicated assembly runs.

All of this depends on the speed and function of a com-
puter which “in turn is determined by the system design and
the underlying capabilities of its components.”® Semicon-
ductor devices are the basic functional components of com-
puters upon which computer performance depends. In the first
article of this series, Francisco A. Moris discusses technol-
ogy in semiconductor manufacturing, and examines employ-
ment and other trends in the industry, including worker pro-
ductivity, offshore employment, technology diffusion, and
export growth. (See pages 6-17.)

Computer manufacturing. Computer manufacturing is an
industry in which new rules of production call for redefining
the value of a product for which the cost of raw technology is
rapidly declining. Jacqueline Warnke explores consumers’

4 Monthly Labor Review August 1996

demand for computers, as prices for computers decline and
the economy and society take advantage of this lower-priced
and higher-quality resource. (See pages 18-29.)

Versatility in service industries

During the last two centuries, technological innovations in
agriculture and manufacturing have increased output, im-
proved productivity, and raised the standards of living for the
industrial economies, This was mainly the case in the past,
because for technological innovations to be effectively ap-
plied required an industry with a certain size and capital in-
tensity. Typically, service industries were in a less favorable
position to apply technological innovations because of the
labor intensive nature of most of these establishments.

Due to its versatility and declining cost, computer tech-
nology has been applied in many unrelated service industries
such as banking, power utilities, retailers, wholesalers, and
health services. Computers can fill out and check mortgage-
Joan forms, transfer calls, and electronically gather and ag-
gregate sales data for retail stores, to name a few uses. In-
vestment by service producers in computer technology has
steadily increased since 1975.'° As of 1993, the top four pri-°
vate sector industries ranked by the U.S. Bureau of the Cen-
sus as having the greatest percentage of employees working
with a computer were service-related industries.

Banking. Investment in computer-related technologies has
caused employment adjustments. In commercial banks, for
example, the application of automated teller machines (ATM's)
and other related technologies have lessened the need for cus-
tomers to use a bank teller. Teresa Morisi examines employ-
ment changes in commercial banks and discusses how com-
mercial banks, forced to be more competitive after deregula-
tion in 1980, use computer technology to cut costs and offer
new products and services to attract customers, (See pages
30-36.)

Computer services and engineering. Computer technology
has created economies of scale for many services industries,
but, more interestingly, has generated a secondary effect called
“economies of scope.”'' Many service producers have found
that computer technology enables them to offer more services
and attract a larger range of customers. (For example, com-
mercial banks are able to offer several methods for their cus-
tomers to access their accounts, such as automatic teller ma-
chines, debit cards and personal computers.)

However, some service industries are totally dependent on
technology, such as computer and data processing firms which
owe their existence to computer technology. William
Goodman examines employment trends in computer services
and engineering—two service industries that design a large



range of products and play important roles in creating and
changing computer technology. (See pages 37-45.)

The home market

The computer has launched the information highway, creat-
ing a whole new market segment—the home market. It is
now the home market that represents a new frontier for
computer and software manufactures. This market is consid-
ered one of the major opportunities for business investment
over the next 20 years.!? As a result of the decline in cost of
personal computers and the increased speed with which com-
puters run, the buyer of a computer for the home now can
obtain a high-powered machine that is able to run sophisti-
cated software programs and link to the Internet. Laura Free-
man explores this new market, examining the current market
trend and its impact on employment, (See pages 46-56.)

High-tech defense

The modern computer originated during World War I when
funds were provided to defense contractors to create military
products for intelligence uses. Up to the end of the cold war,
defense contractors were instrumental in the development of
computer-related technologies such as those found in space
vehicles and electronic guidance systems in aircraft, missiles,
and rockets. Although still on the cutting edge of technology,
defense contractors increasingly have fewer defense funds
for development in areas such as computers and micro-elec-

Footnotes

tronics. Ron Hetrick examines efforts to soften this impact on
defense-related private sector employment in a post cold-war
era economy. (See pages 57-63.)

IN SUM, computer technology is changing the nature and num-
ber of jobs. Its impact is extensive because the technology,
network systems, and software is similar across firms and
industries. This is in contrast to technological innovations in
the past, which often affected specific occupations and in-
dustries (for example, machine tool automation only involved
production jobs in manufacturing). Computer technology is
versatile and affects many unrelated industries and almost ev-
ery job category.

In some cases, computer technology displaces workers;
for example, bank tellers are being replaced with ATM's. But,
while the technology is eliminating jobs, it also is creating
new ones. Job growth has occurred in semiconductor and
computer manufacturing as well as in computer and engineer-
ing service industries. However, the rate of job growth in these
industries has been decelerating as the technology continues
to improve labor efficiency.

Computerization and the emerging information highway
is transforming the American economy. Computers are chang-
ing the composition and distribution of labor, improving la-
bor efficiency, and creating new markets and new forms of
organizations. The series of articles that follow discusses in
more detail how computer technology is affecting employ-
ment in selected industries. oO

' Howard Isenberg, “The Second Industrial Revolution—The Impact of
the Information Explosion,” Industrial Engineering, March 1995, p. 15.

? Eileen Appelbaum and Ronald Schettkat, “The Impact of Structural and
‘Technological Change: An Overview,” in E. Appelbaum and R. Schettkat,
eds., Labor Market Adjustments to Structural Change and Technological
Progress (New York, Praeger Publishers, 1990), p. 5.

>“Planet Internet—How the center of the computing universe has shifted,”
Business Week, Apr. 3 1995, p. 118.

* “Planet Internet, p.118.

Pe Intemet—The Accidental Superhighway,” The Economist, July 1,
3.
“Planet Internet,” p. 118.

7 “The Intemet,” p. 4,

* Larry Hirschom, “Computers and Jobs— Services and the New Mode
of Production,” in Richard M. Cyert and David C. Mowery, eds., The Impact
of Technological Change on Employment and Economic Growth (Cambridge,
Ma., Ballinger Publishing Co., 1988), p. 382.

* Francisco A. Moris, “Semiconductors the building blocks of the infor-
mation revolution,” Monthly Labor Review, this issue, page 7.

Technology in Services,” Scientific American, December 1987, p. 53.

4, “Technology in Services,” p. 53.

” Bart Ziegler, “Hard Drive —-c Makers Big Push into the Home Market
Comes at a Risky Time,” The Wall Street Journal, Nov. 1, 1995, p. Al.

Monthly Labor Review August 1996 5