By analyzing shares of IT sectors in economic activity in major developed countries using three aspects — output, factor inputs and household consumption (demand) — Deutsche Bank analysts conclude that the share of IT sectors has been on the decline for household consumption. In their April 28 research piece titled “Japan Economics Weekly – Job creation and destruction by technology and automation,” Mikihiro Matsuoka and colleagues explore answers to several questions that are critical to analyzing the effects of technology and automation on employment.

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Job Creation And Destruction

Three viewpoints of economic activity

In their earlier reports, the DB analysts highlighted impact of the progress of information technology and automation on economic activity, employment and the economic institutional system. In their latest report, Matsuoka and team analyzed three viewpoints of economic activity: (a) production (nominal and real value added by industry, (b) factor inputs (labor hours worked and capital stock by industry) and (c) demand (nominal household consumption).

The following table captures the definition of IT based on the analysts’ subjective judgement:

Classification of IT industries

The analysts point out that both definitions of information technology industries, the IT production department and those who use these IT goods and services, change over time. Tracing complex progression with IT in several areas, the analysts highlight that over time, even non-IT industries will find that an increasing part of the value added will be resultant of IT activity. As an example, they cite the expanding role of GPS and the IoT, highlighting that IT goods and services are diffused into our daily lives.

The DB analysts also highlight the blurring boundaries between IT and non-IT over a period of time. For instance, vacuum cleaners were tagged as traditional household appliances, while robotic vacuum cleaners are classified under IT equipment.

Job creation: mixed conclusions on share of IT sector

The DB analysts point out that their analysis reveal mixed results on the share of IT sectors in economic activity. Matsuoka and colleagues point out that while the share of IT sectors has been roughly flat for nominal value added and capital stock, it showed a rising trend for employment, while household consumption exhibited a declining trend.

Share of IT industries Job Creation

Citing critical statistical constraints, the analysts point out that the share of the IT sector tends to be considerably underestimated over a period of time. They consider the biggest hurdle for this economic singularity to be the limit to labor market flexibility. The analysts highlight the dual role played by the household sector: as purchasers of goods and services on the demand side and providers of labor on the supply side.

The DB analysts point out that in the event of households demanding more IT equipment and services as opposed to other goods and services, factor inputs such as capital and labor to produce them will have to shift to cater to the IT equipment and services industries. However, the analysts concede that no country has a labor market that has flexibility to cater to such a shift in factor inputs.

Thus Matsuoka and team conclude that such a scenario hampers growth of demand for new goods and services in the IT sector and restrains the drive toward economic singularity where such a demand potentially possesses.