While the rapid spread of technology and automation carries risks, especially for Black and Hispanic workers, who are hardest hit by mass displacement, the shopping spree could be a boon for Biden. The president and the Federal Reserve, in the face of growing concerns over stumbling blocks such as overwhelming job growth and the potential spike in inflation, which could trigger interest rate hikes to stifle growth, have urged productivity to keep the economy going.
“There is a real awakening from decades of sleep” in corporate investing, said Skanda Amarnath, director of research and analysis at Employ America, a nonprofit advocating for workers. “That is a healthy and welcome development.”
Biden has touted his plans to spend trillions more on building U.S. infrastructure as they are critical to the country’s long-term economic health and competitiveness and the key to creating more high-paying jobs.
Productivity gains, which have been disappointing since the mid-2000s, are central as they are associated with real wage increases. When technology investments boost labor performance, it can create a sweet spot where companies are able to deliver goods and services more efficiently and people have the opportunity to buy what those companies produce.
“Automation will be absolutely essential to being competitive,” said Gregory Hayes, CEO of Raytheon Technologies, on Tuesday when he called the Business Roundtable, a group of CEOs from leading US companies who conducted the survey.
If companies keep the pace of investment in information processing equipment for the remainder of the year, it would stand at $ 610 billion, compared to $ 494 billion in Q1 2019 – an increase of 23.5 percent. That’s more than double how investments grew in the first quarter of 2018 compared to the first three months of 2017 after Trump’s tax cuts.
While corporate spending on technology fell in the first quarter of 2020, the decline was less dramatic than in recent recessions. Still, the first quarter of this year saw the largest year-over-year percentage increase in nominal amounts issued since the 1970s and the largest inflation-adjusted increase since at least 2002, the period when comparable data is available.
Investment in the broader categories of intellectual property equipment and products, which would include software and artificial intelligence, has also increased significantly.
However, economists warn that it is too early to say whether the investment surge seen in recent months will continue.
“You’ve had a nice boost in technology investments here,” said Michael Feroli, US chief economist at JPMorgan Chase. “Some of these can only be temporary as we are converting the workstation for remote arrangements.”
The picture is also more complex than some of the topline numbers suggest. There are areas where corporate spending has not been as strong; structural investments such as new factories – an optimistic sign for the economy – have not yet experienced the same boost as in other areas.
And investments in automation run the risk of slowing employment and wage growth over time as workers are displaced.
Daron Acemoglu, a professor at the Massachusetts Institute of Technology who studies the effects of automation on work, said it made a big difference whether technology makes work easier for people or replaces them.
“The recovery can be driven by technologies that automate more and more jobs, or it can be driven by technologies that provide opportunities for workers and find ways to reintegrate them into the workforce,” he said. “First will lead to a recovery that will leave many workers behind.”
Acemoglu warned that tax policies offer some incentives for companies to replace workers by making hiring more expensive than buying machines, even if it doesn’t even necessarily increase production.
“Persistent regulation won’t work, but there are ways governments can steer innovative efforts in a more socially beneficial direction,” he said.
According to Brookings Institution research Led by Kristen Broady, black and Hispanic workers are over-represented in jobs that could be eliminated by automation, such as truck drivers, cooks and cashiers.
Policy makers and companies “should consider ways for these workers to receive the training they need to work with automation or move to a new job or field if necessary,” Broady said.
But there could also be counter-intuitive benefits to better technology. As the US population ages, the workforce is expected to shrink in the next decade, said Susan Lund, a director of McKinsey Global Institute, the company’s economic research division.
“We’re actually moving into an era of labor shortages, so even the automation that is replacing jobs doesn’t seem to be a threat or a problem right now,” she said, although she acknowledged that this could change over time. “The question is, does this give employees the opportunity to do more meaningful jobs?”
Higher productivity should also help ensure that rising wages result in more economic benefits for workers rather than potentially boosting inflation. A recent study by McKinsey found that productivity could increase by more than a percentage point each year through 2024 if investments in technology increase.
“A lot of people see productivity growth at the expense of work,” said Amarnath of Employ America. “I think that’s missing the point. What counts as progress is the ability to deliver more things to more people without people having to do terrible weekly work. “
“Like layoffs, cost reductions usually reflect underinvestment,” he added.