9. Will Market-Creating Innovations Continue Creating Jobs?

Please review this graph.

One of the questions we’ve been exploring the most intensively is “Why do market-creating innovations create the most jobs?”, and we think we’ve come up with the answer.  This is a tangled subject area—a lot of the research that is done here is sponsored by companies, politically-motivated (especially now!), and kind of imprecise, but bear with us:

As we lay out in our original article, different types of innovation have very different impact on job creation, as well as on economic growth.  Efficiency innovations destroy jobs; performance-improving innovations create jobs, but only marginally, due to their substitutive nature; leaving market-creating innovations to do the heavy lifting of job creation.  And they do, in four ways, as we depict in the chart at the top of this thread.  Think of a market-creating innovation like a stone thrown into a pond, with employment effects emanating out like ripples from that stone, each larger than the last.  So, from smallest to largest:

  • First, they create jobs due to direct employment—increasing employee headcount at the innovating company.  Surprisingly, this might well be the most modest way in which they contribute to job growth.
  • Second, they create jobs in the value network—the supplier networks and distribution channels through which the product or service is sourced and sold.  Because these channels are generally new-to-the-world, this effect can be large.
  • Third, and most distinctively, they have an empowering effect on employment—they create jobs through their adoption by aspiring entrepreneurs.  From the seamstresses who used the Singer sewing machine to supply the earliest mercantile shops to the app developers who feed the iPhone ecosystem today, this effect is powerful and almost always impossible to estimate in advance.
  • Finally, market-creating innovations share the indirect employment effects of performance-improving innovations—the  “spillover jobs” in local economies that house workers with more money to spend.  This effect might well be the largest of all, though it is also the most diffuse and difficult to track.

We’ve gotten good reactions from people who work in this field for a living and felt confident about its description in the past, but in an era of A.I. and robotics, will it still hold true?

What do you think?

3 thoughts on “9. Will Market-Creating Innovations Continue Creating Jobs?

  1. With machine learning research yielding more clues about what we could expect from technology in the future, the way we think about the role of humans in innovation will also have to evolve. Ben Thompson puts it better than I can, so I’ll leave an excerpt from his blog here:

    “Just as we designed the cotton gin, so we designed accounting software, and automated manufacturing. And, in fact, those are all related: all involved overt design, in which a human anticipated the functionality and built a machine that could execute that functionality on a repeatable basis… Machine learning is different. Now, instead of humans designing algorithms to be executed by a computer, the computer is designing the algorithms… the truth is that humans have made machines to replace their own labor from the beginning of time; it is only now that the machines are creating themselves, at least to a degree.” (Source: https://stratechery.com/2017/the-arrival-of-artificial-intelligence/)

    I believe we’re still far off from reaching the level of artificial intelligence that would immediately replace human jobs that involve thinking and emotional judgment, but we certainly will get to a point in the short-term where manufacturing and design of machines could easily be done by other machines. I could see this kind of innovation definitely resulting in a net destruction of jobs.

    The question, though, is whether this kind of innovation can be counted as a market-creating innovation. From what I can see, machine learning doesn’t seem to target nonconsumption nor empower those who previously didn’t have access to the forerunner product.

    1. The Economist seems to sit in the middle ground — that AI will lead to neither huge net gain nor net loss of jobs.

      The Impact on Jobs: Automation and Anxiety — https://goo.gl/h5MAZc

      “So who is right: the pessimists (many of them techie types), who say this time is different and machines really will take all the jobs, or the optimists (mostly economists and historians), who insist that in the end technology always creates more jobs than it destroys? The truth probably lies somewhere in between. AI will not cause mass unemployment, but it will speed up the existing trend of computer-related automation, disrupting labour markets just as technological change has done before, and requiring workers to learn new skills more quickly than in the past.”

  2. Technology is becoming easier to use. We can thank Apple for starting a new breed of UI, UX, and product managers who are in high demand.
    There will be jobs you’ve never even heard of emerging in the market.
    And all technology needs a human to operate, or educate others.
    Engineering is another sector I believe will grow. With nimble commercial entities servicing niche market needs, a truly great customer journey needs design thinking.
    Creative people will finally be compensated for their natural talent. You can’t teach that kind of intelligence, and creatives are the product differentiator in a noisy world of heuristic decision makers.

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