Mapua Institute of Technology

SS 12
General Economics with Taxation and Entrepreneurship

Paper #1

TECHNOLOGICAL UNEMPLOYMENT:
MYTH OR REALITY

Problems
1. Do advancements in technology really hinder the achievement of full employment?
2. Will it be better to improve on the economic efficiency even though it affects

unemployment rates or focus on gaining full employment? Which of the two contributes
more to a sound economy?
3. Isnt it possible for technology to actually create more job opportunities?
4. Aside from technology, what may also be causing unemployment?
5. Should the Philippines strive for improvements in technology or stick to the
conventional, manual labor?

Summary
o Understanding Economics (Lesson 2, 4, and 7)
Sometimes, economic goals are contradictory. For example, striving for economic
efficiency by means of advancements in technology would speed up production and cut
production costs down. Because the goods are more affordable, it increases the demand of such
products/services which in turn boosts economic growth of a country. However, this may replace
manual labor and make it impossible to reach full employment.
The different types of unemployment are frictional unemployment (caused by the time
and effort needed to find a job), structural unemployment (caused by lack of skills or ability to
contribute to economy), cyclical unemployment (caused by lack of demand), seasonal
unemployment (caused by changing seasons), technological unemployment (caused by new
technology replacing jobs).
o A Tale of Two Factories
This article compares two different economic approaches of two factories of the same
company (Tenneco) both producing mufflers: one located in China, the other in the United
States. The factory in China incorporates manual labor in manufacturing the goods, taking
advantage of the low labor cost. The Michigan-based factory, on the other hand, focuses on
minimizing on labor and aims to automate as much as possible. The first capitalizes on
employment while the latter emphasizes technology. Their results prove that although the labor
cost is greatly reduced, it doesnt necessarily mean higher revenues. The factory in the United
States produced the goods more efficiently and therefore yielded more earnings despite the
higher labor costs.
o 1000 Dollars & an Idea: Entrepreneur to Billionaire
In his autobiography, Sam Wyly proves that technology could even generate more job
opportunitiesnot necessarily replace them. He acknowledged that computers and information
technology would be a multi-billion dollar industry. His idea was novel at that time: a company
which would sell computing services (similar to what a computer shop is now). He expanded

University Computing to become a multinational company, which of course created abundant

jobs. At the same time, it cut down costs for their clients in operating their own businesses.
o High tech and the long road to full employment
The editorial writer starts off by expressing his sentiments on how America would
unlikely recover soon from its high unemployment rate. He cites that some studies point to
technology as a culprit since it has enabled companies to cut costs, increase productivity (i.e.,
efficiency), improve profits and slash payrolls. He also notes that although technology displaces
several jobs, it creates more new opportunities, which is why there hasnt been a sharp decline in
employment rates. Workers are even given higher pays because of the increased efficiency in the
businesses. He proves that there are other factors which cause unemployment: mainly because
companies arent willing to hire as much people and that there are less start-up businesses.
o Corporate Entrepreneurship & Innovation (pp. 203-208)
This textbook delves into how technology affects the economy. They have a symbiotic
relationship to each other in that entrepreneurs commercialize new technologies and technology
in turn boosts entrepreneurial activities. Aside from cutting down costs, it can enhance the
performance of the business. However, the rapid advancements also mean the entrepreneurs
should keep up with the pace. These technologies have limits; businesses should realize when
these technologies are about to be obsolete in order to develop a new technology to keep up.
o Stagflation: A Radical Theory of Unemployment and Inflation (p. 22-24, 27, 103)
The book presents a conservative economists point of view that the unemployed
themselves are to be blamed for their own unemployment. Workers voluntarily leave their jobs
either because they are too lazy and wish to look for easier and better-paying jobs. However, the
author reveals that such isnt the case because businesses started to fire thousands of workers
during the Depression. Sherman attributes unemployment to capitalists who are unwilling to
invest in new factories and equipment or to lower rates of production. These capitalists do
not expect as much incomethus needing fewer workersbecause there is not enough effective
demand for those goods.

When costs for operating a business rise, income decreases which in turn lowers demand.
If the demand is low, it leads to lower rates of productionthe root of unemployment.
o Unemployment rate slightly up in 13
Despite the improving economy of the Philippines, unemployment worsened, increasing
from 7% in the previous year to 7.3%. Underemployment is also high although it has improved a
bit from 20% to 19.8%. Economists account that the growing economy mostly benefitted only
the rich and middle class but barely improved the poor. They also added that the country would
have to maintain economic growth before it can drastically improve employment in the
Philippines.

o Internet can boost economy networking firm

This news article emphasizes the potential of the internet to improve the Philippine
economy. More citizens gaining access to it means more information delivered to the people and
could improve productivity and efficiency in different sectors in the economy. It also allows
businesses to cross the borders, be more globalized, and reach more customers. The article
further notes that the Philippines should catch up with its neighboring countries in providing
such service to its people.
o Economic Goals
- Full Employment
Full employment means utilizing the available resources including labor, capital, land and
entrepreneurship to produce goods. This in turn satisfies the scarcity problem and improves the
economy.
- Tradeoffs: Economic Growth and Full Employment
In the quest for economic growth, technological innovations are developed and
implemented. However, this displaces people from their jobs due to the lack of skills needed to
manage these.

o Country Comparison::Unemployment Rate

Country

Unemployment Rate

Japan

4.40%

Singapore

1.90%

Germany

5.50%

China

6.50%

United States of America

8.10%

South Korea

3.20%

Review of Related Literature

In the pursuit to boost the economy, some of the goals are to gain full employment and
achieve economic efficiency. Full employment means utilizing available resources including
labor, capital, land and entrepreneurship to produce goods. This in turn satisfies the scarcity
problem and improves the economy (Economic Goals). Economic efficiency, on the other
hand, means advancements in technologyspeeding up production and cutting down costs.
Because goods become more affordable, it increases the demand of such products/services which
in turn boosts economic growth of a country. However, this poses a problem: technology may
replace manual labor (Bradshaw, 2007) or require technical skills which majority lack, making it
impossible to reach full employment (Economic Goals).
The Philippines currently experiences a relatively high unemployment rate despite its
improvement in the economy amounting to 7.3%. Underemployment is also high although it has
improved a bit from 20% to 19.8% from 2012 to 2013 (Remo, 2013).
The different types of unemployment that could be contributing to this would include
frictional unemployment (caused by the time and effort needed to find a job), structural
unemployment (caused by lack of skills or ability to contribute to economy), cyclical

unemployment (caused by lack of demand), seasonal unemployment (caused by changing

seasons), and technological unemployment (caused by new technology replacing jobs)
(Bradshaw, 2007).
A conservative economists point of view would attribute this problem to the unemployed
themselves. Workers voluntarily leave their jobs either because they are too lazy and wish to look
for easier and better-paying jobs (Sherman, 1976). Some studies point to technology as a culprit
preventing recovery from high unemployment rate since it has enabled companies to cut costs,
increase productivity (i.e., efficiency), improve profits and slash payrolls. Although technology
displaces several jobs, it creates more new opportunities, which is why there hasnt been a sharp
decline in employment rates. Workers may even be given higher pays because of the increased
efficiency in the businesses. There are other factors which cause unemployment: companies
arent willing to hire as much people and that there are less start-up businesses (Samuelson,
2013).
According to Sherman, such isnt the case because businesses started to fire thousands of
workers when operating costs rises and capitalists do not expect as much income. Theyd lower
the wages of their employees which in turn lowers demand. If the demand is low, it leads to
lower rates of productionthus needing fewer workers. To sum it up, not enough effective
demand is the root of unemployment (Sherman, 1976).
Going back to the other side of the story, technology and the economy have a symbiotic
relationship with each other in that entrepreneurs commercialize new technologies and
technology in turn boosts entrepreneurial activities. Aside from cutting down costs, it can
enhance the performance of the business. However, the rapid advancements also mean the

entrepreneurs should keep up with the pace. These technologies have limits; businesses should
realize when these technologies are about to be obsolete in order to develop a new technology to
avoid being left behind (Morris, 2008).
Technology is created to empower people and ease peoples lives. According to an
international company, the internet has the potential to improve the Philippine economy. More
citizens gaining access to the internet means more information delivered to the people which
could improve productivity and efficiency in different sectors in the economy. It also allows
businesses to cross the borders, be more globalized, and reach more customers (Santos, 2012).
A comparative study between two Tenneco factories proves that investing on
advancements in technology would be more beneficial over attempting full employment. The
factory in China incorporates manual labor in manufacturing the mufflers, taking advantage of
the low labor cost. The Michigan-based factory, on the other hand, focuses on minimizing on
labor and aims to automate as much as possible. The first capitalizes on employment while the
latter emphasizes technology. Their results prove that although the labor cost is greatly reduced
in the Chinese counterpart, it doesnt necessarily mean higher revenues. The factory in the
United States produced the goods more efficiently and therefore yielded more earnings despite
the higher labor costs (Taylor, 2006).
Besides, technology could even generate more job opportunitiesnot necessarily replace
them. In his autobiography, Sam Wyly acknowledged that computers and information
technology would be a multi-billion dollar industry. His idea was novel at that time: a company
which would sell computing services (similar to what a computer shop is now). He expanded
University Computing to become a multinational company, which of course created abundant

jobs. At the same time, it cut down costs for their clients in operating their respective businesses
(Wyly, 2008).
Lastly, another evident proof that technology isnt a reasonable cause of unemployment: a
comparison of unemployment rates across different countries. Setting aside the United States of
America (which recently suffered from an economic recession), more technologically advanced
countries unemployment rates are faring much better than the Philippines 7.3%. China has an
unemployment rate of 6.50%; Germanys at 5.50%; Japan at 4.40%; South Korea at 3.20%; and
Singapore with only 1.90% unemployed (Country Comparison::Unemployment Rate).

Reflection
Finding out that technology has the potential to replace jobs made me feel quite uneasy,
especially that the course Im taking up is Electronics Engineering. The thought of the realization
of my dreambringing the country to technological advancementscould also mean thousands
of others losing their jobs, is just heartbreaking. But there was still doubt. It seems impossible for
technology to completely eradicate the need of the labor force.
After researching about unemployment, technology, and how they both affect the
economy, it was a relief being assured that although technology may somewhat affect
unemployment, its advantages obviously outweigh the consequences. Firstly, technology is
merely a minor contributor to the unemployment dilemma; the main cause is ineffective demand.
Its ignorant to blame it onto technology.
If utilizing less technology really equates to higher employment, the Philippines probably
wouldnt have to worry about getting jobs any more. However, this obviously isnt the case.
Simply comparing our country with more technologically advanced and efficient economies
would reveal that the assumption of technology hindering full employment is disoriented and
illogical.
Technology is meant to ease our lives, to simplify tasks, to bring information closer, to
keep moving us forward Aside from that, technology can actually create more job
opportunities. Although others say that people may lose their jobs because of the required
technical skills, they are forgetting that there are also many who suffer from underemployment.
If these underemployed get to get more decent jobs, it also allows the others to have the

opportunity to get employed. Besides, technology also opens new industries and business
ventures which would definitely need an increased labor force.
Since technology increases the productivity and efficiency of businesses, it means more
revenue for the company. This in turn may either raise the wages of the employees or lower the
prices of goods, increasing their buying power therefore also increasing effective demand.
Technology might even possibly help solve the unemployment problem rather than worsening it.
Its time our country embraces change. Filipinos are usually skeptical to new technology
and would rather stick to their conventional methods. Our country has the capacity to rival
others; great ideas have sprung up from the great minds of several Filipinos, only to be crushed
and rejected by the rest of the people. We should open our eyes and realize that this indifference
may be whats holding back our economy from reaching its full potential.

Works Cited
Bradshaw, Michelle R. (2007). Understanding Economics. Provo, Utah: Brigham Young
University.
Country Comparison::Unemployment Rate (2013). The World Factbook 2013-14. Washington,
DC: Central Intelligence Agency. Retrieved from https://www.cia.gov
Economic Goals (2014). AmosWEB Encyclonomic WEB*pedia. Retrieved January 14, 2014 from
http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=economic+goals
Remo, Michelle V. (2013, December 27). Unemployment rate slightly up in 13. The Philippine
Daily Inquirer.
Samuelson, Robert J. (2013, July 15). High tech and the long road to full employment. The
Washington Post. Retrieved from http://www.washingtonpost.com.
Santos, Matikas (2012, June 19). Internet can boost economy networking firm. The Philippine
Daily Inquirer. Retrieved from http://technology.inquirer.net
Sherman, Howard J. (1976). Stagflation: A Radical Theory of Unemployment and Inflation. New
York: Harper & Row.
Taylor, Alex III (2006, October). A Tale of Two Factories. Fortune, 60-65.
Wyly, Sam (2008). 1000 Dollars & an Idea: Entrepreneur to Billionaire. New York: New Market
Press
Morris, Michael. Kuratko, Donald. Covin, Jeffrey. (2008). Corporate Entrepreneurship &
Innovation. Eagan, Minnesota: Thomson South-Western.