The pace of technological changes. In recent decades, new technologies have displayed a remarkably rapid diffusion into general use, displacing employment in many sectors of developed world economies. This is only likely to continue in the years ahead as many more jobs are automated and fewer workers are required. As such, structural unemployment is likely to remain elevated and broad-based wage growth should stay suppressed, helping to hold down core inflation (inflation in the real economy is driven by increasing wages for the labor force).
Market Realist – Technological changes and their adoption have both picked up their pace over the years. The graph above shows you the number of years it’s taken technologies like electricity, television, and Internet to be adopted by at least 25% of the U.S. population.
The graph shows that recent technological changes are being adopted much faster. While it took 35 years for telephones to permeate markets, the Internet and smartphones (at seven and four years, respectively) diffused much faster. According to statistics compiled by A.C. Nielsen, smartphones have increased their penetration from 5% to 40% in four years despite a recession.
With the rapid diffusion of new technologies coming into sharper focus, the displacement of workers in developed economies should be faster. This should lead to structural unemployment issues.
This shift also shows that developed economies (VEA) are likely to be affected by rapid technological changes. Emerging markets (EEM) have more scope in this regard. Countries like India (EPI), China (FXI), Brazil (EWZ), and other emerging nations (VWO) may offer a higher upside in the long term as these economies quickly bridge the technological gap.
Read on to the next part of this series to learn why all these shifts matter in the current context.