John A. Weinberg

English

Research Papers in Economics

THE NEW DIVISION OF LABOR: 
HOW COMPUTERS ARE CREATING THE NEXT JOB MARKET
BY FRANK LEVY AND RICHARD J. MURNANE
PRINCETON, N.J.: PRINCETON UNIVERSITY PRESS, 2004, 200 PAGES
REVIEWED BY JOHN A. WEINBERG
A
mong the many famous maxims that have come
down to us from the work of Adam Smith is: “The
division of labor is determined by the extent of the
market.” This statement captures an evolution frequently
observed in the nature of businesses and jobs as economies
and markets grow. In a small market, particularly in a
preindustrial economy, goods were produced and sold in
small shops. All stages of production were carried out by
the same artisans, the most senior of whom may also have
been the shop’s owner. 
The growth associated with industrialization brought
production on a much larger scale. And with that growth in
scale came processes that allowed production to be broken
into distinct pieces performed by distinct workers. So one
effect of industrialization was the shift in the distribution
of work away from artisans who were skilled at and per-
formed an array of related tasks, to workers who specialized
in performing one, often relatively simple part of the pro-
duction process. 
These changes originated with the introduction of tech-
nology that allowed large-scale pro-
duction to take place. That is, there
has long been an interdependency
between the size of demand for goods
(the extent of the market) and tech-
nology in determining the evolving
nature of work.
In The New Division of Labor, Frank
Levy and Richard Murnane, econo-
mists at the Massachusetts Institute of
Technology and Harvard University,
respectively, direct their attention to
the contemporary version of this inter-
dependence. Their particular focus is
on the ways in which computers have
changed the workplace. Since the dawn
of the computer age, many observers
have predicted widespread replacement
of machines for human work.
Levy and Murnane assess the extent
to which such predictions have come
true and, more importantly, attempt to
dig deeper into the relationship between information tech-
nology and human work. On the first score, it seems clear
that some early fears about massive displacement of workers
by computers were widely off the mark. Still, it also seems
clear that the effect of technology on work has differed
widely for workers of varying skill levels and occupations. It
is this variation that claims the authors’ attention.
The (Limited) Power of Computers
The authors emphasize jobs in two broad categories —
blue collar and clerical — which accounted for over half
the U.S. workforce in 1970 but for less than 40 percent
today. The increased mechanization of manufacturing and
the resulting declines in blue-collar jobs are by now old sto-
ries. But the decline in the clerical category also has been
striking. Many clerical jobs involve the organization, stor-
ing, and retrieving of information. These are tasks that
computers handle particularly well, and so the demand for
clerical labor has fallen.
The authors give a number of examples of other jobs in
which computers’ comparative advantage has reduced the
relative demand for human input. And not all of these are
clerical or mid-level jobs. Some, like the job of a trader in the
pits at the London International Financial Futures and
Option Exchange, were quite highly paid. The exchange
replaced its trading pits with an electronic trade execution
network in 1999. While the information processing tasks
associated with trading were perhaps
more complex than traditional clerical
work, it was still the case that comput-
ers could do that processing — search-
ing for matches between buyers and
sellers — more efficiently.
All decisionmaking, and therefore
most jobs, involves information pro-
cessing of some kind. But computers
are not better than humans at every
kind of information processing. Levy
and Murnane draw some useful dis-
tinctions. They single out decisions
that require “rules-based logic” as
those that can be easily delegated to
machines. Of course, rules-based
logic is simply the raw material of
computer programming. Aproblem is
broken down into a sequence of state-
ments, the truth or falsehood of
which can be unambiguously
assessed. Many decisions involve
46 Region Focus • Winter 2005
BOOKR EVIEW
Man and Machine
RF Winter 04 FINAL.ps - 1/10/2005 13:57 PMusing data provided as inputs to perform such a sequence of
tests, culminating in a final decision. The authors give mort-
gage underwriting as an example of a problem that, at first
blush, seems quite complex but that is still well suited to
automation.
The power of computers to solve even complex prob-
lems has at times led people to hold out high hopes for
“artificially intelligent” computers that could perform any
decisionmaking task more efficiently than mere humans.
In such a vision, there is no limit to the ability of machines
to replace work done by people. Levy and Murnane take a
distinctly different view. They identify an array of deci-
sionmaking problems where rules-based logic is not the
basic building block. A key component of this other cate-
gory of problems is what they call “pattern recognition,” by
which they mean the ability to assess a situation and deter-
mine if it fits a previously encountered pattern. Through
examples, they show that “situations” can be very complex
things. Consider a driver assessing and reacting to traffic
conditions, or a prison guard surveying interaction among
prisoners and watching for signs of trouble.
Building on pattern recognition, the authors describe
skills and jobs that computers cannot easily replace.
“Expert thinking” involves a body of knowledge and expe-
rience necessary for specialized pattern recognition. In the
work of automobile mechanics, computer diagnostics can
identify many problems encountered by car owners, but
this technological tool doesn’t always provide the answer
to  the customer’s problem. When it doesn’t, the expert
mechanic needs to draw on his experience of similar cases
to efficiently search for a solution. Many jobs also require
“complex communication” — the ability to convey and
understand nuances and subtle differences in meaning
between statements that may sound very similar. In face-
to-face or telephone communication, this skill may involve
reading meaning into voice tone or body language. In many
businesses, a human customer-service function remains
superior to menu-driven, automated alternatives.
New Skills for a New Age
Ultimately, Levy and Murnane are most interested in how
businesses train and how schools teach in a world where
rules-based logic allows machines to perform many tasks
and where expert thinking and complex communication are
the uniquely human skills that keep people employed. On
the training side, they describe cases of large businesses,
like IBM, that make substantial investments in training
their workers. They argue, however, that profit-seeking
businesses will in general not provide enough in the devel-
opment of expert thinking and complex communication
skills. These are general skills that make workers equally
valuable to competitors as to the firm that provides the
skills. So, naturally, firms are reluctant to invest in the
acquisition of such skills because workers can easily take
them to a new company. Instead the authors look to the
education system, and in particular to standards-based
educational reforms, as a source of improved skill-building
for the U.S. workforce.
Standards-based educational reforms mean different
things to different people, and Levy and Murnane argue
that not all standards are created equal. They are much less
interested in standards related to particular content areas
than in standards that assess a student’s success in devel-
oping the types of thinking and communication skills nec-
essary to do the jobs at which humans still have a compar-
ative advantage. And these types of skills don’t lend them-
selves as easily to simple, multiple-choice testing. They
describe a program undertaken by a Boston public elemen-
tary school that has had some considerable success. This
example makes clear that the kinds of reforms the authors
have in mind are not simple or cheap. They involve a great
deal of direct student-teacher interaction, as well as guided
interaction among students.
In the end, the picture Levy and Murnane paint of the
future of the U.S. labor market is not too promising. They
foresee a continuation of recent trends, involving replace-
ment of low-skilled work by technology and a widening
gap in earnings between the skilled and unskilled. Given
the divisive politics of public education, it’s hard to imag-
ine sweeping changes in primary and secondary education
taking place very rapidly. 
But many of the authors’ examples show that not all
jobs involving expert thinking and complex communica-
tion require a college degree. That is, not all such jobs are
“high-skilled” in the conventional sense of the term.
Indeed, general economic trends could ultimately lead to
increases in the demand for jobs that do not require high-
er education but do involve the types of skills the authors
emphasize — for instance, jobs that involve face-to-face
(or voice-to-voice) customer contact. 
The New Division of Labor gives a concise description of 
just what it means, in the computer age, to say that jobs are 
being lost to machines. Computer technology is different in
this regard from earlier technological advances. Since com-
puters are likely to continue to be a source of new innova-
tions, it may be natural to assume that the labor market
trends brought about by the information revolution are like-
ly to continue. But innovations are just that — they’re new
developments that aren’t anticipated before they appear.
This makes projection of trends into the future a risky busi-
ness. Rather than hoping for a change in the direction of
technology, the authors prefer to argue for adapting our
approach to education to the currently prevailing technolog-
ical trends. That’s a hard preference with which to argue. RF
Winter 2005 • Region Focus 47
Our review of Too Big to Fail: The Hazards of Bank Bailouts by 
Gary Stern and Ron Feldman, which appeared in the Fall 2004 issue of
Region Focus, stated that the book’s authors failed to address the prob-
lems a coinsurance program may face if the Federal Reserve lends liberally
from the Discount Window. Actually, Stern and Feldman discuss that issue
on pp. 157-158 of their book.
E DITOR’ S N OTE
RF Winter 04 FINAL.ps - 1/10/2005 13:57 PM

Book review : Man and machine

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Book review : Man and machine

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