[dehrmann]

If my employees are more productive, I need fewer employees to produce the same number of widgets. If this happens across all industries, the price of labor goes down because there's more labor and fewer jobs. Historically, between lower prices driving more demand, other workers driving the productivity gains (maybe they make robots for factories), and new opportunities for workers, we still have full employment, but the long-standing economic question is what if they don't, and there genuinely isn't enough work for a lot of people.

[noelherrick]

Folks that get laid off from one industry because of productivity gains go to another one. The most dramatic example is farming, where in 1800 it used be that 90% of people were farmers and in 2000, 1.8% were employed in ag. Closer to home for many of us, there are more software engineers and we're dramatically more productive this generation due improvements in languages, raw processor power, storage technologies, open-source libraries, databases, and tools. The price of our labor has gone up because we're able to produce more.

[cbsmith]

I think I understand the nature of your thinking.

You're presuming a fixed demand for labour, regardless of how much value it provides. Imagine if, for a moment, productivity increased to the point where one person could do all current work for all current employers, but of course there were many, many other people who could provide the same productivity. Do you expect that employers would not figure out a way to use some of that additional productivity to make more money?

The demand for a product increases as value it provides increases. The net effect is that employers' profits increase, but so do labours'. The divide on the split is determined by relative strength of their positions, but if it ever goes to zero for either side, it really kills the incentive for increased productivity in the first place (if employers see no benefit from increased worker productivity, there certainly won't be any more demand, and there will be no effort to exploit this new productivity... if employees see no benefit from the increased productivity, they'll have no incentive to be more productive).