Have humans mechanized and computerized ourselves into obsolescence?

Posted by AzBlueMeanie:

A new economics study shows globalization increases joblessness, and technology increases inequality. Derek Thompson writes at The Atlantic, Bash Brothers: How Globalization and Technology Teamed Up to Crush Middle-Class Workers:

Profits have never been higher. Wages have never been lower.

Okay, that sounds like an awfully oversimplified analysis of the frustrating recovery. And it is sort of simplified. It's also sort of true.

Go
back to 1960, and corporate profits have never been higher while salary
income has never been lower, as a share of GDP
. Take a look here (graph
via Floyd Norris):

Figure 1

Figure 2

This isn't a new trend, but something really did change in the last
generation. [Below] is a graph of the growth in corporate profits, labor
income, and GDP since 1970. As you can see, corporate profits took off
in the 1990s, returned to earth after the tech bubble burst and then, in
the 2000s, started jumping around like a bouncy ball dropped from a
helicopter. Meanwhile, labor income fell further and further behind
overall growth.

Figure 3

Sky-high corporate profit and stagnant wages aren't juxtaposing
stories. They're the same story. And the main characters of that story
are the familiar twin forces of globalization and technology, both of
which have accelerated since the early 1990s.

In a sentence:
Globalization (in particular, increased trade with China) has opened the
doors to more consumers and more cheap workers while labor-saving
technology has created more efficient ways to serve those consumers. As a
result, the businesses are bigger, but the workers' share is getting
smaller.
Fifty years ago, the four most valuable U.S. companies employed
an
average of 430,000 people with an average market cap of $180 billion. These days, the largest U.S. companies
have about 2X the market cap of their 1964 counterparts with one-fourth of
the employees. That's what doing more with less looks like.

In macro explanations of the economy, globalizationandtechnology are often served up together in one big mixture, like another G&T you might know.
But they don't have a monolithic effect. These are two distinct forces
with distinct implications for distinct cities, according to new research by David Autor, David Dorn, and Gordon Hanson.

* * *

Here's the bumper sticker version of their conclusion: Globalization increases unemployment; technology increases inequality.

Globalization:
The authors found that metros with more exposure to Chinese trade —
mostly concentrated in the swoosh of states extending
from Indiana down to the Gulf of Mexico and up through North Carolina
— saw significant job losses, both in manufacturing and overall. For
every $1,000 increase in imports per worker, the share of people with
jobs declined by 0.7 percentage points — and more for non-college
grads. As manufacturing jobs declined, demand for local services would
decline, and thus job losses could extend into areas like retail and
hotels.

Technology: The computerization of certain
tasks hasn't reduced employment, the authors find. But it has reduced
the availability of decent-paying, routine-heavy jobs. Middle-class
jobs, like clerks and sales people and administration support, have
disappeared as computers gradually learned to perform their routines
more efficiently. But as those jobs disappeared, cities saw an increase
in both high-skill work and lower-paid service sector work, leading to
little overall change in employment.

Back to the top two graphs. With globalization replacing American
workers with Chinese labor and computers replacing middle-class workers
with software programs, labor costs have fallen for companies while
demand has grown all over the world. The result has been higher profits,
not just for the finance companies who make up a growing share of domestic corporate earnings,
but also for manufacturing companies and other multinational firms.
It's a sad, inescapable truth that many international companies are
thriving, not despite the incredible shrinking American worker, but because of him.

A much lengthier analysis is in the New York Times today from the study's authors, David H. Autor, professor of economics at the Massachusetts Institute of Technology, and David Dorn, an assistant professor of economics at the Center for Monetary and Financial Studies in Madrid. How
Technology Wrecks the Middle Class
:

In the four years since the Great Recession officially ended, the
productivity of American workers — those lucky enough to have jobs — has
risen smartly. But the United States still has two million fewer jobs
than before the downturn, the unemployment rate is stuck at levels not
seen since the early 1990s and the proportion of adults who are working
is four percentage points off its peak in 2000.

This job drought has spurred pundits to wonder whether a profound
employment sickness has overtaken us. And from there, it’s only a short
leap to ask whether that illness isn’t productivity itself. Have we
mechanized and computerized ourselves into obsolescence?

Are we in danger of losing the “race against the machine,” as the M.I.T. scholars Erik Brynjolfsson and Andrew McAfee argue in a recent book? Are we becoming enslaved to our “robot overlords,”
as the journalist Kevin Drum warned in Mother Jones? Do “smart
machines” threaten us with “long-term misery,” as the economists Jeffrey
D. Sachs and Laurence J. Kotlikoff prophesied earlier this year? Have we reached “the end of labor,” as Noah Smith laments in The Atlantic?

* * *

Economists have historically rejected what we call the “lump of
labor” fallacy: the supposition that an increase in labor productivity
inevitably reduces employment because there is only a finite amount of
work to do. While intuitively appealing, this idea is demonstrably
false. In 1900, for example, 41 percent of the United States work force
was in agriculture. By 2000, that share had fallen to 2 percent, after
the Green Revolution transformed crop yields. But the
employment-to-population ratio rose over the 20th century as women moved
from home to market, and the unemployment rate fluctuated cyclically,
with no long-term increase.

Labor-saving technological change necessarily displaces workers
performing certain tasks — that’s where the gains in productivity come
from — but over the long run, it generates new products and services
that raise national income and increase the overall demand for labor.

* * *

The multi-trillionfold decline in the cost of computing since the
1970s has created enormous incentives for employers to substitute
increasingly cheap and capable computers for expensive labor.
These
rapid advances — which confront us daily as we check in at airports,
order books online, pay bills on our banks’ Web sites or consult our
smartphones for driving directions — have reawakened fears that workers
will be displaced by machinery. Will this time be different?

A starting point for discussion is the observation that although
computers are ubiquitous, they cannot do everything. A computer’s
ability to accomplish a task quickly and cheaply depends upon a human
programmer’s ability to write procedures or rules that direct the
machine to take the correct steps at each contingency. Computers excel
at “routine” tasks: organizing, storing, retrieving and manipulating
information, or executing exactly defined physical movements in
production processes. These tasks are most pervasive in middle-skill
jobs like bookkeeping, clerical work and repetitive production and
quality-assurance jobs.

Logically, computerization has reduced the demand for these jobs, but
it has boosted demand for workers who perform “nonroutine” tasks that
complement the automated activities. Those tasks happen to lie on
opposite ends of the occupational skill distribution.

At one end are so-called abstract tasks that require problem-solving,
intuition, persuasion and creativity. These tasks are characteristic of
professional, managerial, technical and creative occupations[.]

On the other end are so-called manual tasks, which require situational
adaptability, visual and language recognition, and in-person
interaction . . .  These workers can’t be replaced by robots, but their skills are not scarce, so they usually make low wages.

Computerization has therefore fostered a polarization of employment,
with job growth concentrated in both the highest- and lowest-paid
occupations, while jobs in the middle have declined.
Surprisingly,
overall employment rates have largely been unaffected in states and
cities undergoing this rapid polarization. Rather, as employment in
routine jobs has ebbed, employment has risen both in high-wage
managerial, professional and technical occupations and in low-wage,
in-person service occupations.

So computerization is not reducing the quantity of jobs, but rather
degrading the quality of jobs for a significant subset of workers.
Demand for highly educated workers who excel in abstract tasks is
robust, but the middle of the labor market, where the routine
task-intensive jobs lie, is sagging. Workers without college education
therefore concentrate in manual task-intensive jobs — like food
services, cleaning and security — which are numerous but offer low
wages, precarious job security and few prospects for upward mobility.
This bifurcation of job opportunities has contributed to the historic
rise in income inequality
.

* * *

The good news, however, is that middle-education, middle-wage jobs are
not slated to disappear completely. While many middle-skill jobs are
susceptible to automation, others demand a mixture of tasks that take
advantage of human flexibility.

* * *

These middle-skill jobs will persist, and potentially grow, because they
involve tasks that cannot readily be unbundled without a substantial
drop in quality . . . Simply put, the quality of a service within any occupation will improve
when a worker combines routine (technical) and nonroutine (flexible)
tasks.

* * *

Following this logic, we predict that the middle-skill jobs that survive
will combine routine technical tasks with abstract and manual tasks in
which workers have a comparative advantage — interpersonal interaction,
adaptability and problem-solving . . .  Indeed, even as formerly middle-skill occupations are being “deskilled,”
or stripped of their routine technical tasks, other formerly high-end occupations are becoming accessible to
workers with less esoteric technical mastery . . . Lawrence F. Katz, a labor economist at Harvard, memorably called those
who fruitfully combine the foundational skills of a high school
education with specific vocational skills the “new artisans.”

The outlook for workers who haven’t finished college is uncertain, but
not devoid of hope. There will be job opportunities in middle-skill
jobs, but not in the traditional blue-collar production and white-collar
office jobs of the past. Rather, we expect to see growing employment
among the ranks of the “new artisans”[.]

What all this Ivory Tower economics boils down to is that our economy has changed in such fundamental ways that it is no longer possible to create a large number of labor-intensive jobs that pay a living wage for all those individuals who are ready, willing and able to work. Technology is replacing many jobs at an accelerating rate. See the Google driverless car, for example. We are creating a permanent underclass of the unemployed and low-wage service sector employees who need supplemental government assistance just for basic human survival.

We are not even having this fundamental economics discussion, let alone exploring possible solutions.

UPDATE: Brad Plumer writes, "The U.S. job market is increasingly polarized, with high-paid and low-paid occupations growing fast, while middle-class jobs are vanishing." Here’s where middle-class jobs are vanishing the fastest.

3 responses to “Have humans mechanized and computerized ourselves into obsolescence?

  1. Zero research to back me up? You are out of the loop. There has been a revolution in economics research over the last decade. Edward Prescott, Nobel Prize Winner in economic cycle theory showed a directl relationship between marginal taxation and labor force participation. Richard Rogerson, one of the nation’s top ranked economists showed a direct relationship between social welfare spending and declining labor force participation. If you get it for free, you are less likely to work. Christine Romber, former President of Obama’s council of economic advisors showed a direct relationship betweeen tax increases and economic growth of 1 to 3.5, a trillion dollar tax increase peels 3.5 trillion off the economy. Martin Feldsstein, top ranked Harvard economist, showed a very large elasticity of demand associated with marginal income taxation, consistent with both Romer’s and Prescott’s work. Even Austen Goolsbee, Obama’s great white hope, is now stretching further and further to come up with cases to prevent the truth from breaking through. You all are stuck in the 90’s. All this research has broken through since 2000.

  2. “Labor force participation has fallen for two reasons: high tax rates on small businesses and comfortable welfare provisions.” There is no credible economic research to support your position. This is over-simplification of a complex issue with many factors.

  3. Well, you tax labor to death and it doesn’t show up to work. Capital gets a free ride. Look at the lies that Warren Buffett told and got away with. He’s earned over $50 billion dollars without ever paying a penny of tax on it. His lying parade enabled him to increase taxes on all of his small competitors while he walked away scot free. Labor force participation has fallen for two reasons: high tax rates on small businesses and comfortable welfare provisions. This has been done at enormous cost to the common good. Tax revenues and all of the potential to do good with them have absolutely collapsed over the last 5 years.