This post started out in life as an attempt at persuading those who believe that our primary problem in producing enough jobs is technological unemployment that they were mistaken. After I’d worked on it for a while, I realized that I was setting an impossible task for myself. So I decided to reverse the purpose of the post and outline what it would take to persuade me that the primary reason that more people are unemployed now than was the case in 2007 is that their jobs have become obsolete due to technology.
First, even though the nominal unemployment rate has now fallen below 7%, it is simply incontrovertible that fewer people are working than was the case in 2007. That’s true whether you conside it as a percentage of the whole or in absolute numbers and I do not believe that demographic arguments are sufficient to explain the difference. See this graph.
Therefore for the primary problem to be technological unemployment, you’d need to show some technological development since 2007 that has resulted in what we’ve seen. I do not believe there is such a development.
Note that my position is not that technological unemployment is irrelevant to our present predicament but that it is fractional.
Here’s Paul Krugman’s position on the subject:
What I’d say about America now is that we have big problems, very much including too much talent going into financial fiddling, too few people who actually make stuff — actually, I worry as much or more about machinists as I do about scientists and engineers. But that observation has virtually no bearing on high unemployment right now. So I’d hope we can walk and chew gum at the same time, appreciating the structural problems but not letting that understanding get in the way of fighting the immediate jobs crisis.
I’m largely in agreement with that but I think that Dr. Krugman is too determined to view all of our societal problems through the prism of partisan politics. I don’t think that our “structural problems” go back only to 2007 or even to 2001. I think they go back to the early to mid 1990s with the most important problem caused by China’s pegging the yuan to the dollar. That simultaneously had the effect of tremendously increasing the rewards to “financial fiddling” and reducing the marginal returns to labor, something also effected by the massive immigration from Mexico we’ve seen over the last several decades.
So, the second thing you’d need to do to persuade me our primary problem is technological unemployment would be to show that over the period of the last twenty years technology has been a larger factor in pushing employment down than Chinese mercantilism, immigration, too many dollars chasing too few secure investments, or malinvestment. That’s an empirical question that can only be demonstrated with numbers.
Finally, I could produce reams of material showing that precisely the same claims have been made in just about every major economic downturn over the period of the last century and a half. See this quote from a paper in the Journal of the American Statistical Association in 1935. They thought the problem in the 1930s was technological unemployment. I think that whatever we believe the actual reasons for the end of the Great Depression might have been it wasn’t a sudden increase in skills on the part of the American labor force.
Therefore, the third thing you’d need to do to convince me that our main problem is technological unemployment is to demonstrate that this time really is different.
Now, there’s one area in which I’m in complete agreement that technological unemployment is a major issue: retail. Over the last decade and a half there have been several revolutionary changes in retail which enable vendors to sell enormously more stuff without adding employees. That just demonstrates that fiscal stimulus targeted at increasing retail sales won’t have much effect on employment. We need to be growing, pumping, mining, and making more stuff and buying more of the stuff we grow, pump, mine, and make.
Now, there’s one area in which I’m in complete agreement that technological unemployment is a major issue: retail. …
Amazon has huge warehouses that stock products, and these require employees. They use shippers, and these require employees. The upkeep for the equipment requires employees.
I am highly skeptical of a large scale technical unemployment problem. Most skills are transferable. There may be a location problem, but that is a different issue.
Or, am I missing something?
I took the kids to the local McDonalds drive-through last week for a treat (ice cream) and noticed the drive-through had an automatic drink machine. It was pretty clever – it had a magazine of cups that rotated and dropped the correct size into a short conveyor where it was automatically filled with ice and then the drink. The employees would still have to put the cap on.
Amazon doesn’t actually have a lot of warehouse space, at least not as much as you might expect. Much of their product is transshipped, i.e. Amazon never really stocks it. When Amazon receives an order, it in turn places an order with a vendor and the vendor actually does the shipping.
However, that’s largely beside the point. The point is that modern techniques don’t involve nearly as many warehouses and people as they used to and there could be a big increase in retail without much increase in staffing requirements. Consequently, the Keynesian multiplier is a lot smaller than it might have been, say, fifty years ago.
That’s a point that I think is worth underscoring. A lot of our organizational structures, policies, and assumptions are based around 50 year old approaches. That’s the problem with the proposals for infrastructure spending as fiscal stimulus. Things just don’t work that way any more. Or, as the president learned, there are no shovel-ready projects and even when they are the qualified vendors have all the shovels they need and plenty of people to wield them.
I’m also generally unconvinced by the argument that technological change is the basis of the unemployment problem, but two points:
1) The technology doesn’t need to have been made post-2007 in order to account for job loss in that time frame. My old employer used a travel agent until ‘belt-tightening’ in early 2009, when they told people to just look online. That technology existed before the recession, but wasn’t used until someone looked at ways they could cut costs without hurting productivity
2) Changes in productivity in a recession (productivity goes up in recessions) are frequently not due to technology but rather, people working harder (or longer, and cheating on time sheets if they’re not salaried.) It still seems bizarre to me that so many employees at offices are salaried when they have little or no executive responsibilities.
If that’s the case, you’re left with a different question: why was the employer leaving money on the table prior to 2009?
BTW, I think that’s the critical and unanswered question. Not why is employment so low now but why was it so high from 1995 to 2007?
I think as more online retailers are required to pay sales tax retail is going to change again.
Salaried employees are expected to work unpaid overtime. I am familiar with several places where the engineers and technical folks are expected to work 50 hours. It is unspoken, but you will probably not get promoted.
In a recession, workers are willing to do more to keep a job, but during the boom, the employer is willing to require less to keep an employee. A job may require 1.5 employees. During a boom, an employer will hire 2 workers for the job, but during a recession, he will only hire 1. When the boom returns, he will eventually hire a second worker.
It’s possible but I honestly doubt it. Other than very small operations indeed which the Powers-That-Be don’t care about there are no longer any purely “bricks and mortar” retailers. They’re all Internet operations now. On the rare occasions when I actually go into a physical store a hefty proportion of the time I’ll be told that I need to order what I want online. Stores no longer have backrooms full of inventory. What you see is what they have. Shelves are frequently stocked by the suppliers rather than by in-house personnel.
That has lots of implications. Not only are fewer people necessary to produce more retail sales but there’s a reduced need for floorplanning and the nature of the premises required is different.
I am looking at it from the small local retailers. With 10% sales tax and free shipping, I can get many things to my door a lot cheaper and easier than it takes to shop local. If I need to actually touch it, I can go to the local store, but I will order it online.
Barnes & Noble would no longer have the sales tax disadvantage, but allowing returns to the stores would be a huge advantage.
I think it is going to change things in ways that we cannot imagine. I never imagined using an iPhone camera to deposit a check, and I am still not sure how to react.
To me, it looks like around 1994. The internet was interesting, but the web was exciting. It was gaing to be something, but what that something was going to be was unknown.
Jobs lost to foreign trade is technological unemployment in many cases. Technology makes it possible for complex objects (jets, iPhones, cars) to be designed and engineered and built in various far-flung operations. The internet makes it possible for engineers in Taiwan and their counterparts in France and the US, let’s say, to work in real time on projects while staying in close consultation with the factories in China and Mexico that will do the assembly, as well as managing the shipping and warehousing and eventual retail. Not to mention the money that needs to flow between A and B and C. All of that is possible because of the internet.
Prospectively it’s pretty obvious that fast food is capable of going the way of retail. And it’s likely that in ten years the shipping industry will start down the same path to requiring fewer and fewer humans.
So, we’ve eliminated or drastically reduced our need for travel agents, bank tellers, retail clerks and soldiers, we all pretty much agree on that. Your theory is there will always be “something else.” Your evidence is: there’s always been something else in the past. Not a bad argument, but it’s all about looking in the rearview mirror and extrapolating the future. But I would argue that rear view is a limited view and subject to prejudices that distort the record, specifically a hard line between human and non-human labor.
I don’t have any idea how much of current unemployment results from technology/apps/robots. But I think it would be absurd to argue that full employment will remain the natural human condition forever. Clearly it is at least theoretically possible that human labor will move into a period of more or less permanent surplus. Horse labor did. For much of human history horses and oxen did a major part of the work, and now they don’t. Dogs are another example. They were all replaced by the internal combustion engine and never got their “jobs” back.
I can hear the howls of derision already. Horses! My God, are you comparing us to horses? But are we so much better at adapting to changing labor conditions than horses and oxen and dogs were? Much better, yes. But so much better that we’ll never become unnecessary? For that you’d have to believe that there can never be an equivalent to the internal combustion engine for humans, and I think it’s coming, its early stage is here, and I’m typing on it. It’s already taking the jobs of bank tellers, travel agents, paralegals, librarians, messengers, tax preparers, bookkeepers and many others. It is going to take fast food, cab drivers, lawyers, pharmacists and many more jobs and eventually we just won’t need all that many humans to pull the plow.
There isn’t an over-abundance of horse labor. Soylent Glue is Flicka!
And I do suspect that those of us deemed irrelevant and worthless are going to be a little more resistant to heading off to the glue factory than Flicka was.
Actually, you need to readjust your orientation. The answer is not because it has always happened in the past. It has not. It has always happened in the past when people were free and had extra stores of value.
The extra store is incentive for somebody to determine a way to get it from the owner. It can be by providing a good or service. It could also be by stealing it, and this could result in a good or service.
The person with the extra value may also decide to create additional goods or services, and use those to obtain some of the extra store of value of others.
It is an integral part of human nature, and this is the reason I know it will happen in the future.
This might not be the exact post for it, but I will throw out an idea: government R&D with open source patents and technology (except security). Any products manufactured would be required to be done in the US.
Drug research is expensive. The government can build and run a research facility(s).
TB, a better service would be for the government to fund people to replicate prior studies, to find out exactly how many of them are any good.
Sadly, it’s pretty tough to make it stick. Take the example of AZT. Its development was funded with federal dollars and theoretically it should be in the public domain.
However, some other country (the UK?) allowed it to be patented there and reciprocal patent law gave it a patent here, too.