And for those who don’t get the pop culture reference, ‘chasing pavements’ is the British singer Adele’s metaphor for a fruitless pursuit or forlorn hope.
Should I give up,
Or should I just keep chasing pavements?
Even if it leads nowhere,
Or would it be a waste?
Even If I knew my place should I leave it there?
Should I give up,
Or should I just keep chasing pavements?
Even if it leads nowhere
Do we live in a different economic world? Or was the credit crisis of 2007-09 just an aberration: an anomalous blip on the way to future prosperity? It’s a taxing question for everyone, but especially those just starting adulthood and thinking of a future career.
The old certainty, pre-credit crisis, was that higher education was a reliable stairway to greater employability and higher income. But in the last couple of years, a sea of student debt and rising graduate unemployment have made many question whether past returns to education still hold.
On Monday, a disquieting NBER study by three Canadian economists entitled “The Great Reversal in the Demand for Skill and Cognitive Tasks” was published that suggests we have entered a ‘new normal’ for education too. From the Abstract:
….we argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow.
And if you think that wasn’t bad enough:
We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low- skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together.
The paper starts with a sweep through the employment data that shows the worsening employment picture for all U.S. workers (click for larger image):
Nothing new here. Indeed, it gives me an excuse to put up Calculated Risk’s iconic employment chart (click for larger image).
Note that the workforce continues to expand in the U.S. due to demographic trends, so the increasingly slow job recoveries from recessions translate into lower overall employment rates. What is new here, however, is that the paper’s authors argue that circa 2000 the demand for cognitive—aka high skilled, high education jobs—shrank. Worse, this coincided with an influx of highly educated new graduates who had been reared for years on the mantra (delivered by their parents, teachers and politicians of both the left and right) that staying on at college was the only way to get ahead.
As a result wages fell, as did actual positions in the cognitive sector. Moreover, those who could not find cognitive jobs, even at the new, reduced wage levels, were forced down the skill ladder into the routine jobs category. The next chart is even more surprising for me, since it shows that even those graduates (with four years of college education) in the higher wage percentiles have not managed to insulate themselves from falling wages in the post-2000 period:
This interpretation of labour market trends is very different from the consensus, which emphasises the cyclical impact of the 2008 credit shock and subsequent recession as being the main driver of depressed employment. Moreover, the paper is keen to record the structural break in employment trends as 2000 not 2008:
In this paper, we present theory and evidence suggesting that to understand the current low rates of employment in the US one needs to recognize the large reversal in the demand for skill and cognitive tasks that took place around the year 2000. In particular, we have argued that after two decades of growth in the demand for occupations high in cognitive tasks, the US economy reversed and experienced a decline in the demand for such skills. The demand for cognitive tasks was to a large extent the motor of the US labor market prior to 2000. Once this motor reversed, the employment rate in the US economy started to contract.
Of course, the data doesn’t suggest that opting not to go to college is a valid employment strategy (although student debt also has to be added into the equation). College graduates have managed to go backward more slowly than their high-school educated counterparts at the very least, and a college education gives one non-monetary rewards. Nonetheless, I doubt many graduation ceremonies will feature Adele’s song as the background music to the keynote commencement address.
Risk and Well-Being 
It seems that hardly anyone is talking about something that is completely foreseeable by this point: That computers will increasingly be able to do better and much less expensively more and more jobs currently being done by human workers. IMB’s computer Watson beat the top humans on Jeopardy, but is really being prepared to do the medical doctor’s job of diagnosing illnesses and prescribing treatments. It will be vastly less expensive and will make fewer errors. The nurses will enter the patient data, and the computer, with access to all known medical information, will diagnose and prescribe. At first the Watson computer will be used as an aid by medical doctors, but will eventually replace them in routine matters. Google’s driverless trucks will soon put all human truck drivers out of business. I saw an article a couple days ago about how computer programs will replace most classroom teachers soon, and produced better results by giving instruction that is completely individualized. I saw in the news last week that the nine employees at the toll booth on the Golden Gate Bridge were replaced by an automated toll system. A new classical radio station just opened that, due to new equipment is run totally by 6 workers. The former station took 30 workers. Drones plane will increasingly fight our wars. Soon advanced language translation ear devices will make it unnecessary for anyone to learn a foreign lanugage. I saw an article which says that computers now search legal documents in “discovery” matters making in unnecessary for lawyers to read the thousands of pages they formerly had to in big lawsuit, and the result is much less demand for lawyers. All this and more is coming. And the result is that vastly fewer human workers will be needed. What unemployment reachers 50% in the USA and stays at the level, what’s going to happen?
I see only two possibilities:
(1) Some sort of “socialism” in which the government provides resources to all the “unnecessary” people (who will include both the unskilled and the highly educated), or
(2) The government, one way or the other, lets or causes all these “unnecessary” people to expire (die).
Isn’t this correct? Will things not come down to this choice, probably within the next ten years?
All this is underway now. More and more experts are realizing that there will be no recovery regarding employment following the Great Recession of 2008, and that that recession was not even a recession, but rather a permanent adjustment down for the USA and Europe.
We hear the right wingers in the USA constantly repeating the statistics about the large number of people receiving food stamps and disability benefits in the USA. In essense, they are saying that they don’t want to share resources with America’s “useless eaters.”
We know what the Nazis did with their “useless eaters.”
I think some version of that is coming to America. The right wingers, with the base among the rich, will not allow more socialism to come. Therefore, the “unnecessary” people, the people that the free market economy has no use for, will have to be gotten rid of in some way, or allowed to expire (starve).
Rational Pessimist: What did you think of the prediction in the above comment? Is it irrefutable, or, did you see flaws in it?
Citizen Zero: I agree with you that the advance of technology (coupled with all the other resource and climate-related problems we face) has the potential to crush all our social and political institutions; if you look at southern Europe, this already appears to be happening.
And you are right that we are already creating an underclass, not just in the U.S. but across the entire advanced world, that will either get organised at some stage and become a political force or stay completely disenfranchised and cut-off from the entire system. The U.S. seems to be moving closer toward the latter path at the current time.
On the other hand (and let me introduce a rare note of optimism into this blog), technology could also allow us to completely revamp our existing social and political institutions to focus on the happiness of individuals (if we direct it to). Your medical example produces some good outcomes; i.e., better health outcomes. Technology also allows us to produce more with less—although we need that ‘more’ to be something sustainable, which isn’t for example tar sands. Technology can also increase social capital. Social media allows global communities of thinkers to swap ideas on how to transform our challenges, this blog being an example.
We still live in democracies (just), and thankfully the Koch Brothers have yet to completely hijack the political system. Accordingly, the political system is not completely dead. See what 350.org is doing as an example of where technology meets social progress, meets political activism.
So what is to be done? I think we probably need to develop a new political philosophy. For want of a better term, I would call it ‘technological socialism’. But this is a form of socialism that does not reject markets at the micro level but does coral them at the macro level. In the language of economics, technology is currently producing ever rising externalities; in other words, technology currently transfers benefits to an elite but assigns costs (unemployment, collapsing median incomes, health insurance risks and so on) to wider society. We can use the tax and regulatory system to stop such an outcome if we so wish. And if we so wish, we can use the state to seed and foster micro markets that produce positive social outcomes at the local level through the use of technology.
I struggle with all these ideas, but I think there is a way forward. Of course, my ‘rational pessimist’ side recognises that the human race also has the proven capacity to make all the wrong choices as well 🙂
Rational Pessimist, thank you for your feedback on the prediction that permanent massive employment will be caused soon by rapidly advancing technology. I must say I am surprised by your optimism regarding this issue, and by your faith in political democracy. Until recently, in all of human history (at least since the advent of big societies based on agriculture) the rich and powerful in all nations had a real need for mass populations. They needed large numbers of men to serve in armies (either to defend against aggression or to carry out aggression). Also, the wealth and power of the elites came from the system of large number of employees making goods that were then sold to a large number of consumers. The rich and powerful obtained their physical security and satisfied their desire for more wealth and power by having control of mass populations. But since the advent of nuclear bombs, big wars between the superpowers have been rendered impossible. Soon advances in robotics and computers and drone aircraft and drone sea ships will make it mostly unnecessary for the superpowers to have human soldiers and sailors. Soon factories and retail stories will have few to none human workers. McDonalds has a prototype fast food restaurant with no human workers. Stores like Wal-Mart will soon be 100% self check out. Fully automated factories will soon become the norm. When the rich and powerful in all the advanced nations realize they no longer have any NEED for mass populations for national defense or wealth building, and furthermore that these mass population are just a drain and burden and even a threat (through socialist revolution of the type prefigured by the Occupy Wall Street movement, and dramatized in “V for Vendetta”), the rich and powerful will, for the sake of themselves, civilization and the environment, start making plans to eliminate the thronging masses of unnecessary people. We are lead to believe by civics classes that nation-states and governments exist to serve all the people, but sociologists and economists know that those are just civic pieties promoted to make the masses more docile and compliant. All nations, all economies, all governments (from the time of Pharaohs up to today’s Western so-called democracies in the UK and USA) have always existed to serve the interests and needs of the rich and powerful, with the “little people” being just pawns and tools. Even supposedly idealistic wars like the U.S. Civil War (1861-1865) was not fought to liberate slave laborers but to advance the interests of Northern industrialists, as many historians have shown. I believe the think tanks of the rich and powerful see 50% or higher permanent unemployment coming in the USA and Western Europe, and they are planning for some solution OTHER than socialist distribution of resources to the “useless eaters.” This won’t be the end of civilization, just the end of the lives of half of the people in USA and Western Europe. I think people reject this prediction because it is too horrible to imagine. But a Holocaust for the sake of Lebensraum was carried out by Germany and its allies in the 1940s despite the certainty by many that no such thing could be done in modern times in Europe. I myself don’t like thinking that this could really happen in our times. But I always think about the few Jews who believed the worse and got out of Europe in the 1930s when there was still time, while others remained, betting that basic human decency would prevent the unthinkable. I believe you are right to be Rational Pessimist.
I wouldn’t call myself optimistic. But I view the world in probabilistic terms. The dystopian outcomes have a certain probability as do more benign outcomes. I think as individuals we should do our best to foster the more benign outcomes, but personally try to hedge our families against the worst outcomes. As regards the latter, I think there is a limit to what you can do even if you are a prepper, survivalist or whatever. If things fall apart, there is a limit to what any one individual can do. That is certainly a pessimistic outcome.
I agree with what the Rational Pessimist said above.