Tag Archives: Race Against the Machine

Hiding from the Computers Part 5: Follow the Money

In my last post, I explained how the academics behind the job polarisation literature (declining middle class) have given us a framework for understanding the emergence of very clear winners and losers in the modern workplace. Yet most of these scholars have refused to extend their analysis to justify any fear of technology-led mass unemployment.

According to these economists, the disappearing middle class —due to the death of white collar routine cognitive work carried out by office employees and blue collar routine manual work performed by factory employees—will reappear in cognitive non-routine or manual non-routine jobs. In so doing, these academics have generally wasted few opportunities to bash lump-of-labour advocates; that is, those people who believe that there exists a fixed pool of jobs that computers are draining away.

Nonetheless, there are cracks in the facade. For example, back in 2003 Paul Krugman (who has acted as a commentator on the job polarisation literature rather than an originator) was rock solid behind the consensus economic profession position as can be seen here. But by December 2012 we see a significant U-turn in a piece called Rise of the Robots in the New York Times.

However, I would say that the consensus, while shaky, is still in place. Moreover, for a high-voltage polemic against the lump of labour theory, I recommend you read “Are Robots Taking Our Jobs, or Making Them?” by Ben Miller and Robert Atkinson of the Information Technology and Innovation Foundation. Like all good polemics, the essay assembles all the evidence that supports their thesis of ‘don’t worry, be happy’ and omits any evidence that contradicts it.

Nonetheless, it is a good, comprehensive exposition of the consensus position of the economics profession that has dominated thinking for decades. Further, we can actually take their analysis, but subvert it somewhat to fit the facts of what is actually happening in the job market, and from there think about solutions.

Miller and Atkinson sum up their position thus:

Both history and scholarly analysis have clearly and consistently refuted the notion that increased productivity leads in the moderate to long term to higher unemployment. This is because rising productivity increases overall wealth, and in a competitive economy that increased wealth gets reallocated to create additional demand that requires new workers.

This is a bold statement that I would agree used to be true, but may no longer be valid. But before we look at any data, let’s focus on the mechanism that they claim supports their assertion. The next sentence is key: Continue reading

Hiding from the Computers Part 2: To the Glue Factory?

‘Fools, Fools!’ shouted Benjamin, prancing around them and stamping the earth with his small hoofs. ‘Fools! Do you not see what is written on the side of the van?’

That gave the animals pause, and there was a hush. Muriel began to spell out the words. But Benjamin pushed her aside and in the midst of a deadly silence he read:

“Alfred Simmonds. Horse Slaughterer and Glue Boiler, Willingdon. Dealer in Hides and Bone Meal. Kennels supplied.” Do you not understand what that means? They are taking Boxer to the knacker’s!’

George Orwell, Animal Farm

But why did Napoleon, in George Orwell’s allegory of Animal Farm, send the horse Boxer to be killed and made into glue and dog food?

Napoleon was, of course, based on Joseph Stalin, and, being an unsentimental creature, he made the perfectly logical economic calculation that a weakened Boxer had come to cost more in feed than could be earned from his labour; ironically, this decision was true capitalism ‘red in tooth and claw’.

So how does this relate to the impact of technology on jobs and wages? Well, orthodox economists generally push back against the job destruction I outlined in Hiding from the Computers Part 1 by a) waving the theory of comparative advantage and b) looking at the historical wage record for unskilled workers since the industrial revolution.

For example, in an article in The New York Times entitled “Computers Jump to Head of the Class” earlier this week we see this:

Kazumasa Oguro, professor of economics at Hosei University in Tokyo, argues that smart machines should increase employment. “Most economists believe in the principle of comparative advantage,” he said. “Smart machines would help create 20 percent new white-collar jobs because they expand the economy. That’s comparative advantage.”

As an aside, the theory of comparative advantage is generally attributed to the English economist David Ricardo, but he was rather ambivalent about its impact on unskilled labour. He struggled with what he called ‘the machinery question’ and fluctuated from seeing technological advances benefiting all of society (divided into capitalists, land owners and workers)  to a position whereby such advances could be detrimental to the working class. See, for example, here.

Comparative advantage is not as intuitive as absolute advantage. It is easy to see that if Napoleon is good at providing governance and security, and Boxer hard manual labour, then they should trade. Each has an absolute advantage in one area. The pig Napoleon is not as strong as the horse Boxer, but he is cleverer. However, as Boxer ages and becomes enfeebled, Napoleon becomes both cleverer and stronger than Boxer. Yet, at first, they should still keep trading despite Boxer’s weakened state. This is because Napoleon is still better at ruling than he is at working manually. Although he may be able to do manual work far better than the aged Boxer, this would require the opportunity cost of him giving up time ruling (and exploiting) the other animals on the farm.

Unfortunately for Boxer, there is a limit to this comparative advantage. Boxer requires a minimum calorific input to survive. As Boxer progresses toward senility, he saves Napoleon less and less time. At some point, a full day’s work by Boxer only saves, say, 10 minutes of Napoleon time. And that 10 minutes time spent ruling (exploiting) by Napoleon is worth less than Boxer’s feed—at that point, sorry Boxer: you are glue.

Too abstract for you? Well actually this is exactly what happened to Britain’s population of working horses early in the 20th century. The peak in horse numbers took place at 3.25 million in 1901 long after the industrial gathered pace. The economic historian Gregory Clark in his excellent book “A Farewell to Arms” explains what happened next: Continue reading

All Change for Employment?

Every month, the benchmark nonfarm payroll employment numbers are reported by the U.S. government and every month Bill McBride at Calculated Risk puts out a comprehensive post analysing the figures. The post (or rather posts) invariably include the following two graphs (click on either graph for a larger image):

Percent Job Losses jpg

Employment Population Ratio copy

Both graphs suggest that there is something about the current recovery that is different; in other words, Continue reading