Tuesday, November 13, 2012

It's Still The Machines, Stupid

So the latest dose of reality in the economic community has been provided by Henry Siu and Nir Jaimovich:
Economic recoveries aren’t what they used to be. Since the end of the Great Recession in June 2009:

• US real GDP per capita grew by 3.6%,
• but per capita employment fell by 1.8% over and above the 5.5% that was lost during the recession.

This malaise in the US labor market has been the subject of countless economic policy debates and may be the decisive factor in the upcoming US election. The fact that employment is recovering much slower than GDP is a relatively new phenomenon; jobless recoveries have only really occurred after the recessions of 1991 and 2001. These last three recoveries represent a distinct break from previous postwar episodes of recession when both GDP and employment would vigorously rebound following recessions.
Here is the discussion of the paper on over on Economists View. 'Jobless Recoveries and the Disappearance of Routine Occupations'. Kevin Drum summarizes the conclusions thusly:
[Liu and Jaimovich] break down jobs into three categories: non-routine cognitive jobs, non-routine manual jobs, and routine jobs. What they show is two things:

• Most of the job losses during the past three recessions have come from the ranks of occupations coded as routine.
• And unlike previous recessions, these jobs don't come back during the subsequent recoveries. The chart below shows the permanence of these job losses in the aftermath of our last three recessions.
So why is this happening? Siu and Jaimovich conclude that it's the machines, stupid:

Automation and the adoption of computing technology is leading to the decline of middle-wage jobs of many stripes, both blue-collar jobs in production and maintenance occupations and white-collar jobs in office and administrative support. It is affecting both male- and female-dominated professions and it is happening broadly across industries — manufacturing, wholesale and retail trade, financial services, and even public administration.

This is only the tip of the iceberg, and better education can only make a small dent in it. I suspect that over the next several decades, this is going to be one of our most serious economic issues, but it's one that we'll mostly try to deny because the solution is so intractable. So instead we'll make up other explanations and continue to flail around. But like it or not, machines are going to get more and more competent over time, and they're going to perform more and more of the work. Eventually we'll have to face up to it.
And, again, I would factor in efficiencies accrued to the remaining workers by using computers. This makes sense – as profits fall, automation is brought in because it’s cheaper than hiring workers, what with all the benefits, especially health care which is strangling the U.S. (and to a lesser extent the world’s) economy. Every recession becomes a giant game of musical chairs. We all know that there are not enough “elite” jobs for everyone, and that these jobs will go to those who can either spend a decade or so without work gaining expensive education on their parents' dime, have the requisite social connections, or can spend years interning for free in the world's most expensive cities, i.e. the children of the already wealthy. In other words, kiss class mobility goodbye.

We can’t expand our economy forever to employ all the workers.

To me, this long column by Thomas Edsall, who we've heard from previously, seems to imply that the “culture wars” are being used to distract the public from the gradual disappearance of jobs. Here’s the concluding portion:
Social, cultural and moral issues have become favorable terrain for the Democratic Party, in the way that they once were for the Republicans, but there are economic trends that do not bode so well for core Democratic constituencies, given their disproportionately low income and high-unemployment rates.  The issue of mounting salience – unaddressed so far by Democrats and Republicans – is the hollowing out of the job market.

A growing body of evidence demonstrates that jobs that provide mid-range incomes are disappearing, but just as important, the kinds of jobs that have long served as stepping-stones up the ladder of opportunity are disappearing too. One recent contribution to this literature, “Jobless Recoveries and the Disappearance of Routine Occupations” by Henry Siu, an economist at the University of British Columbia, and Nir Jaimovich, an economist at Duke, reports that there is job growth at the top and bottom of the payscale, but declining employment throughout the mid-pay range. The technical term is job polarization:

"The fact that polarization is occurring should not surprise anyone who understands the influence of robotics and automation on machinists and machine operators in manufacturing. Indeed, the influence of robotics is increasingly being felt on routine occupations in transportation and warehousing. Of equal importance is the disappearance of routine employment in “white-collar” occupations — think bank tellers being replaced by ATMs, or secretarial work being replaced by personal computers and Siri, Apple’s iPhone-integrated “intelligent personal assistant.”

In the authors’ view, past trends suggest a worsening future:

"Thus, all of the per capita employment growth of the past 30 years has either been in ‘non-routine’ occupations located at the high-end of the wage distribution, such as software engineers and economists, or in low-paying jobs, such as service occupations like restaurant waiters and janitors. For this last set of occupations, this has been especially true in the past decade."

Siu and Jaimovich find that the decline in routine middle-income jobs that lend themselves to mechanization and automation occurs during recessions, and, most importantly, does not reverse itself in periods of subsequent recovery. This chart, Fig. 4, in which the pink areas represent economic recessions, demonstrates how, starting during the recession of 1991, recoveries do not lead to revived job markets:

The conclusions reached by Siu and Jaimovich are pessimistic:

"Automation and the adoption of computing technology are leading to the decline of middle-wage jobs of many stripes, both blue-collar jobs in production and maintenance occupations and white-collar jobs in office and administrative support. It is affecting both male- and female-dominated professions and it is happening broadly across industries –manufacturing, wholesale and retail trade, financial services, and even public administration."

The authors offer scant hope for the future.

"The pace of job polarization was greatly accelerated in this last recession, and the pace of automation and progress in robotics and computing technology is not slowing down either. If the past 30 years is any guide, we should expect future recessions to continue to spur job polarization. Jobless recoveries may be the new norm." (emphasis mine)

Should it continue, lack of economic opportunity is likely to undermine the workings of American democratic capitalism: the willingness of the have-nots and have-lesses to tolerate high levels of inequality in the belief that everyone has a shot at making it into the middle class.

The forces driving the evisceration of middle-income jobs — global production and automation — threaten the newly acquired rights of recently enfranchised populations. The “perennial gale of creative destruction” may be so powerful and inexorable that the political system cannot provide a remedy. Even so, if the Democrats fail to take on the issue, they will leave their party open to challenge as discontent over employment stagnation mounts.

An alternative strategy would be for Democrats to unilaterally declare victory in the culture war — allowing Republicans to waste time on futile rear guard actions — and to shift the political agenda to the jobs crisis. The question is: Does the new and enlarged Democratic coalition have the capacity to re-engineer capitalism to produce sustained economic growth while working toward social justice?
Answer: no.

And we’re so desperate for “jobs” we’re making up ridiculous business ideas. Here are some of the business ideas from a "startup weekend" held recently here in town. Is it just me, or are these things just useless desperate makework?
Groupmyfunds.com finished first. It allows people to combine funds for an event, such as a bachelor's party where everyone pitches in for a limo. Judges advised the company to change its name to something snappier, Matt Cordio, co-founder of Skills Pipeline and organizer for the event, said. The start-up won reduced-price legal services from Godfrey & Kahn and a chance to apply for the Global Start-up Battle.

MobCraftBeer, a brewing company that uses crowdfunding to determine which beer to make, took second place. Debugged.io, which makes a tool for tracking bugs that occur on websites, finished third.
Really, this is what it's come down to? Are we expecing Internet-based nonsense to save the day?


  1. There is a new tech biz incubator here in Buffalo. Its first award went to a group developing some kind of smart phone application review and recommendation service.

  2. "Answer: no."

    That cracked me up. So many of the "questions" asked by the press are really pseudoquestions everybody already knows the answer to. BS wherever one looks.

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