Wednesday, July 17, 2013

Automation, Again

The Jawbs market in America is horrific:
The jobless nature of the recovery is particularly unsettling. In June, the government's Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000—but there are jobs and then there are "jobs." No fewer than 557,000 of these positions were only part-time. The survey also reported that in June full-time jobs declined by 240,000, while part-time jobs soared by 360,000 and have now reached an all-time high of 28,059,000—three million more part-time positions than when the recession began at the end of 2007.

That's just for starters. The survey includes part-time workers who want full-time work but can't get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%, up from 13.8% in May.

The 7.6% unemployment figure so common in headlines these days is utterly misleading. An estimated 22 million Americans are unemployed or underemployed; they are virtually invisible and mostly excluded from unemployment calculations that garner headlines.

At this stage of an expansion you would expect the number of part-time jobs to be declining, as companies would be doing more full-time hiring. Not this time. In the long misery of this post-recession period, we have an extraordinary situation: Americans by the millions are in part-time work because there are no other employment opportunities as businesses increase their reliance on independent contractors and part-time, temporary and seasonal employees.

Even the federal government payroll is turning to part-timers: In June 2012, 58,000 federal workers were part-timers. This year it's 148,000, and we still don't know how the budget sequester will play out, for many agencies have resorted to furloughs rather than layoffs.

The latest unemployment report was as underwhelming as the Household Survey. The biggest gains in June came from leisure and hospitality industries, including hotels and fast-food restaurants. Of the 195,000 new payroll jobs, 75,000 were in restaurants and bars, where the average weekly paycheck is about $351, less than half the average for all other private industries. Not to mention that these positions offer fewer hours, especially in the restaurant world, which has averaged 26.1 hours per week versus 34.5 hours for all private employers.

What's going on? The fundamentals surely reflect the feebleness of the macroeconomic recovery that began roughly four years ago, as seen in an average gross domestic product growth rate annualized over the past 15 quarters at a miserable 2%. That's the weakest GDP growth since World War II. Over a similar period in previous recessions, growth averaged 4.1%. During the fourth quarter of 2012 and the first quarter of 2013, the GDP growth rate dropped below 2%. This anemic growth is all we have to show for the greatest fiscal and monetary stimuli in 75 years, with fiscal deficits of over 10% of GDP for four consecutive years. The misery is not going to end soon.
Mort Zuckerman: A Jobless Recovery Is a Phony Recovery (WSJ)

True enough. Being the Wall Street Journal, it of course blames government and lists a few completely useless ideas to deal with the situation (at least it doesn't call for more tax cuts). However, this article makes more sense:  Have the robots come for the middle class? (Washington Post)
Levy and Murnane looked back over 50 years of employment in the United States and sorted jobs into five broad categories: routine manual tasks, routine cognitive tasks, non-routine manual tasks, working with new information and solving unstructured problems. In the past 20 years, almost all the net job gains were in the two areas computers struggle with the most: working with new info (for example, figuring out a customer’s Internet service issues) and solving unstructured problems (such as repairing cars when computer diagnostics can’t pinpoint what’s wrong).

Put another way, computers have grown very good at doing things that require plugging in formulas or simply following directions. Humans are still much better at talking to one another to figure out where problems lie and strategize how to solve them.

There are still a lot of jobs in the economy that require those human skills. But wealthy kids have a huge advantage in getting those jobs, thanks to their schooling — Pew research shows the lowest-achieving wealthy child is more likely to finish college than the highest-achieving poor child — and, maybe more importantly, their home environments.

“With the constant need to acquire and work with new information,” Levy and Murnane write, “literacy requires not only the ability to sound out words phonetically, but also the background knowledge and vocabulary to make sense of newly encountered words and concepts.” On this, studies show wealthier children have a big edge, hearing their parents speak nearly four times as many words in their infancy than the children of welfare recipients do. More affluent parents send their children to preschool and science camp and all sorts of other enrichment activities that supplement their basic educations.

When it comes to the skills most prized in the future job market, Murnane said in an interview, “kids from affluent families get a lot of that at home, and poor kids don’t.”

Educators and policymakers will need to find ways to fill that gap, the economists say, or they risk exacerbating America’s already wide — and damaging — economic inequality. They say countries such as Denmark, Norway and the United Kingdom are meeting the challenge more effectively, as evidenced by their lower income-inequality ratios and higher degrees of economic mobility.

Other economists say the policy problem goes well beyond education. Many liberal labor economists, for example, contend that decreased worker bargaining power over the past decades explains the inequality trends more than educational failures.
Well, we can't say nobody saw it coming:
On March 22, 1964, President Lyndon Johnson received a short, alarming memorandum from the Ad Hoc Committee on the Triple Revolution. The memo warned the president of threats to the nation beginning with the likelihood that computers would soon create mass unemployment:

        A new era of production has begun. Its principles of organization are as different from those of the industrial era as those of the industrial era were different from the agricultural. The cybernation revolution has been brought about by the combination of the computer and the automated self-regulating machine. This results in a system of almost unlimited productive capacity which requires progressively less human labor. Cybernation is already reorganizing the economic and social system to meet its own needs.

    The memo was signed by luminaries including Nobel Prize winning chemist Linus Pauling, Scientific American publisher Gerard Piel, and economist Gunnar Myrdal (a future Nobel Prize winner). Nonetheless, its warning was only half right. There was no mass unemployment— since 1964 the economy has added 74 million jobs. But computers have changed the jobs that are available, the skills those jobs require, and the wages the jobs pay.

    For the foreseeable future, the challenge of “cybernation” is not mass unemployment but the need to educate many more young people for the jobs computers cannot do. Meeting the challenge begins by recognizing what the Ad Hoc Committee missed—that computers have specific limitations compared to the human mind. Computers are fast, accurate, and fairly rigid. Human brains are slower, subject to mistakes, and very flexible. By recognizing computers’ limitations and abilities, we can make sense of the changing mix of jobs in the economy. We can also understand why human work will increasingly shift toward two kinds of tasks: solving problems for which standard operating procedures do not currently exist, and working with new information— acquiring it, making sense of it, communicating it to others. ...
Computers and Unemployment: This Time is Different? (Economist's View)

I would strongly disagree with the argument that mass unemployment was averted. In the late seventies/early eighties, unemployment was epidemic - up over ten percent for a while. Then the statistics were rejiggered to minimize unemployment and the era of bubbles began. Most "solutions" to unemployment were unsustainable and many were downright frauds - tech bubbles, housing bubbles, etc. Much of America's jobs are downright useless or socially harmful - for example the entire advertising and marketing industry could be sent to the bottom of the ocean and we'd all be better off. Add in junk mail, telemarketing, used car sales, security guards, financial advisers, etc. etc. And lately all (literally all) net job growth has been in our massively bloated and corrupt health care system. Keeping sick elderly people alive for as long as possible is not an inherently profitable enterprise, and it's sucking in all the money from whatever real productive economy remains in America. And low-wage service jobs that don't pay enough to live on like bartenders, fast-food workers, personal trainers, dog walkers and the like also make the unemployment numbers seem artificially low. Take all the useless jobs away and our unemployment rate would probably be more like 50 percent.

Here's another take on it: The Wastefulness of Automation (Piera):
I've noted previously that forcing down labour costs is one of the ways in which firms avoid the up-front costs of automation. But as automation becomes cheaper, and the efficiency gains from automation become larger, we may reach a situation where employing the majority of people at wages on which they can afford to live simply is not worthwhile. Robots can produce far more for far less.

This creates an interesting problem. The efficiency gains from automating production tend to create an abundance of products, which forces down prices. This sounds like a good thing: if goods and services are cheap and abundant, people can have whatever they want, can't they? Well, not if they are unemployed and have no unearned income.  It is all too easy to foresee a nightmare future in which people who have been supplanted by robots scratch out a living from subsistence farming on motorway verges (all other land being farmed by robots), while lorries carrying products they cannot afford to buy flash past on the way to the stores that only those lucky enough to have jobs frequent.

But it wouldn't actually be like that. If only a small number of people can afford to buy the products produced by all these robots, then unless there is a vibrant export market for those products - which requires the majority of people in other countries to be doing rather better than merely surviving on a basic subsistence income - producers have a real problem. They would normally expect increasing efficiencies of production to push up profits, either because demand for products would be sufficient to maintain prices while production costs are falling, or because lower production costs feeding through into lower prices gave them a competitive advantage. But the efficiencies of production created by automating - including, eventually, the low-skill jobs that at the moment are too expensive to automate - may actually result in the destruction of profits. The fact is that robots are brilliant at supply, but they don't create demand. Only humans create demand - and if the majority of humans are so poor that they can only afford basic essentials, the economy will be constrained by lack of demand, not lack of supply. There would be no scarcity of products, at least to start with....but there would be scarcity of the means to obtain them.

What does a demand-constrained economy look like? Firstly, it is deflationary for everything except basic essentials. Perversely, prices of energy, housing and basic foodstuffs may actually rise, because people will prioritise those over all other spending. But prices of non-essential goods will crash to zero, and profits will evaporate like the morning mist. At that point - when even the very low maintenance costs of robots are too high - businesses will cease production.  So although the economy is generally deflationary, headline inflation could actually rise as producers  of essential goods hike prices (because they can) and other goods and services disappear.

Secondly, a demand-constrained economy is sluggish. People who are struggling to survive don't do anything that isn't essential: they don't go shopping except when they absolutely have to, they don't go out for meals or other entertainment, they don't go on holiday, they may not even visit friends or relatives much if transport is expensive, they don't maintain their houses and they don't buy treats for their kids.  And they are tired. The physical and mental energy required just to ensure that bills are paid on time is considerable: constant worry makes creativity impossible for many people. If the majority of people are living like this, then the country is not a happy place. Few people can enjoy life in a society where the sheer challenge of surviving is so great that people even lack the energy to protest.

And thirdly, a demand-constrained economy is an unattractive place for businesses. Businesses want to make profits. If profits are impossible because no-one has any money, businesses will not want to locate themselves there, unless they plan to export their entire production. They will go to more vibrant economies where people have money to spend and the energy to pursue interests and hobbies.
Here are a couple new automation examples to chew on:

Peek Inside Tesla's Robotic Factory (Wired) and Now robots are coming for all the golfing jobs, too (Washington Post)

Maybe we can all get jobs as domestic help for the one percent. In England, we're back to the number of servants in Victorian times:
According to Britain’s Office for National Statistics (ONS), household expenditure on domestic service hit a low point in 1978, since when it has quadrupled in real terms. It estimates there are as many domestic workers in London now as in Victorian times.
 Income Inequality and the Servant Boom (Marginal Revolution) Downton Abbey, here we come!

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