Home > Uncategorized > SF Fed: Rising Productivity may Indicate a Bleak Future for Jobs

SF Fed: Rising Productivity may Indicate a Bleak Future for Jobs

The Federal Reserve Bank of San Francisco just issued a report showing how Okun’s Law—the historical relationship between changes in GDP and unemployment—is starting to break down. In other words, rising productivity is resulting in less job creation than has historically been the case.

In 2009, strong growth in productivity allowed firms to lay off large numbers of workers while holding output relatively steady. This behavior threw a wrench into the long-standing relationship between changes in GDP and changes in the unemployment rate, known as Okun’s law. If Okun’s law had held in 2009, the unemployment rate would have risen by about half as much as it did over the course of the year.

In my book, The Lights in the Tunnel, I argue that the heavy emphasis on econometrics (statistical economic data analysis) in modern economics is problematic because it is entirely focused backward on historical data. Economists generally refuse to accept any ideas that are not backed by hard data and quantitative analysis.  However, all the “hard data” is OLD—often years or even decades old. If, in fact, the exponential acceleration of information technology is going to have a dramatic impact (as I believe) in the future, that is going to be very hard to pick up looking exclusively at past data! I think the only way to see what’s coming is to think through the implications of the actual technologies likely to be developed in the coming years and decades.

Nonetheless, it looks like the economists at the SF Fed have started to pick up something in the data. I think as time progresses there will be more and more quantitative evidence to support the theories that I am advocating here. The problem, of course, is that by the time the PAST data is unambiguous and everyone has no choice but to acknowledge the problem, the future is going to look very bleak indeed. Perhaps the economists should spend a little less time looking at their historical data and a little more time looking at the computer they are using to analyze it—and how the capability of that machine and the software that runs on it is changing over time.

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Categories: Uncategorized
  1. SixDprime
    March 9, 2010 at 11:12 pm

    I believe economists can analyze past data to predict the future if they increasingly include time in their formulas. It may be that many significant economic formulas do include time, but I have seen many economic relationships that do not have time as a factor, including Okun’s law. I believe this is the major flaw that is appearing in economics now.

    For example, it may have been, in the past, that it took 30 years to increase productivity 10% and 20 years to recreate the same number of jobs lost, thus increasing employment over 30 years. But if it now takes 1 year to increase productivity 10%, and 5 years to recreate the same number of jobs lost, that begins to build systemic unemployment. Of course, these figures are just conjecture on my part.

    But I believe that the exponential rate at which technology is developing and being adopted by employers has already overwhelmed the rate at which new jobs can be created in response.

    We already have historical data on the rate of productivity increase. If we can study the past and determine the rate at which new jobs are created in response to these productivity changes, I believe we can quantify how increases in productivity relate to employment over time. Of course, defining this rate of adaptation may not be easy, but it would be extremely beneficial to economic models worldwide.

  2. SixDprime
    March 9, 2010 at 11:18 pm

    I will explain what I mean by “rate of adaptation.”

    If we assume that increases in agricultural productivity resulted in the expansion of industrial sector jobs, and further assume that increases in industrial productivity resulted in the expansion of service sector jobs, we must ask, where do workers go when productivity is increased in service sector jobs?

    And if we can define a post-service sector, at what rate are jobs increasing in that sector?

    • Gary Dvorchak
      April 13, 2010 at 3:10 am

      The post-service sector jobs is easy…it’s called government work. Seriously. In the absence of the private sectors ability to create new companies, industries and jobs quickly enough, the government will be REQUIRED to create the “jobs” that keep people employed. This has been the trend since the technological revolution started in the mid-1800s, and will continue past our deaths, IMHO.

  1. March 23, 2010 at 7:46 am

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