Home > Uncategorized > Structural Unemployment: The Economists Just Don’t Get It

Structural Unemployment: The Economists Just Don’t Get It

Lately, there has been a fair amount of buzz in the economics blogosphere about the issue that I’ve been discussing extensively here: Structural Unemployment.

Paul Krugman touches on it here.  Brad DeLong says this.  Mark Thoma has a post  in a forum focusing on structural unemployment  at The Economist.

If you read through these posts, however, you won’t see a lot of discussion about the case I’ve been making here, which is that advancing technology is the primary culprit. I’ve been arguing that as machines and software become more capable, they are beginning to match the capabilities of the average worker. In other words, as technology advances, a larger and larger fraction of the population will essentially become unemployable.  While I think advancing information technology is the primary force driving this, globalization is certainly also playing a major role. (But keep in mind that aspects of globalization such as service offshoring—moving a job electronically to a low wage country—are also technology driven).

The economists sometimes mention technology, but in general they find other “structural” issues to focus on. One that I have seen again and again is this idea that people can’t move to find work because their houses are underwater  (the mortgage exceeds the equity). The emphasis given to this issue strikes me as almost silly. Are there any major population centers in the U.S. that have really low unemployment?

Even if people could sell their homes, would they really be motivated to load up the U-haul and move from a city with say 12% unemployment to one where it is only 9%? Have the economists lost sight of the fact that 9% unemployment is still basically a disaster? The few locales I’ve seen with unemployment significantly lower than that are rural or small cities (Bismark ND, for example)—places that are simply incapable of absorbing huge numbers of hopeful workers.  Let’s get real: playing musical chairs in a generally miserable environment is not going to solve the unemployment problem.

Another thing the economists focus on is the idea of a skill mismatch. Structural unemployment, they say, occurs because workers don’t have the particular skills demanded by employers. While there’s little doubt that there’s some of this going on, again, I think this issue is given way too much emphasis. The idea that if we could simply re-train everyone, the problem would be solved is simply not credible. If you doubt that, ask any of the thousands of workers who have completed training programs, but still can’t find work.

Economists ought to realize that if a skill mismatch was really the fundamental issue, then employers would be far more willing to invest in training workers. In reality, this rarely happens even among the most highly regarded employers. Suppose Google, for example, is looking for an engineer with very specific skills. What are the chances that Google would hire and then re-train one of the many unemployed 40+ year-old engineers with a background in a slightly different technical area? Well, basically zero.

If employers were really suffering because of a skill mismatch, they could easily help fix the problem. They don’t because they have other, far more profitable options: they can hire offshore low wage workers, or they can invest in automation. Re-training millions of workers in the U.S. is likely to make a killing for the new for-profit schools that are quickly multiplying, but it won’t solve the unemployment problem.

Why are economists so reluctant to seriously consider the implications of advancing technology? I think a lot of it has to do with pure denial. If the problem is a skill mismatch, then there’s an easy conventional solution. If the problem’s a lack of labor mobility, then that will eventually work itself out. But what if the problem is relentlessly advancing technology? What if we are getting close to a “tipping point” where autonomous technology can do the typical jobs that are required by the economy as well as an average worker? Well, that is basically UNTHINKABLE. It’s unthinkable because there are NO conventional solutions.

In my book, The Lights in the Tunnel, I do propose a (theoretical) solution, but I would be the first to admit that any viable solution to such a problem would have to be both radical and politically untenable in today’s environment. That’s why I don’t spend much time suggesting solutions here: what would be the point? (but please do read the book—it’s free). I think the first step is to get past denial and start to at least seriously think about the problem in a rational way.

The few economists that have visited this blog and commented on my previous posts have generally barricaded themselves behind economic principles that were formulated more than a century ago (see the comments on my posts about the lump of labour fallacy and comparative advantage).

Most economists seem to be unwilling to really consider this issue—perhaps because it threatens nearly all the assumptions they hold dear. I wrote about this in my first post on this blog. We’ll see how long it takes for the economists to wake up to what is really happening.

Update

I’ve posted a followup that addresses comments and poses some questions for economists: Econometrics and Technological Unemployment — Some Questions

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  1. Si Campbell
    August 4, 2010 at 12:32 pm

    I’ve just discovered your blog through the Huffington Post article.
    Two initial responses are:
    1. It is refreshing to read your blunt criticism of the economics profession. As a small business person and investor(age 55), I have long wondered why the commentary by the vast majority of economists does not seem to explain or even address critical aspects of the economic decline I’ve observed over the last 30 years. Interestingly, economists and lawyers run our economy, while engineers evidentally direct the Chinese economy.
    2. I think your concern with automation, coupled with the following 2 issues go far to explain the current economic decline:
    a. the search for lower cost labor and less costly regulation. Example: in my own business we now hire transient farm labor groups rather than the permanent local employees that historically were hired.
    b. economists ignoring the doubling of population in the US that has occurred since my birth in 1955. Put another way, the number of people in the US has increased by about 150 million in the last 50 years or so–at a time of increasing automation, a declining US resource base, and outsourcing/offshoring. But I never see conventional economists discussing this exploding number of people looking for work in any serious way.
    I”ll read further. Si Campbell

  2. August 4, 2010 at 2:41 pm

    I like your blog, probably in part because we are drawing from the same roots and coming to some similar conclusions. :-) Although you do a much more comprehensive job of systematically making the case for the economic problems posed by automation than I do. I guess I mostly just take them for granted at this point. :-) But since others do not, what you have done with your book is essential.

    I’ve been thinking and reading about some of these issues on the solution side for upwards of thirty years (on-and-off, first as a sci-fi-immersed teenager, and especially since hanging out in Hans Moravec’s robot lab in the 1980s, and then a lot more comprehensively through online discussions over the last decade).

    On solutions for dealing with the abundance that automation can produce, while there are lots of little ones, as I see it, the four main positive ones are a basic income, a gift economy, improved local subsistence, and resource-based planning. I agree we are talking radical shifts. However, there are also a lot of other negative solutions which are essentially “transactions of decline”, like war, endless formal schooling, vast dysfunctional bureaucracies, and greatly expanding prisons, all of which just soak up abundance or destroy it, and which we need to be careful to avoid (but seem to be sliding into, nonetheless).

    Here is something from a larger knol I put together on the general issue of moving beyond a Jobless Recovery (after almost all the content from the Jobless Recovery article was deleted from Wikipedia by some strong believers in mainstream economic theology):
    “Four long-term heterodox alternatives”

    http://knol.google.com/k/paul-d-fernhout/beyond-a-jobless-recovery/#Four_long%282D%29term_heterodox_alternatives

    “””
    Whether or not mainstream economics ideas can pull us out of the Great Recession and a jobless recovery, in the long term, the problems posed by increasing automation and environmental concerns suggest that some form of heterodox economics will be adopted in the long term to avoid deeper recessions with more permanent job losses. There are at least four major alternative forms of social change that we might see in the future to deal with these issues of increasing joblessness in the face of abundance produced through high technology. These correspond roughly to the alternatives being suggested at the time of Keynes’ General Theory in the 1930s, and which lost out to it in the USA, of communism, technocracy, social credit, and a Gandhian swadeshi movement. In modern terms, these might be considered a gift economy, a resource-based economy, a basic income, and communitarianism (or localism). These will be discussed in the next four sections in relation to jobs. Given exponentially increasing technological capacity in AI/robotics and computing/communications and materials/design, each of these approaches are really just different paths to a common converging point of abundance for all, where people only work on things they want to do on a primarily voluntary basis in the context of a sustainable and resilient society. But how we get there depends on what path we take. These paths are not mutually exclusive. To some extent, our society is exploring all of them at once right now in various ways, and has been for a long time.
    These alternatives can be seen as reflecting two major choices. One choice is between emphasizing individualistic control versus emphasizing communal decision making. The other choice is between emphasizing one-for-one exchanges (like with currency or barter) versus emphasizing acting mainly from values. These choices are summarized in the chart below:
    ………………Exchange-based…………..Values-based
    Individualistic…Basic Income…………….Gift Economy
    Communal……….Localism/Communitarianism…Resource-based Economy
    “””

    While that chart is not perfect, it at least helps one make a mental map of all the suggestions floating around. In the end, all those solutions are interwoven, and we have aspects of them all now. Social Security is a basic income for the elderly, there have always been local community efforts to improve towns, much of our society like child care or sick care historically ran on voluntary labor, and we have long had government level planning about the economy. What is different is how each of those ways of being in the world to help others might expand as we move beyond the dogma of mainstream economics, which essentially, is a religion, as a noted Harvard theologian Harvard Cox suggested over a decade ago; Google on “The Market as God: Living in the new dispensation”.

    Mainstream economics as a discipline is pretty vulnerable to criticism in a big way right now, because of the failure to predict the Great Recession and the failure to do much about it (except use the Great Recession as yet another excuse to fleece the middle class and transfer money to the wealthy with a “bailout”). Still, what I learned most from the latest Iraq war is that the same people who caused the problem then are picked to “fix” it, given the way the social dynamics of power works in our society. So, in the same way, we’ll see some of the mainstream economists broadening their approach and getting lots of grants to study this stuff, as if no one else ever talked about it before or got smacked down for doing so over the past few decades… Google on Noam Chomsky’s “What Makes Mainstream Media Mainstream”.

    Naturally, there may be exceptions in academia, here and there. :-) Those are the long-suffering academic economists who should get the grants and be interviewed by the media these days — the people who have long been talking about heterodox economics in academia going back for decades, whether ecological economics, evolutionary economics, economics of technological change, social justice and economics, the case for a basic income, the case for agent-based simulations to make economics a more experimental science, and so on. There are people in the economics professions (or around it) who have tried to do some of this for many years. Examples include people like John M. Gowdy, Richard D. Wolff, Alfie Kohn, Frank Rotering, Herman Daly, Neva Goodwin, Amory Lovins, John Todd, and many others (not all of whom agree or are of the same stature in the profession or are even currently at universities, but at least they are all trying to build a new paradigm related to rethinking economics). Anyway, that’s just a start — one could probably find thousands of people who have struggled against mainstream economic ideology over the years in various academic ways, and then millions or even billions who have done it informally. :-) But, those are not the voices we here repeated over and over on the mainstream media — even with the occasionally less conservative pundits on CNN, the New York Times, or wherever such as Paul Krugman (who has a heart, but still essentially advocates more of the same old paradigm with a few progressive tweeks). What all those sorts of alternative viewpoints have in common is an emphasis on an economics that reflects human needs and environmental needs better, and which is not so lost in elegant but heartless mathematical equations that are used to justify the status quo. Google also on: “The Mythology of Wealth” by Conceptual Guerilla.

    Please keep beating the drum on this stuff. :-) Eventually more people will wake up and begin to think about all this and start to create solutions that work in their own context, hopefully sooner rather than later. Interwoven with this is a central irony that so much military planning involves using the technologies of abundance (like robotics and advanced materials and advanced energy systems and advanced biotech) to fight the last wars about perceived “scarcity” based on mainstream economics. That is a potentially deadly irony, and one we need to move beyond ASAP, moving to models of “intrinsic security through resiliency” and “mutual security through cooperation” rather that “extrinsic security through soldiers” and “unilateral security through threats”.

  3. Chris T
    August 4, 2010 at 7:04 pm

    Economists have attempted to reduce the world down to simple equations and have mistaken them for laws of the universe.

    Thus, humans get reduced to a single undifferentiated variable and are thought of as somehow exempt from the principals economists apply to everything else.

  4. August 5, 2010 at 1:35 pm

    Right now (or in the recent past, anyhow) we have a technology (in aggregate) where about 70% of the input (in terms of cost) is labor. This has been the case for decades. You say we are now rapidly moving toward a technology where almost zero of the input is labor. I find it implausible that the technology would change so drastically in a short time.

    • August 5, 2010 at 5:41 pm

      Andy, on your comment that “70% of the input (in terms of cost) is labor” and has been for decades. Let’s say that has been true in the past (though I’d like to see the citation) — but “past performance is no guarantee of future returns”. :-) So, your statement, while a useful observation, does not prove that trend will continue. Also, it obviously does not apply to agriculture or manufacturing anymore, since those two fields have seen an enormous decreases in labor per unit produced. So, is it applying only to services, which are now the bulk (about 80%) of the US GDP?

      Still, the US GDP rose about 40% in the past decade, but there was ultimately no net jobs growth over the 2000-2009 decade (it was very slow, and then it was all lost in the Great Recession). There is a chart on that on this page with numbers from the Current Population Survey:

      http://knol.google.com/k/paul-d-fernhout/beyond-a-jobless-recovery

      How does the fact of no net job growth in the USA in a decade, along with a 40% GDP growth (from about US$10 trillion to about US$14 trillion), fit with the notion that we will always need a lot of labor in the USA? Granted some of that was offshoring, but not all. We would need about 34 million new paid jobs in the USA by the end of this decade if we wanted to catch up with the job growth provided by the three previous decades before 2000, and return to the employment levels on January 1, 2000. I don’t see that happening, do you? Sure, a few million more in green jobs might be created perhaps (while others in other sectors likely disappear). But 34 million new full-time jobs in the USA in ten years? Short of massive governmental intervention and make-work?

      As productivity grows, to maintain full employment, we need demand to grow exponentially along with productivity (as an indisputable mathematical fact), and we also need most human labor to remain valuable relative to machines to force capitalists to distribute the value of businesses to employees in some broad way (or we need to institute laws, like minimum wage laws, that do the same). But in an age of “reduce, reuse, recycle” suggesting people reduce demand, and in an age of ever smarter machines and ever better design and voluntary social networks that reduce the relative value of paid human labor, both those assumptions are questionable IMHO.

      And if either of those assumptions on demand or labor value is invalid, then pretty much all of mainstream economics about employment that depends on those assumptions is just beautiful equations with no connection to observed reality. :-)

      • August 6, 2010 at 10:24 pm

        “How does the fact of no net job growth in the USA in a decade, along with a 40% GDP growth (from about US$10 trillion to about US$14 trillion), fit with the notion that we will always need a lot of labor in the USA?”

        Easy: 40% isn’t very much. GDP grew about 70% over the prior decade, and that was already the slowest rate (in nominal terms) since the 1930’s.

        And the fact that the inflation rate has been falling indicates that the problem is a monetary one, not a technological one. People (and businesses, banks, &c) would rather hold money than invest in new productive capacity to employ all the excess labor (or rather than purchase the products that the excess labor could produce). If we can find ways to discourage people from holding money, we can solve the problem. Otherwise, the inflation rate will most likely continue to fall, and we will end up with falling prices.

        A large part of the problem is that our currency is overvalued in terms of foreign exchange. If dollars were cheaper, there would be more demand for American products. If we could make the dollar arbitrarily cheap, it could find a level that would create enough demand to employ most of our workers.

  5. kharris
    August 5, 2010 at 1:37 pm

    Setting aside the argument about technology, and just examining the subtext, this piece seems to come down to –

    “I’m smart, and economists are stupid. They are all big fakes who could realize how smart I am, if they weren’t such big fakes.”

    In the medical world, we see the same sort of self-aggrandizing salesmanship among peddlers of alternative treatments. It isn’t enough to claim that strapping a magnet to you head makes you smarter. The ad text has to say that doctors don’t want you to know – shock and scandal! – or that they are blind to the wonders that the magnet people have discovered.

    So, let’s take a look at just one paragraph:

    “Most economists seem to be unwilling to really consider this issue—perhaps because it threatens nearly all the assumptions they hold dear. I wrote about this in my first post on this blog. We’ll see how long it takes for the economists to wake up to what is really happening.”

    Most seem? So, you don’t really know. You have no evidence. You just want to make a claim. This is the equivalent to politicians’ “some say”. No accountability, no naming of names. This is how you set up a straw man.

    Then, the guys who “seem unwilling” are (by assumption) unwilling “perhaps” because it THREATENS them – big fraidy cats! They are threatened by my powerful thoughts! Perhaps? C’mon, “seem” and “perhaps” in the same sentence? You explain a seeming with a perhaps? So, you got nothin’.

    Then, having built the case on seeming, you slip right into an assumption that the case is proven. Economists need to wake up to the brilliant thing that your powerful mind has uncovered! Well, maybe the seem to need to wake up.

    If memory serves (and it does), economic journals are full of detailed work on the effects of technology on employment. It is a question that has been around since, oh, the Luddite movement, at the latest. So, are you pretending that economists haven’t thought about it, or do you really not know that economists have thought about it? That “seem” you typed. Means you don’t really have a source to confirm that most economists think one thing or another.

    Seriously, this is a terrible way to make an argument – vapid, self-congratulating nonsense. Not just the strawman treatment of economists, either. The claim that economists have not thought about technological advance as an influence on labor markets is just utterly, utterly wrong. The interaction of technology and labor demand is a given. It’s basic. It’s in the first chapter on labor markets. Always has been. You really need to find out what economists actually do think before making claims about what they think.

    • August 5, 2010 at 4:58 pm

      It is really not true that I am making the case that all economists are stupid. What I am trying to do is draw attention to the well-documented exponential progress in information technology, and I am asking economists to give serious consideration to what this implies for the future.

      One major concern I have is with (what seems to me) an extreme focus on econometrics within the economics profession. The upshot of this is that nothing is taken seriously unless it is based on a rigorous analysis of past data. I do understand and respect the need to base conclusions on actual data and analysis–however, surely it is also important to make some attempt to look forward and consider structural changes that may be underway?

      You say that economists have studied this issue extensively. I did review the literature to some extent, but I did not find it to be replete with papers focusing on this issue. I did find this well-known article: David H. Autor, Frank Levy and Richard J. Murnane, “The Skill Content of Recent Technological Change: An Empirical Exploration,” The Quarterly Journal of Economics, November 2003, web: http://www.frbsf.org/economics/conferences/0311/alm-skillcontent-qje.pdf. which studied the impact of computer technology on jobs over the 38 years between 1960 and 1998.

      The paper points out that computers (at least from 1960-1998) were primarily geared toward performing routine and repetitive tasks. It then concludes that computer technology is most likely to substitute for those workers who perform, well, routine and repetitive tasks. In fairness, the paper does point out (in a footnote) that work on more advanced technologies, such as neural networks, is underway. There is no discussion, however, of the fact that computing power is advancing geometrically and of what this might imply for the future. The authors might point out that the intent of the paper was to build a solid mathematical model of what occurred in the past. However, such a model would seem to have very limited predictive value if it does not fully capture the dramatic acceleration of computational capability. In order to meet the standards for a publication like The Quarterly Journal of Economics, the authors had to crunch hard data—-in this case going all the way back to 1960. Anything that attempts to look forward, without a firm basis in historical data, is likely to be dismissed as fluff (I guess that is what you are saying about me). The problem is that the data is always out of date.

      I would also point out that there ARE a few economists out there who are thinking about these issues:

      Greg Clark had an article in the Washington Post a year ago (http://www.washingtonpost.com/wp-dyn/content/article/2009/08/07/AR2009080702043.html).

      Robin Hanson wrote a a paper on the economics of machine intelligence (see: http://econfuture.wordpress.com/2009/10/26/the-economic-implications-of-intelligent-machines ) in which he says: “wages might well fall below human subsistence levels.“ While I don’t agree with Hansone’s conclusions, I certainly respect that fact that he is giving some serious thought to these issues.

      It is certainly possible that my thesis about all this is wrong. My objective here is simply to encourage more discussion of this issue among economists.

  6. August 5, 2010 at 2:56 pm

    How do you reconcile the ideas here with data showing that, for roughly one year running, the unemployment rate has been flat with the number of job openings has increased?

  7. Richard
    August 5, 2010 at 3:04 pm

    I like your claim–that a large portion of the current unemployment and pressure on wages is due to increasing automation. I’m not sure I agree with your conclusions.

    Look at the mid-eighteen-hundreds. Agriculture at what time constituted about 70% of the work force. Today that number is 0.7%. That’s a massive reduction in farm labor.

    At the time, this was considered a crisis of major proportions, yet new jobs _were_ created, doing non-agricultural work. Producing the same agricultural output with less labor is an increase in productivity, and productivity increases are the same as a wealthier society. New jobs were created in manufacturing.

    Now manufacturing is undergoing the same type of revolution. I don’t know what the economy will look like in fifty years, but I do know that producing the same number of good with less labor reflects increasing productivity, and that productivity increases are the same as a wealthier society. We don’t know yet how that increased wealth will ultimately be distributed, but I suspect that higher levels of inequality will be followed by more redistribution and lower levels of inequality. Ultimately this is a political question and not an economic one.

    • August 5, 2010 at 7:10 pm

      “Ultimately this is a political question and not an economic one.”

      That is very insightful, but it is exactly what I feel a lot of people talking about mainstream economics don’t seem to want to talk about, because they want to pretend that there is not alternative to the status quo (Google on “The Market as God” by Harvey Cox).

      How wealth gets distributed in a society is indeed a political question — and it is an increasingly pressing one as the value of most human labor continues to decline relative to robotics, other automation, better design, and voluntary social networks.

      That political issue has been brought up repeatedly over the decades from a variety of perspectives, and the response is generally that we will “grow” our way out of problems, as in growing the pie, not talking about how the pie is divided. But, what happens if the pie stops growing (or at least, the part of the pie most people are involved with stops growing)? Or what happens when most people have no claim through labor on even the tiniest sliver of the pie? Like as robotics and automation and better design and voluntary social networks begin to take over the delivery (or elimination of the need for) more and more services? For example, what happens if people decide we just do not need schools or colleges anymore, because the internet can deliver information more effectively for a lot less money? Google on “$99 a month college”.

      I feel it a little unfair that when people like Martin Ford, or Marshall Brain, or others (myself included) say, “Look, robots and other automation are going to be able to do all these jobs real soon now; see, here are working examples of them doing them already…”,
      “[p2p-research] Robot videos and P2P implications (was Re: A thirty year future…)”

      http://listcultures.org/pipermail/p2presearch_listcultures.org/2009-November/005926.html

      then many people tend to say, “Oh, that is just speculation that robots can do human jobs, they have not decades ago in the past.” But when some prominent economists talk about “The Three-Sector Hypothesis” and says essentially, “Well, agriculture was mostly automated, and manufacturing is being mostly automated, and OK, the service sector including IT is starting to be automated, too, but don’t worry or agitate for widespread political changes like a basic income because we’ll always find new jobs for people they want to do because we have done so in the past, even if we don’t have the foggiest notion of what those jobs will be.”, that last bit, the speculation on new jobs for humans always being created despite no clue as to where they will come from, that speculation gets a free pass.

      It’s kind of like someone accidentally falling out of a building saying, “OK, I’m still doing fine on the tenth floor; OK, looking good at the fifth floor; OK, I still feel great at the second floor, just a little wind in my eyes.” In reality, you better hope that firefighters are down there with a safety net or something and be getting ready to land in it as best you can. But the way mainstream economist talk, everything is going to be fine when you hit the pavement too, so no point in worrying, because there actually is no pavement, it’s just more building floors all the way down forever.

      What does the pavement look like? It looks like Martin Ford’s graph that has the sudden drop off when human labor has little to no value to capital compared to what AI, robotics, and other automation can do.

  8. proud_texan
    August 5, 2010 at 4:19 pm

    Marx had plenty to say about constant and variable capital 150 years ago. Not a new trend.

    Only by introducing large pools of cheap labor into the system can the currently constructed capitalist economy keep going. If labor is cheap enough automation is not necessary. China was one of the last untapped pools of cheap labor in the world, circa 1990, but now most Chinese companies are talking about the need to automate as wages rise.

  9. Chris T
    August 5, 2010 at 5:06 pm

    Phil – Skills mismatch, a lot of the jobs opening require more advanced skills than many of the unemployed have. The concern is that the skills required are beyond many unemployeds’ abilities to pick up.

    • August 5, 2010 at 6:36 pm

      Chris T: Indeed! What you’ve described is what economists call ‘structural unemployment,’ the concept Mr. Ford is so dismissive of. Exactly since the data provide a sharp conflict with his claims, I made this post.

      • Chris T
        August 5, 2010 at 7:08 pm

        Yeah, I see that. I guess MY concern is that the skills required in new jobs will be beyond the abilities of many workers to pick up. Economics too often treats labor as though all individuals were equally able to perform all skills, when this is obviously not the case.

        Automation could lead to the formation of an economic underclass, not for a lack of jobs, but a lack of jobs they are capable of performing. Their comparative advantage would essentially be zero.

      • August 5, 2010 at 7:39 pm

        I’m not completely dismissing the idea of a skill mismatch….I think the problem certainly does exist. But, like Chris T, I’m concerned that a great many people are not capable of aquiring the skills.

        Even if they ARE capable, it is not at all clear to me that the jobs would be there in sufficient numbers. Even before the current downturn a very significant fraction of college graduates were ending up underemployed in jobs that don’t require college degrees.

        I had another post which focused more on this issue here:

        http://econfuture.wordpress.com/2009/12/13/the-jobs-of-the-future-or-not/

  10. Chris T
    August 5, 2010 at 5:07 pm

    econfuture – Did you see my e-mail?

  11. Larry
    August 5, 2010 at 6:19 pm

    Oh look, the city of Los Angeles is going Cloud based Google Apps. 30,000 city employees are no longer required to do make believe paper shuffling work. Sorry Newt Gingrich, it looks like your welfare to workfare experiment has come to the end of the road.

    http://googleenterprise.blogspot.com/2010/08/las-move-to-google-apps-continues-apace.html?utm_source=entblog&utm_medium=blog&utm_campaign=Feed:+OfficialGoogleEnterpriseBlog+(Official+Google+Enterprise+Blog)

  12. August 5, 2010 at 8:28 pm

    Chris T: You wrote `I guess MY concern is that the skills required in new jobs will be beyond the abilities of many workers to pick up.’ In many cases, were not talking about, e.g., having a PhD in physics. For some (not 100% anecdotal) evidence, see: http://www.nytimes.com/2010/07/02/business/economy/02manufacturing.html?_r=1&src=me&ref=homepage . In the U.S. roughly one-third of students who enter 9th Grade end up dropping out. The implications for accumulation of human capital (and associated structural unemployment) of that stylized fact are arguably frightening. You also wrote, ‘Economics too often treats labor as though all individuals were equally able to perform all skills, when this is obviously not the case.’ Well, it depends upon the model (and the choice of model depends upon the question being studied). There exists a massive literature which focuses on heterogeneity in the labor market; see, e.g., any number of papers by David Autor at http://econ-www.mit.edu/faculty/dautor/papers .

    • Chris T
      August 6, 2010 at 12:33 am

      I saw the NY Times article a few weeks ago and thought it was quite good. It was mostly anecdotal, but it did solidify a lot of my concerns.

      The link you provided looks interesting and I will be sure to peruse through the literature.

      I think economists have been getting so much flack because they tend to come across as far too certain of their axioms or models than seems justified. Sometimes it seems economists are more certain of unverifiable economic ideas than physicists are of theories that have survived every conceivable experiment!

  13. August 5, 2010 at 8:54 pm

    econfuture: You wrote, `I’m not completely dismissing the idea of a skill mismatch….I think the problem certainly does exist.’ I apologize if you feel I inferred what you did not mean to imply, but a key take-away message (at least for me) of your post above is that you rather strongly dismiss this idea.

    You also wrote, `But, like Chris T, I’m concerned that a great many people are not capable of aquiring the skills.’ As my subsequent reply to Chris T suggested, it depends upon exactly what type of ‘skills’ we have in mind. It’s a sad fact that a significant number of adults in (and out of) the labor force never mastered the ‘three Rs,’ and significant numbers of such people flow out of (some grade in) high school each year. There was a point in U.S. economic history when this was less of an issue, but the circumstances we face today (and have been facing for close to 35+ years) are quite different from then.

    You also wrote, `Even if they ARE capable, it is not at all clear to me that the jobs would be there in sufficient numbers.’ I understand your concern, and it’s true (to paraphrase what you have argued) that, just because something hasn’t happened in the past, there’s no guarantee it won’t happen in the future, but recent history may indeed provide a bit of a guide for us. At many times in the past 40+ years (with the winding-down of the Apollo moon project, end of the Viet Nam War, end of the Cold War, [the Great Recession?]), there was great concern about whether a decrease in the demand for very highly-skilled labor (e.g., lots of engineers) in certain industries/activities meant a decrease in the total demand for such labor; what followed was often a shift in the demand for such labor to other industries/activities.

    You also wrote, `Even before the current downturn a very significant fraction of college graduates were ending up underemployed in jobs that don’t require college degrees.’ I think the data across college majors suggest that lots of students end up majoring in some rather questionable (in terms of how much the market values them) areas. 40+ years ago, it probably mattered less if someone majored in ‘basket weaving,’ but the consequences of doing so today seem to be quite different.

    • Chris T
      August 5, 2010 at 10:03 pm

      “there was great concern about whether a decrease in the demand for very highly-skilled labor (e.g., lots of engineers) in certain industries/activities meant a decrease in the total demand for such labor; what followed was often a shift in the demand for such labor to other industries/activities.”

      Indeed, and it’s often assumed that this will happen for all skill levels. Unfortunately, it’s getting increasingly difficult to think of a low skill (repetitive) task that a machine couldn’t accomplish better and cheaper. Demand for creativity may be infinite, but quite a few people probably aren’t capable of it to a useful extent.

  14. August 6, 2010 at 5:42 am

    Somehow all the denial here by economics-minded people about the likely implications of technological change (such as the declining value of most human labor in the face of ever-smarter automation leading to mass unemployment like Martin Ford suggests) inspired me to write a parable and make a five minute YouTube video of it: :-)
    “The Richest Man in the World”

    “A parable about robotics, abundance, technological change, unemployment, happiness, and a basic income.”

    It’s a little simplistic, rough, and heavy-handed, I know (hey, it’s my first lengthy story video), but I hope it helps get the point across to at least a few more people about the need for significant political changes to deal with an increasing concentration of wealth resulting from continuous advances in automation within the context of our current scarcity-based politico-economic framework. :-)

  15. pdfernhout
    August 7, 2010 at 12:13 am

    Andy Harless :
    Easy: 40% isn’t very much. GDP grew about 70% over the prior decade, and that was already the slowest rate (in nominal terms) since the 1930′s.
    And the fact that the inflation rate has been falling indicates that the problem is a monetary one, not a technological one. People (and businesses, banks, &c) would rather hold money than invest in new productive capacity to employ all the excess labor (or rather than purchase the products that the excess labor could produce). … A large part of the problem is that our currency is overvalued in terms of foreign exchange. If dollars were cheaper, there would be more demand for American products. If we could make the dollar arbitrarily cheap, it could find a level that would create enough demand to employ most of our workers.

    If GDP can grow even “only” 40% without any net increase in employment, what is to say it could not grow 400% without any net increase in employment? :-) And that is essentially what Martin Ford (or Marshall Brain) implies. I just showed you a fact, US GDP is growing with no extra labor, and you are willing to essentially dismiss it as small potatoes. I’m not saying I’ve proved that endless growth is possible without more human labor, just that at least Martin Ford has presented a plausible position which needs to be taken seriously, and that numbers back him up in that sense.

    True, people are holding money as you say, though some have been putting it in the “casino” economy of derivatives and currency speculation or, for the risk averse, US bonds, all of which have very little to do with the physical economy. Google on the movie “Money as Debt II” which talks about the “Casino Economy”. Also, some people in the USA are moving their money offshore (just look at what our past VP is doing with his assets, like buying a house in Dubai). And again, even if you do decide to invest in a business in the USA, why hire employees if you can buy a machine to do it? See for example Marshall Brain’s video:
    “Marshall Brain – Automation & Unemployment ”

    What is going to happen in ten years when Walmart can use robots to do most tasks? Or when stores themselves are obsolete based on the spread of an Amazon-like model made more possible by ever better automation? Look on YouTube for a video on “Robotic Distribution” in a warehouse implemented using Kiva Systems, where productivity goes up so much with the robots the company can expand without hiring new workers (or can fire most workers if it does not expand).

    And, if you still do need workers, why hire US workers if you can get foreign workers to do something remotely, either over the phone now, or someday, through teleoperated robots soon? Even making Subway Sandwiches could be done by teleoperated robots operated by workers in Mexico or Peru. Even if the US dollar was devalued 90% against other currency (so, to 1/10 it’s current value), protectionism and a high cost of imported goods needed to make things would still create problems for US exports and US hiring, given other US policies about “free trade”. The entire world is learning how to make things; the US does not have the edge it had after WWII as the only major intact economy. Look up stuff by Hans Rosling. Also, everyone speaks English and so can sell to the USA; how many people in the USA speak all the other languages out there to any high degree? I’m not saying there is no truth to your point on currency adjustment (I’m sure exports might increase), just that if the US currency devalues, and other countries protect their markets, and we see a huge rise in the price of imported goods in Walmart from expensive imports, we might see both massive unemployment and vast inflation. And to think the middle class has troubles now…
    “Makes you think – In America we realize that our children will do worse than their parents”

    http://blogs.howstuffworks.com/?p=39135

    I don’t think these massive structural issues related to technological change as well as many other ongoing trends are going to be solved by a bit of currency manipulation or interest rate manipulation at this point. Japan tried that, and even with a large amount of government intervention later, they still are mired in troublesome economic issues in a society without US immigration problems, without US military spending, without US health care waste, and so on.

    So, I have to agree that “The [Mainstream] Economists Just Don’t Get It”. :-) And exhibit A is the failure to predict the Great Recession. And exhibit B is that we are still mired in the Great Recession despite mainstream economists advising the current administration, with rising hunger, rising homelessness, rising desperation, exhausting of unemployment benefits, and so on, with much of that swept under the rug, because, it’s true, for 80% of people in the USA, there has been no change. It’s a sort of divide and conquer thing, with people going from doing OK to doing terribly in a matter of weeks or months with the loss of a job, but to everyone around them, nothing has changed and economic life goes on as usual.

  16. Gordon
    August 10, 2010 at 4:28 pm

    Mainstream economists have indeed a lot to answer for. They stand exposed as having remarkably little idea of how the world really works, of making simplistic assumptions to facilitate spurious deductions and in particular of imagining that humans are just uber-rational calculators.

    The best critique by an economist that I have yet found is “Debunking Economics” by Steve Keen who also blogs at http://www.debtdeflation.com/blogs/

  17. August 11, 2010 at 12:39 pm

    Nice post, i really enjoyed reading this, keep up the good work

  18. August 22, 2010 at 6:57 am

    Sometimes, skills mismatch is being used by employers as an excuse to get rid of their workers. You can always train them if you feel they don’t fit 100% of your company’s needs.

  19. September 4, 2011 at 6:51 pm

    I agree!!! The author is a fool. His childish thinking is the reason places like North Korea still exist today.

    Why not outlaw shovels and require everyone to dig holes using spoons. This would certainly require more workers to do the same amount of work.

    Of course this spirit of policy also acts to impoverish the populace.

  20. ira gruber
    September 21, 2011 at 8:33 am

    martin Ford should be on 60 minutes since he is the only person in america who is willing to tell the truth about massive unemployment being created by the internet-everyone geton facebook and dmand that martin ford gets 20 minutes on 60 minutes

  1. August 5, 2010 at 12:44 pm
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