Posted by AzBlueMeanie:
A new economics study shows globalization increases joblessness, and technology increases inequality. Derek Thompson writes at The Atlantic, Bash Brothers: How Globalization and Technology Teamed Up to Crush Middle-Class Workers:
Profits have never been higher. Wages have never been lower.
Okay, that sounds like an awfully oversimplified analysis of the frustrating recovery. And it is sort of simplified. It's also sort of true.
Go back to 1960, and corporate profits have never been higher while salary income has never been lower, as a share of GDP. Take a look here (graph via Floyd Norris):
This isn't a new trend, but something really did change in the last generation. [Below] is a graph of the growth in corporate profits, labor income, and GDP since 1970. As you can see, corporate profits took off in the 1990s, returned to earth after the tech bubble burst and then, in the 2000s, started jumping around like a bouncy ball dropped from a helicopter. Meanwhile, labor income fell further and further behind overall growth.
Sky-high corporate profit and stagnant wages aren't juxtaposing stories. They're the same story. And the main characters of that story are the familiar twin forces of globalization and technology, both of which have accelerated since the early 1990s.
In a sentence: Globalization (in particular, increased trade with China) has opened the doors to more consumers and more cheap workers while labor-saving technology has created more efficient ways to serve those consumers. As a result, the businesses are bigger, but the workers' share is getting smaller. Fifty years ago, the four most valuable U.S. companies employed an average of 430,000 people with an average market cap of $180 billion. These days, the largest U.S. companies have about 2X the market cap of their 1964 counterparts with one-fourth of the employees. That's what doing more with less looks like.
In macro explanations of the economy, globalizationandtechnology are often served up together in one big mixture, like another G&T you might know. But they don't have a monolithic effect. These are two distinct forces with distinct implications for distinct cities, according to new research by David Autor, David Dorn, and Gordon Hanson.
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Here's the bumper sticker version of their conclusion: Globalization increases unemployment; technology increases inequality.
Globalization: The authors found that metros with more exposure to Chinese trade -- mostly concentrated in the swoosh of states extending from Indiana down to the Gulf of Mexico and up through North Carolina -- saw significant job losses, both in manufacturing and overall. For every $1,000 increase in imports per worker, the share of people with jobs declined by 0.7 percentage points -- and more for non-college grads. As manufacturing jobs declined, demand for local services would decline, and thus job losses could extend into areas like retail and hotels.
Technology: The computerization of certain tasks hasn't reduced employment, the authors find. But it has reduced the availability of decent-paying, routine-heavy jobs. Middle-class jobs, like clerks and sales people and administration support, have disappeared as computers gradually learned to perform their routines more efficiently. But as those jobs disappeared, cities saw an increase in both high-skill work and lower-paid service sector work, leading to little overall change in employment.
Back to the top two graphs. With globalization replacing American workers with Chinese labor and computers replacing middle-class workers with software programs, labor costs have fallen for companies while demand has grown all over the world. The result has been higher profits, not just for the finance companies who make up a growing share of domestic corporate earnings, but also for manufacturing companies and other multinational firms. It's a sad, inescapable truth that many international companies are thriving, not despite the incredible shrinking American worker, but because of him.
A much lengthier analysis is in the New York Times today from the study's authors, David H. Autor, professor of economics at the Massachusetts Institute of Technology, and David Dorn, an assistant professor of economics at the Center for Monetary and Financial Studies in Madrid. How Technology Wrecks the Middle Class:
In the four years since the Great Recession officially ended, the productivity of American workers — those lucky enough to have jobs — has risen smartly. But the United States still has two million fewer jobs than before the downturn, the unemployment rate is stuck at levels not seen since the early 1990s and the proportion of adults who are working is four percentage points off its peak in 2000.
This job drought has spurred pundits to wonder whether a profound employment sickness has overtaken us. And from there, it’s only a short leap to ask whether that illness isn’t productivity itself. Have we mechanized and computerized ourselves into obsolescence?
Are we in danger of losing the “race against the machine,” as the M.I.T. scholars Erik Brynjolfsson and Andrew McAfee argue in a recent book? Are we becoming enslaved to our “robot overlords,” as the journalist Kevin Drum warned in Mother Jones? Do “smart machines” threaten us with “long-term misery,” as the economists Jeffrey D. Sachs and Laurence J. Kotlikoff prophesied earlier this year? Have we reached “the end of labor,” as Noah Smith laments in The Atlantic?
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Economists have historically rejected what we call the “lump of labor” fallacy: the supposition that an increase in labor productivity inevitably reduces employment because there is only a finite amount of work to do. While intuitively appealing, this idea is demonstrably false. In 1900, for example, 41 percent of the United States work force was in agriculture. By 2000, that share had fallen to 2 percent, after the Green Revolution transformed crop yields. But the employment-to-population ratio rose over the 20th century as women moved from home to market, and the unemployment rate fluctuated cyclically, with no long-term increase.
Labor-saving technological change necessarily displaces workers performing certain tasks — that’s where the gains in productivity come from — but over the long run, it generates new products and services that raise national income and increase the overall demand for labor.
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The multi-trillionfold decline in the cost of computing since the 1970s has created enormous incentives for employers to substitute increasingly cheap and capable computers for expensive labor. These rapid advances — which confront us daily as we check in at airports, order books online, pay bills on our banks’ Web sites or consult our smartphones for driving directions — have reawakened fears that workers will be displaced by machinery. Will this time be different?
A starting point for discussion is the observation that although computers are ubiquitous, they cannot do everything. A computer’s ability to accomplish a task quickly and cheaply depends upon a human programmer’s ability to write procedures or rules that direct the machine to take the correct steps at each contingency. Computers excel at “routine” tasks: organizing, storing, retrieving and manipulating information, or executing exactly defined physical movements in production processes. These tasks are most pervasive in middle-skill jobs like bookkeeping, clerical work and repetitive production and quality-assurance jobs.
Logically, computerization has reduced the demand for these jobs, but it has boosted demand for workers who perform “nonroutine” tasks that complement the automated activities. Those tasks happen to lie on opposite ends of the occupational skill distribution.
At one end are so-called abstract tasks that require problem-solving, intuition, persuasion and creativity. These tasks are characteristic of professional, managerial, technical and creative occupations[.]
On the other end are so-called manual tasks, which require situational adaptability, visual and language recognition, and in-person interaction . . . These workers can’t be replaced by robots, but their skills are not scarce, so they usually make low wages.
Computerization has therefore fostered a polarization of employment, with job growth concentrated in both the highest- and lowest-paid occupations, while jobs in the middle have declined. Surprisingly, overall employment rates have largely been unaffected in states and cities undergoing this rapid polarization. Rather, as employment in routine jobs has ebbed, employment has risen both in high-wage managerial, professional and technical occupations and in low-wage, in-person service occupations.
So computerization is not reducing the quantity of jobs, but rather degrading the quality of jobs for a significant subset of workers. Demand for highly educated workers who excel in abstract tasks is robust, but the middle of the labor market, where the routine task-intensive jobs lie, is sagging. Workers without college education therefore concentrate in manual task-intensive jobs — like food services, cleaning and security — which are numerous but offer low wages, precarious job security and few prospects for upward mobility. This bifurcation of job opportunities has contributed to the historic rise in income inequality.
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The good news, however, is that middle-education, middle-wage jobs are not slated to disappear completely. While many middle-skill jobs are susceptible to automation, others demand a mixture of tasks that take advantage of human flexibility.
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These middle-skill jobs will persist, and potentially grow, because they involve tasks that cannot readily be unbundled without a substantial drop in quality . . . Simply put, the quality of a service within any occupation will improve when a worker combines routine (technical) and nonroutine (flexible) tasks.
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Following this logic, we predict that the middle-skill jobs that survive will combine routine technical tasks with abstract and manual tasks in which workers have a comparative advantage — interpersonal interaction, adaptability and problem-solving . . . Indeed, even as formerly middle-skill occupations are being “deskilled,” or stripped of their routine technical tasks, other formerly high-end occupations are becoming accessible to workers with less esoteric technical mastery . . . Lawrence F. Katz, a labor economist at Harvard, memorably called those who fruitfully combine the foundational skills of a high school education with specific vocational skills the “new artisans.”
The outlook for workers who haven’t finished college is uncertain, but not devoid of hope. There will be job opportunities in middle-skill jobs, but not in the traditional blue-collar production and white-collar office jobs of the past. Rather, we expect to see growing employment among the ranks of the “new artisans”[.]
What all this Ivory Tower economics boils down to is that our economy has changed in such fundamental ways that it is no longer possible to create a large number of labor-intensive jobs that pay a living wage for all those individuals who are ready, willing and able to work. Technology is replacing many jobs at an accelerating rate. See the Google driverless car, for example. We are creating a permanent underclass of the unemployed and low-wage service sector employees who need supplemental government assistance just for basic human survival.
We are not even having this fundamental economics discussion, let alone exploring possible solutions.
UPDATE: Brad Plumer writes, "The U.S. job market is increasingly polarized, with high-paid and low-paid occupations growing fast, while middle-class jobs are vanishing." Here’s where middle-class jobs are vanishing the fastest.