Got lots of feedback from this oped in the NYT on the need to consider full employment policies:
While the high jobless numbers are partly a legacy of the Great Recession, the fact is that our economy has generated too few jobs for most of the last 30 years and is likely to continue to do so. The only viable response is a return to an idea that once animated domestic policy making: full employment, the notion that everyone who wants to work should be able to find a job, and if the market isn’t up to the task, then the government must fill the gap.
Since I consider this issue to be so critical to the economic well-being of most American households, I’m going to start a new series that presents Q&A’s on some aspect of the problem. Here’s the first entry.
Q: I know about the gap between median income and productivity—that’s inequality—but you allude to a gap between employment and productivity. What’s behind that? Automation?
A: The figure below tells the story. It plots productivity growth against employment (using a full-time equivalent measure of employment to control for changes in the number of part-time workers) indexed to 100 in 1959.
Sources: BEA, BLS; productivity is for nonfarm business sector; employment is for full-time equivalents in the private sector.
As the question notes, for decades analysts have tracked the divergence between median incomes or wages and productivity that began in the later 1970s, an important symptom of growing inequality. That trend is by now well-known and considerably researched. This trend—and the clear divergence around the beginning of the last decade—is less understood. But it is just as important.
While “Luddites” and their descendants have worried for centuries that advances in productivity would render workers unnecessary, leaving them stuck in technological unemployment, economists generally recognized that the intervening variable of demand would absorb productivity growth. In this way, productivity growth, while often disruptive, provided the opportunity for rising living standards and as demand grew, employment tracked productivity.
But since 2000, as the figure reveals, that has not been the case. Much slower job growth, more involuntary part-time work, and a decline in labor force participation all contributed to a uniquely slack job market over that expansion.
Some analysts believe this divergence is caused by accelerating investment in labor-saving technology and while the evidence is largely anecdotal, my sense is that there’s something there. Certainly, robotics are more prevalent and not just in factories by in other sectors as well. EG, in services, a key contributor to productivity is throughput—“stack ‘em high and let ‘em fly,” as the retailers say. I recently saw a documentary where robots were scurrying around an Amazon warehouse, getting products off of shelves.
More interesting and less well known (and surely less pervasive) are examples of software automating processes like legal research, medical diagnoses, and even writing an article about a sporting event.
Two caveats. First, anecdote not equal to data. Second, if bloggers existed back when looms and cotton gins were gearing up, they might have written similar pieces to this one. We should always remember that the intervening variable of demand has made all the difference in terms of offsetting these technological advances in ways that lifted living standards for the broad public. Arguably, this continues to be the case, as there are myriad ways in which the vast majority of us—rich and poor—benefit from technological advances. But perhaps because income and wealth are some concentrated these days, demand growth is less broad-based, and labor-saving technology is hurting employment growth more so than in the past.
Third, as I alluded to at the end of the oped, if productivity growth is making us better off, we could choose to take those gains in less work and more leisure. IE, by definition, higher levels of productivity mean we could enjoy the same amount of output with fewer hours of work. But embedded in this solution–one seen more in Europe than here–is the assumption that the gains of productivity would be far more equitably distributed than they have been. In fact, thery’re increasing less so.
At any rate, if the divergence shown in the figure above persists it will pose a challenge to achieving full employment labor markets, a challenge I argue must be met by job creation policies. More on them in coming posts in this series.