OTE’s series on full employment began will this post questioning the role of technology—specifically asking whether there’s been an acceleration in labor-saving capital investment that’s playing a role in the gap between productivity growth and employment growth.
Though I think there may be something to this hypothesis, I’m agnostic, and commenters raised many sound objections. As I noted, history is littered with incorrect prediction that technology was long-term disemploying, and absent better evidence than anything I’ve seen, most of which is anecdotal, this hypothesis should be skeptically viewed.
Here are some common objections:
Productivity growth is increasingly overstated: As more inputs into the production process, both labor and parts, come from abroad, there is the danger that we’re over-estimating productivity’s growth. As I explain here, economist Sue Houseman has documented ways in which we’re misinterpreting cheaper imports and outsourcing jobs as productivity acceleration.
The point in the context of this argument refers to the figure in the earlier post, showing productivity growth increasingly diverging from employment growth since around 2000. For this productivity mismeasurement explanation to work, the problem must accelerate over the relevant period, and, in fact, the trade deficit in goods and probably outsourcing of work did just that.
Still, using Houseman’s estimates, I think that would explain well under half (maybe a third) of the gap between productivity and job growth since 2000.
More broadly, this measurement critique is really a subset of the stiffest challenge to the labor saving hypothesis: where’s the evidence?
Structural vs. cyclical: Some folks worry that I’m getting soft on the recognition that our current unemployment problem is cyclical, not structural. Not to worry—I’ve tried to be careful to frame these concerns as longer-term. The sequencing of my and others’ anxiety about this is: first, squeeze out the cyclical slack still lingering from the Great Recession, then let’s talk about structural unemployment.
Demand: Others felt I was downplaying the intervening variable of demand. I was quite explicit about this factor in the post, pointing out that strong enough demand has historically absorbed productivity gains in a virtuous circle wherein technological gains have translated in broad improvements in living standards.
So to reiterate, I’m well aware of this absorption channel. I’m just concerned that in a context where growth is merely a spectator sport for the middle class, their stagnant incomes block this demand-side channel.
Technology is a Complement to Job Growth, Not a Substitute: We’ll need a lot more, smarter workers to build the robots and write the software that controls them (so they don’t become our overlords!). So, rather than displacement, technology will be a source of more jobs.
This dynamic is one reason why history is littered, etc., as noted above. IT is only the latest example. But there are reasons to be skeptical about complementarities. It’s not only the fact that the majority of the workforce–about 70%–still lacks a college degree. It’s also the case, and here I’m being anecdotal, that not every programmer with a college degree is good at this, and programming itself can be outsourced.
The jury’s far from in, but referencing my first post is this series, the split in the productivity/employment graph, the “Race Against the Machine” story, and links to the articles about other ways in which technology is evolving in the workplace have some of us nervous.
And getting beyond the technology question, let’s be mindful of the bottom line here: even if labor-saving technology is playing no role in the jobs gap, I’m confident in my assertion that structural unemployment will exist for some group of workers once the expansion begins in earnest. How large that group is, we’ll have to see. But we are unlikely to create the quantity and quality of jobs necessary to provide everyone with the opportunity they need. So a full employment agenda is a smart thing on which to get crackin’.