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The Robots Are Not Eating Your Lunch

New research by MIT professor David Autor unveiled last week at the Federal Reserve Bank of Kansas City’s economic policy symposium in Jackson Hole seems to suggest that the real problem facing young people entering the workforce is not a burgeoning army of robots and algorithms eating away at their employment prospects, but rather a glut of overqualified workers vying for a number of slots that’s not markedly increasing. Lawrence Mishel, president of the Economic Policy Institute, explains:

[I]nstead of a shrinking middle with an expansion at the top and bottom of the occupation hierarchy for 1999-2007 (see the orange line), he finds an expansion of low-wage occupations (in the bottom thirty percent of occupational employment, ranked by wages), a shrinkage in the middle (from the 30th to the 80th percentile of occupational employment, ranked by wages) and no expansion in the upper twenty percent. Only low wage occupation expanded. The 2007-2012 period (the green line) had similar trends, though there was a slight expansion of high wage occupations. Simply put, there has been no occupational employment polarization since 1999.

Autor points out that the consequence of this trend is an oversupply of “highly educated workers,” who have taken jobs that do not require such an education: “These patterns suggest that the set of abstract task-intensive jobs is not growing as rapidly as the potential supply of highly educated workers. As Beaudry, Green, and Sand (2013, 2014) highlight, the coalescence of these forces has likely led highly educated workers to seek less educated jobs, which in turn creates still greater challenges for the lower educated workers competing for routine and manual task-intensive work.”

There are lots of ways to read and interpret these trends, but one way jumps out at us: We are raising a generation of job-hunters instead of a generation of job-builders. Our advice to young people coming out of school soon: Don’t just think about looking for a job somebody else has created for you. Think about how you can build a business or a niche of your own.

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  • Boritz

    “Think about how you can didn’t build a business or a niche of your own that.”

  • lukelea

    Logically, automation, mass immigration, and tariff-free trade with low-wage Goliaths like China all have the same effect on wages: they reduce the demand for (or supply of) labor relative to capital. Labor is a commodity in the market economy just like any other. The laws of supply and demand apply. It is clear that all three of the processes mentioned (immigration, trade, automation) are major contributors. How you disentangle them is beside the point. All three need to be addressed. The alternative is an ever-falling standard of living for the middle two-thirds of our population. It means an end to the American dream for most ordinary Americans.

    So, how do you address theses problems? Each one has its own public policy solution, all tried-and-true:

    A suspension of the 1965 Immigration Act — i.e., an across-the-board moratorium (pause, time-out) on mass immigration.

    A repeal of Nafta and Gatt as it applies to the import of goods and services from low-wage countries, which could be combined with a further relaxation of trade barriers with high-wage countries around the worlds (OECD).

    Amendment of the 1938 Fair Labor Standards Act to introduce a family-friendly six-hour day with triple time for overtime.

    I don’t think any economist would argue that these three measures would increase real hourly wages here in the United States. They might argue that the “ideal” solution is to tax Capital and subsidize Labor — or, in other words, tax the winners and compensate the losers. But since we don’t know how to do that this solution is a non-starter. We should go with the tried-and-true and restore the American dream for the American people. That will require leadership.

    • Loader2000

      Luke. Some good insights. However, I question your number 2). When you talk about tried and true, across the board tariffs (which is the implication of abolishing free trade agreements) have been tried, and tried with great enthusiasm, during the Great Depression and they worked out horribly and resulted in even greater economic hardship for everyone, so I would say tried and failed on that account. If someone else can make something faster, cheaper and better, the global marketplace will eventually choose that product no matter what policies a single country tries to employ to protect itself. Populist protectionist economic policies nearly always end in deeper recession (just look at what is happening in Argentina right now for a perfect case study of this) and the employment of such tactics is, in my opinion, the strategy of a losing civilization and will only delay the inevitable, and even that by not very long. Innovation, creative destruction, entraunearship (sp?) and government policies that encourage those things are the only long term ways for a country with a high standard of living to compete with countries with cheap labor.

      That being said, I have no problem imposing tariffs on imported goods whose manufacture is being subsidized by taxes from their home country. We should have every right to impose tariffs on Chinese made solar panels and they should have every right to impose tariffs on corn products imported from the US, and our trade agreement should reflect such inequities.

      • Kevin

        I would add that number three is pretty dubious too. France has tried 35 hour workdays to little effect. Tightening up on abuses (such as flexible scheduling for part time and sending employees home early from day to day) is probably a good idea (as the costs of labor flexibility should not be borne entirely by the employee), but trying to drive down the average time worked will not raise wages, just depress employment as employers move work offshore or automate. The ultimate goal should be to enhance the marginal productivity of labor and create a tight labor market that bids up wages because there is additional demand for labor, not to drive up labor costs first -a strategy which will only further encourage substitution of labor (by foreign labor or technology/capital).

        • lukelea

          Real hourly wages in France are higher than in the US. It’s just that the French prefer more leisure and less total income. Not a bad trade-off in my opinion.

      • lukelea

        We could simultaneously lower trade barriers between OECD countries. Free trade between high-wage countries benefits everyone in both countries.

  • Anthony

    Young people should read this book, the millionaire mind. It’s mainly, although not exclusively, about entrepreneurs who have made serious money in unglamorous businesses. One case stands out in my mind even today even though I read the book last year. This guy buys semi trucks that have are no longer being used and then sells the parts. The markup is significant. According to Stanley, he makes around 800k a year and has a net worth of around 10 million. The reality is that people who don’t have an IQ in the top 1 percent don’t stand a chance of getting a job at Google or one of the big hedge funds. As my example shows, this doesn’t mean that there aren’t opportunities out there for scrappy folks who really want to make money.

    Similarly, I recently came across an article about “scrap metal millionaires.” The article showed ex cons who were making around 200k scrapping in the London metro area. And this was in the context of the worst economy in modern British history.

  • Andrew Allison

    Re: “Our advice to young people coming out of school soon: Don’t just think about looking for a job somebody else has created for you. Think about how you can build a business or a niche of your own.” I assume that by “school” you refer to college. Wouldn’t it be better to advise young people coming out of high school to think long and hard before joining the ranks of the over-qualified by wasting four years of there lives and incurring debt which will haunt them long afterward?

  • Kevin

    This study seems to be part of a sustained push to increase unionization, reduce global trade, reregulate industry and reduce immigration. They want a much stronger role for government intervention in the economy to redistribute income and this are highly motivated to find that the cause of changes in income inequality are due to changes in government policy over the last 40 years and not due to the rise of computerization, robots, or any other technological factors.

    They may be right, but their study and findings should be read as part of an ideological program to increase government intervention in the economy and not as just some dispassionate study of the role of technology in the economy.

  • Jacksonian_Libertarian

    We are in a deflationary depression, aka Great Depression 2.0. Debt levels are too high, and servicing that debt is getting harder as deflation drives down wages. On top of that the burden of government has grown significantly, with massive new regulations, tax increases, Obamacare, etc… sucking up capital needed for growth. In a normal economy the money supply would be growing, the economy expanding, and more jobs getting created. Now even the massive printing called quantitative easing (Trillions of new money over the past 6 years) haven’t budged the M3 money supply which is unchanged from the start of Great Depression 2.0.

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