Leaving the EU won’t do what the Leavers say

Firstly, a plea. If you’re a Remainer and you like this, please share it with someone who’s still on the fence, so it might make a difference. 

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Over the last few months, many people have tried to persuade us to vote to leave the EU tomorrow.

They’ve said that if we do there’ll be more money for the NHS, farmers, and tax cuts. That we’ll have fewer forms to fill in, cheaper houses, and more school places. Some of them have painted the EU as some kind of octopus whose tentacles throttle every street, office, and pub in the land, injecting a toxic mic of petty directives, political correctness, foreigners and foreignness into the bloodstream of British life. Cut off its tentacles, they say, and we’ll be able to manage our own migration, write our own laws, choose our own politicians, and spend our own money.

Maybe I’m exaggerating a bit. But my point is serious: by now, I do understand why people want to vote to leave.

But my argument is simple: leaving the EU won’t do what the Leavers say it will.

Sovereignty

Let’s start with the simple question of sovereignty. Who’s in charge.

The Leave campaigners say the EU are in charge, and we have to take back control.

But they’re wrong. The EU isn’t in charge of us. It’s a club we joined. We joined, and we can leave. Yes, there are club rules and we follow them. Yes, there’s a membership fee and we pay it. But if we leave, we won’t have more control. We’ll have less control.

Whatever we decide, there’ll still be British criminals who flee to the continent from time to time. There’ll still be too much carbon in the air around the world. There’ll still be international companies who dodge taxes, international cybercriminals who try to hack our systems, and international banks which might take down the global economy if they fail. Again.

These aren’t one country’s problems: they are world problems. Britain will never control them alone. All we can do is try to control them by working together with our neighbours. That’s exactly what this club is for. If we leave it, other countries will just decide how we deal with those things without us. They’ll decide what we do and how much we have to pay to do it. But we won’t be in the room when those decisions are made.

That’s not more control. That’s less control.

Whether we remain or leave, you’ll still buy German cars, I’ll still subscribe to Swedish Spotify, and we’ll still drink Spanish wine and Belgian beer. Right now, those countries aren’t allowed to put extra taxes – tariffs – on things they sell us because it’s against the rules of the single market. But most of the people who want to leave the EU want to leave that club too. That means we’ll have less control over the prices of things we buy from those countries. They’ll be able to make things more expensive for us. And if they can make money from it, they probably will.

That’s not more control. That’s less control.

We could, of course, stay out of the single market and try to sell into it, like Switzerland or Norway do. But the rules are pretty clear about that: if you want to sell to its members, you have to follow some of its rules. That’s why even though Norway isn’t in the EU, it still implements three quarters of EU laws. Norway’s just not in the room to help decide what they are. It’s why even though Switzerland isn’t in the EU, a third of its laws came from the EU. Switzerland’s just not in the room either.

Needless to say, that’s not more control. That’s less control.

Some people will feel that all this is missing the point. They’ll tell you that being in the EU means being part of a European superstate. But that’s just wrong. The EU isn’t a state today. It won’t be. And even if it does integrate a little more, we won’t have to: EU leaders signed an agreement that is clear: “the United Kingdom… is not committed to further political integration into the European Union.”

In short, as long as there’s crime, climate change, tax-dodging, and other international challenges, we will always need to control them by sitting down with our neighbours. Voting Leave will mean we leave. If we wanted that control back, we’d have to turn around, knock on the door, and hope they let us back into the room.

Immigration

Leavers say we have to leave the EU to control immigration.

But the truth is: leaving the EU won’t control immigration.

Today, British companies want to hire people from outside the UK to do certain jobs. There is a big list of skills which are in short supply in this country. (It looks like this). Leaving the EU won’t change that.

But if we leave, but let companies choose who they hire, we’re not controlling immigration.

And if we leave then restrict them too much, we’ll just hurt our economy.

The right answer for immigration isn’t leaving the EU, it’s for companies and taxpayers to fund more training for people to do those jobs, like other countries do. We should also reconsider EU freedom of movement, as David Cameron and Yvette Cooper say, and the President of the European Council, Donald Tusk, has implied.

The NHS

The third big thing Leavers say is that if we leave the EU we’ll have more money to spend on the NHS. Not just the NHS. On everything. Tax cuts, school places, housing. You name it, someone on the leave campaign has said that leaving the EU will help us pay for it.

But the truth is: leaving the EU won’t save money. Cancelling our membership might save us pennies, but the loss of income would cost us pounds. About a third of the businesses in the UK say that if we leave the EU, they’d cut jobs or move. Even if only half actually do, it would hurt the economy. Less tax would be paid. As the BBC’s Reality Check page puts it: ‘the reduced tax take for the government would wipe out the savings from budget contributions.’

In short, leaving the EU wouldn’t mean more money to spend on the NHS, or anything else. It would mean less.

Farms

Then there is the question of farms. This deserves a lot more attention than I think it has got.

Farms don’t work like most businesses. For good reasons, farmers don’t just earn income from selling food. A lot of their income comes from the EU. How much of their income? More than half. 54% in 2014.

If we left the EU, either farmers would lose half their income, or the British taxpayer would have to stump up to reimburse them.

If we did, there would be less money to spend on other things.

That’s probably why the President of the National Farmers’ Union says that leaving “could devastate British farming.”

Leaving the EU would be like cutting farmers’ incomes by half and then saying to them “don’t worry, you can always ask the government to give it back. And by the way, when you do, you’ll be competing for that money with nurses, teachers, the military, and everything else.”

Evangelists

The Leavers seem to be saying that whatever you don’t like about Britain today, it will be fixed by leaving the EU. It’s the logic of the televangelist. Whatever you don’t like about your life – whether you want to be thinner, richer, happier, or smarter – their answer is the same: just do this one thing and it will solve everything.

Allow me to pour a bucket of cold reality over this.

Yes, we need more houses, especially in places where people want to live. But that’s not because of the EU. It’s because we haven’t built enough houses.

Yes, the NHS needs more money. But that’s not because of EU migrants – they pay more in than they take out. It’s because mental health needs more resources and the population is getting older.

Yes, we need more school places. But that’s not because of EU migrants – in case I hadn’t mentioned, they pay more in than they take out. It’s because the government has been cutting budgets.

If we want more houses built we need the government to chip in more. If we want more money for the NHS and school places, we need to keep businesses here and make sure we collect tax properly.

Remain means actually facing up to the real issues.

Remain

Until about a month ago, I admit, I didn’t have strong feelings about this referendum.

But as the campaign went on, I began to understand what was at stake. That voting to remain in the EU means voting to avoid the risk of our food, cars, and other imports getting more expensive. It means protecting our pensions by avoiding the hit to the FTSE that would follow Brexit (it already fell a lot when the polls showed a Leave lead). It means not risking farmers’ incomes or our rights to paid sick leave, maternity and paternity pay.

Remaining would deprive Scottish nationalists of an excuse to try to amputate Scotland from the rest of the UK again. It would avoid needing to build a wall to keep out immigrants, Trump-style, on the border with Ireland, where there hasn’t been one for nearly a century.

It gives us a chance to look our problems squarely in the eye, rather than succumbing to the fantasy that they’ll all be fixed if only we leave a club of countries who, after all, are our suppliers and customers, neighbours and friends.

In the end, voting to remain gives us a chance to show we’re not scared and defensive. We don’t duck challenges just because we need to cooperate with other countries to solve them. We show up, we muck in, we crack on. We stand with our friends and take control.

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Will Job Polarisation Continue? I Asked Some Economists…

[I’ll carry on updating this post as I get more responses].

Over the last few decades in rich countries, the share of middle-skill jobs has been going down.

There are fewer machine operators, middle managers and so on than there were decades ago, and it looks rather like there are fewer routine middle skill jobs around to replace them.

In 1979, the most common kinds of middle skill jobs in the US – office and administrative workers, production workers and operatives – accounted for 60% of total jobs. By 2012 that figure had fallen to 46%.

The trend holds in Europe too. Between 1993 and 2010, across sixteen EU countries, the share of middle jobs went down by almost 10%.

Autor

That graph was taken from David Autor’s 2014 paper on this subject.

He also makes the striking point that in a survey in 2014, a plurality of mainstream economists agreed with the proposition that ‘information technology and automation are a central reason why median wages have been stagnant in the US over the past decade, despite rising productivity’.

If they’re right, and technology has contributed to the kind of wage stagnation that we’ve seen in the US, or even if it just means fewer opportunities for the majority to get on, it’s a serious policy challenge.

Where is this heading?

So I wondered – is this trend likely to carry on?

Are we heading toward a world where there are plenty of highly paid, high skilled jobs, plenty of low paid, low skill jobs, but not enough in between? And if so, what on earth should we do about it?

I decided to ask a handful of the economists who are closer to the data than I am.

I asked two questions:

‘With these questions, I have in mind the long term trend towards labour market polarisation in the EU and the US.

  1. Do you think labour market polarisation is likely to continue to deepen in the foreseeable future, and why? 

                     unlikely/likely

2. As a citizen, do you think public policy should try to mitigate labour market polarisation? If so, how?’

A few replied, their full responses are here, but this post offers a few takeaways from the responses so far.

  1. Three respondents think labour market polarisation is likely to continue, two don’t, three push back against the question.

‘Polarisation is likely to continue’ – Georg Graetz, John Van Reenen, and Craig Holmes

‘Polarisation probably won’t continue’ – David Autor,  Andrea Salvatori

‘I recommend you don’t think about it quite like that’ – Adam Corlett, Laura Gardiner and Larry Mishel. More on this in point 5 below.

2. Unsurprisingly, pretty much everyone says that there’s a role for public policy to respond to inequality in a number of familiar ways: redistribution of income or wealth, education, retraining, insurance, and so on.

It’s not obvious, though, that this inequality is a consequence of this kind of labour market polarisation.

Also, Craig Holmes has a twist. He says:

“I don’t think pay is everything, [but] in cases where the increase in productivity or reduction in costs that new technology bring about significant losses of job quality in addition to changes in pay, I would support policies that reduced these sorts of investments in the first place.”

He also points out that

“The state, as a huge employer itself and creator of employment elsewhere, can have a big impact in terms of the nature of the work it creates directly.”

3. It’s worth distinguishing between ‘the replacement of routine jobs’ and ‘labour market polarisation.’ Yes, routine jobs are the ones most likely to be automated away. And yes, those have traditionally been the jobs in the middle of the skill spectrum. But the jobs most at risk of automation might not always be in the middle of the skill spectrum. Developed countries could start creating more middle skill jobs which are not routine jobs. In other words, the replacement of routine jobs could continue without deepening the division between low and high skilled jobs.

4. Professor Graetz points out that hollowing out of employment isn’t new: previous episodes of automation were also associated with a hollowing out of employment.

5. As mentioned, some recipients push back at the question. Their core point is that it’s not obvious that polarisation is happening, and even if it is it’s not driving inequality of income.

Here’s Laura Gardiner from the Resolution Foundation on the UK:

“I think that casting this phenomenon in terms of “polarisation” is the wrong way to think about it, because there is very limited evidence that the labour market is becoming more polarised. Even if jobs that started out in the middle of the pay distribution have declined, jobs moving around this distribution, new jobs cropping up all over the place, and earnings dispersion within occupations means that the labour market doesn’t look to be a particularly different shape now than it was 20 years ago (in contrast to what’s happened in the US, to some extent).”

And on the US, here’s Larry Mishel:

“[Polarization] has not really been present in the US since 1999/2000 though the last few years show a bit of it. But it doesn’t really matter whether it does or does not since polarization has no bearing on wage trends. “Occupational employment trends do not drive wage patterns or wage inequality.” I wouldn’t be surprised if polarization resumes but we shouldn’t be obsessed about it at all. It doesn’t tell us much.”

5. Some of the most respected economists in the field are generous with their time.

Thank you to everyone who answered. And if you didn’t, you still can. I might update this post if subsequent answers change the picture or yield other insights.

The recipients’ full responses are here.

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Will Job Polarisation Continue? Responses

Professor Georg Graetz

1. Do you think labour market polarisation is likely to continue to deepen in the foreseeable future, and why?

b) likely

In a paper joint with Andy Feng, we show that the replacement of middle wage jobs by new technologies is likely due to firms’ responding to incentives, and not so much due to idiosyncratic features of information technology (see here for the latest version https://sites.google.com/site/georggraetz/files/machines.pdf). It turns out that job polarisation is not a new phenomenon, and previous episodes of automation were also associated with a hollowing out of employment. To be sure, I am not advocating “technological determinism” – educational and labour market institutions certainly have an impact on the employment and wage structures, as well. But there seems to be a strong tendency of technology to polarise the labour market.

2. As a citizen, do you think public policy should try to mitigate labour market polarisation? If so, how?

Public policy should ensure that everyone has access to an education system that is responsive to the changing demands of the labour market, and should assist those workers who were replaced by technology in retraining for a different career. I do not have a strong view on whether education should be publicly or privately provided, but I do think there is a role for the state in overcoming credit frictions that hinder educational investments, as well as in providing insurance.

Professor Lawrence Mishel

1. Do you think labour market polarisation is likely to continue to deepen in the foreseeable future, and why?

a) Job polarization has not really been present in the US since 1999/2000 though the last few years show a bit of it. But it doesn’t really matter whether it does or does not since polarization has no bearing on wage trends: http://www.epi.org/publication/technology-inequality-dont-blame-the-robots/ “Occupational employment trends do not drive wage patterns or wage inequality.” I wouldn’t be surprised if polarization resumes but we shouldn’t be obsessed about it at all. It doesn’t tell us much.

2. As a citizen, do you think public policy should try to mitigate labour market polarisation? If so, how?

I think public policy should focus on generating robust wage growth across-the-board.

Wage Inequality: A Story of Policy Choices

http://www.epi.org/publication/wage-inequality-story-policy-choices/

Raising America’s Pay: Why It’s Our Central Economic Policy Challenge

http://www.epi.org/publication/wage-inequality-story-policy-choices/

The Agenda to Raise America’s Pay

http://www.epi.org/pay-agenda/

How to Raise Wages: Policies That Work and Policies That Don’t

http://www.epi.org/publication/how-to-raise-wages-policies-that-work-and-policies-that-dont/

Professor David Autor

1. Do you think labour market polarisation is likely to continue to deepen in the foreseeable future, and why?

a) unlikely

Most trends do not continue indefinitely. I think the technological forces behind the decline of middle-skill jobs have largely played out. Technology will continue to reshape job tasks and labor demand, but the next frontier of this phenomenon lies elsewhere.

Really, I’m just speculating. It’s just my observation that when everyone finally agrees that something is “happening,” it’s probably already happened — and may soon be reversing. More substantively, I see the next frontiers of automation has lying in (1) dexterous physical tasks and (2) information intensive expert tasks.

2. As a citizen, do you think public policy should try to mitigate labour market polarisation? If so, how?

Not polarization per se. I think that public policy should attempt to help workers to adjust to exogenous adverse labor market demand shocks that diminish their earnings and reduce the value of their stock of human capital.

Professor John Van Reenen

1. Do you think labour market polarisation is likely to continue to deepen in the foreseeable future, and why?

b) likely

2. As a citizen, do you think public policy should try to mitigate labour market polarisation? If so, how?

Yes, improving skills and education to meet new demands.

Laura Gardiner

There is a definite trend of technology replacing the most routine jobs (which started out in the middle of the wage distribution) which is likely to continue. And this is something government should be mindful of and act upon if it has adverse consequences, for example in terms of individual progression prospects in certain sectors or the fortunes of displaced workers. (However, I’m not at all convinced that automation this time round is significantly different to before and about to cause mass unemployment rather than spur a range of new jobs. In fact, I think that in many ways government should be focusing on more automation in this country to help deal with our woeful productivity performance.)

However I think that casting this phenomenon in terms of “polarisation” is the wrong way to think about it, because there is very limited evidence that the labour market is becoming more polarised. Even if jobs that started out in the middle of the pay distribution have declined, jobs moving around this distribution, new jobs cropping up all over the place, and earnings dispersion within occupations means that the labour market doesn’t look to be a particularly different shape now than it was 20 years ago (in contrast to what’s happened in the US, to some extent).

So I suppose to directly answer your questions:

1. Do you think labour market polarisation is likely to continue to deepen in the foreseeable future, and why?

I don’t think polarisation is a real problem or the right way of focusing question.

2. As a citizen, do you think public policy should try to mitigate labour market polarisation? If so, how?

I would say that public policy should act to mitigate any adverse consequences of automation, for example via redistribution, or progression and skills policies, but not polarisation per se. And that any protectionist anti-automation policy would be particularly misguided given the current productivity position.

Craig Holmes

1. Do you think labour market polarisation is likely to continue to deepen in the foreseeable future, and why?

Likely. However, I think it will affect different sorts of jobs in the past – for example, more low-skill service jobs are able to be automated, for example in retail or catering. Personal service jobs are likely to grow. In addition, technology is likely to be able to replace a wider range of high skill jobs as well, but I would expect the best paid high skill jobs to be immune to this, and indeed to continue to benefit from new digital technologies.

2. As a citizen, do you think public policy should try to mitigate labour market polarisation? If so, how?

I certainly think public policy should be directed to dealing with the consequences of this polarisation, and that where wage inequality increases as a result it should be prepared to redistribute more. However, I don’t think pay is everything, and that in cases where the increase in productivity or reduction in costs that new technology bring about significant losses of job quality in addition to changes in pay, I would support policies that reduced these sorts of investments in the first place. The state, as a huge employer itself and creator of employment elsewhere, can have a big impact in terms of the nature of the work it creates directly, and is somewhat less subject to competitive market pressures that might be driving firms towards new technologies at the expense of job quality.

Dr Andrea Salvatori

1. Do you think labour market polarisation is likely to continue to deepen in the foreseeable future, and why?

Hard to tell because it is really not clear why we have seen polarisation in some places, so it is hard to judge if the process will continue. The evidence that the phenomenon is primarily driven by technology, for example, is not so clear (for example: why did polarisation not occur in the US in the 2000s?). And, in any case, even if we decide to believe that the decline in middling occupations is primarily driven by automation, the argument that the range of tasks that can be automated is expanding would imply that we should not see substitution concentrated in the middle anymore. On the whole, I would argue that it is unlikely that polarisation is going to be the dominant trend for the future, but this is based more on the heterogeneity of patterns that we already observe across countries (and within countries over time) than on some deep understanding of the forces driving the changes in the occupational structure in advanced countries.

2. As a citizen, do you think public policy should try to mitigate labour market polarisation? If so, how?

I don’t think public policy should try and mitigate polarisation per se. It should, however, pay close attention to whether changes in the occupational structure change career opportunities for different groups in unequal ways. In my research, I find that as the UK labour market has polarised, non-graduates have become increasingly concentrated in lower paid jobs and more graduates have moved to jobs traditionally done by people with lower qualifications. A key question there is what types of graduates are being driven down the occupational ladder – whose chances are changing as a result of the changes in the structure of the labour market.

Adam Corlett

1. Do you think labour market polarisation is likely to continue to deepen in the foreseeable future, and why?

I do think that we are likely to see a continued trend of the most routine jobs being replaced (and that these are disproportionately in the middle of the income distribution).

However, my own view is that “labour market polarisation” is not a real problem: i.e. the labour market is not becoming polarised, and even if there is the kind of hollowing out that our work and others’ shows, those lost middle jobs are being replaced by other jobs and by changes in the earnings distribution.

2. As a citizen, do you think public policy should try to mitigate labour market polarisation? If so, how?

Public policy should definitely respond to any technological unemployment of the kind you talk about in your blog – should that happen – by redistributing income/wealth.

 

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Part 1 of 10: If technology destroys too many jobs, what should we do?

This is the first in a series of ten posts on the threat to jobs and growth from technology and online distribution, and what we might do about it. 

  • The first part summarises the argument
  • The second introduces the challenge.
  • The third looks at the threat to jobs from automation.
  • The fourth looks at the threat to jobs from online competition.
  • The fifth looks at what economic problems this might cause.
  • The sixth looks at the social and moral problems it might cause.
  • The seventh looks at some of the arguments against a policy response: are we really sure this is a problem? Doesnt technology always create as many jobs as it destroys? Surely there is nothing we can do?
  • The eighth explains why more education and training isn’t the solution to technological un and underemployment.
  • The ninth explains why more self-employment and entrepreneurship isn’t an adequate solution either.
  • The tenth looks at other solutions, and proposes a new one.

If technology destroys too many jobs, what should we do?

The question might sound crazy, but I don’t think it is any more.

What’s changed?

Three things.

Firstly, over the last thirty years, middle jobs – jobs which rank in the middle of the spectrum in terms of pay, skills, security, and status – have been disappearing on aggregate in the USA and sixteen European countries.

Unless something big happens, the trend is likely to continue.

For more, see post 2.

I’m not panicking yet. What’s the second reason?

Technology replacing jobs.

Some pharmacists, construction workers, financial advisers, legal workers, journalists, retail workers, and accountants have already been replaced. Dubai is about to start experimenting with robot guards. The range of professions will only increase.

The technology is getting both better and cheaper all the time.

The most authoritative research on this concludes that nearly two thirds of jobs in OECD countries could be automated in the next 20 years. According to the Bank of England, that could destroy half the number of jobs in Britain today.

For more, see post 3.

And the third reason?

Online competition.

Once competition in an industry moves online, margins normally fall and an industry shrinks, supporting fewer jobs.

That’s already the story of newspapers in the UK and the US, recorded music, and taxis. It’s the direction of travel in academia, legal services, and local markets for household tasks.

But the big one is yet to come.

I expect in the next decade or so the same will happen in manufacturing. When 3D printing is ubiquitous and we have a ‘Spotify for products,’ jobs in manufacturing, distribution, and transportation – the great engines of twentieth century job creation – are also likely to crater, as I explain in post 4.

We will have a race between the broadly ‘job-creating’ forces and the ‘job destroying forces,’ but it will be tough for the ‘job creating forces’ to win. 

So everything will be cheaper. What’s not to like?

Here’s the problem: jobs are the main way money flows from the owners of companies to everyone else.

When economies work like they did in the US and Western Europe in the middle of the twentieth century, money flows from the owners of companies to the majority of people, who in turn buy those companies’ products. It’s a virtuous circle.

But if there are fewer jobs or middle jobs, companies grow but the money flows into the pockets of a smaller and smaller pool of employees – who are also potential customers. The result: customers are poorer than they would otherwise be.

Although we’re not sure technology is the cause, that has started. The share of total wealth which goes to employees has fallen in seventeen big countries between 1970 and 2013.

And that’s a problem.

If the trend towards fewer middle jobs or lower pay continues, it could mean lower purchasing power and growth, deflationary pressure, lower productivity, lower interest rates, worse health, increasing inequality, the decoupling of effort and reward, a pool of wasted education and skills, an ever greater accumulation of wealth in the hands of the owners of the technologies and greater debt at the bottom.

For more, see posts 5 and 6.

You do know that employment today in the US and the UK is at a record high, don’t you?

Yes. But the trend over decades is towards fewer middle jobs and lower demand across developed countries. That trend is more consequential than one data point – even if it’s today’s.

For more, see post 7.

But technology has always created as many jobs as it destroys. Why might this time be different?

I hope it won’t. But here are five reasons it might.

  1. This time, automation will affect mental work as well as manual work
  2. The internet will shrink industries and the numbers they employ.
  3. The industries of the future probably won’t create as many jobs as those of the past.
  4. Even if it reverses eventually, high unemployment which lasts for five, ten, or twenty years is still a debilitating problem for those who experience it
  5. The loss of middle jobs is arguably already hurting demand and growth.

For more, see post 7.

Isn’t the solution just more education and training?

I don’t buy it. Skilling up doesn’t, by itself, create new jobs.

See post 8.

Isn’t the solution more self-employment and entrepreneurship?

They are good in and of themselves, but they won’t fix this problem, because:

  1. Most self-employed people don’t actually make much money.
  2. They’re unlikely to replace lost middle jobs in sufficient numbers
  3. They’re unlikely to create as many jobs as technology is predicted to destroy.

See post 9.

Well thanks. This has left me thoroughly depressed. Are there solutions?

I don’t think there are solutions which fall within the boundaries of what is electorally acceptable in the UK or US today.

The best solution is to create new jobs. As with the response to the global financial crisis, if companies won’t, governments should.

One solution is to create an enlarged sovereign wealth fund and use the dividends to create jobs. It makes particular sense for the fund to invest in tech companies like Alphabet where profits are exceptional and job creation is low compared to the big companies of the past.

The jobs programme might be similar to a permanent version of the 2009 Recovery Act in the US which created or saved 1.6 million jobs, as I argue in post 10.

After all, even if companies might need fewer employees than ever, we do not lack for work to be done.

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Part 2 of 10: Will there always be enough jobs and good jobs? Here’s why I’m not sure any more.

This is the second in a series of ten posts on the threat to jobs and growth from technology and online distribution, and what we might do about it. 

  • The first part summarises the argument
  • The second introduces the challenge.
  • The third looks at the threat to jobs from automation.
  • The fourth looks at the threat to jobs from online competition.
  • The fifth looks at what economic problems this might cause.
  • The sixth looks at the social and moral problems it might cause.
  • The seventh looks at some of the arguments against a policy response: are we really sure this is a problem? Doesnt technology always create as many jobs as it destroys? Surely there is nothing we can do?
  • The eighth explains why more education and training isn’t the solution to technological un and underemployment.
  • The ninth explains why more self-employment and entrepreneurship isn’t an adequate solution either.
  • The tenth looks at other solutions, and proposes a new one.

Will there always be enough jobs or good jobs to keep the economy growing?

Even just five years ago the question would have sounded kind of crazy. Now, I’m not so sure. The more research I find, the more worried I am.

Consider this. In the last thirty years, the American middle class has collapsed. Middle jobs – jobs which rank in the middle of the spectrum in terms of pay, skills, security, and status – have been disappearing.

This graph (from Laura Gardiner and Adam Corlett’s invaluable presentation) tells the story for the UK.

The least skilled jobs are to the left and the most skilled jobs are to the right. The axis along the side shows the increase or decrease in employment share. And the red bars show the number of employees. The story is of a country adding many jobs needing high skills, but losing many jobs needing middling skills. There are fewer secretaries, electrical engineers, bookkeepers, and sheet metalworkers today than there were in the nineties, and fewer equivalent jobs to replace them.

Gardiner & Corlett

But maybe the UK and the US are just outliers?

No. MIT economics professor David Autor – one of the leading thinkers in this area – has shown that the pattern is the same across 16 EU countries. The share of middle jobs has declined in every single one, in some countries by a lot. Here’s his chart (from this paper):

Autor

So what is happening?

One of the prime suspects is technology. While it tends to make the best paid jobs more productive, it also replaces a lot of the jobs in the middle.

Many are beginning to worry it could be much more destructive than that. 

The Civil Service is already thinking about the possibility of permanently increased structural unemployment (page xix). The World Economic Forum estimates that across rich countries, two thirds of the jobs likely to go will be office and administrative jobs: exactly the kind of jobs Britain disproportionately does. And the Bank of England has looked into the threat to jobs from automation and concluded that a staggering 15 million jobs in Britain are at risk (p.13).

To put that into context, today there are only about 31 million people working in the UK.

There’s also evidence that job destruction tends to speed up with each business cycle: each recession destroys more routine jobs than the last

When the Bank of England concludes that 15 million many jobs could be lost to automation, when a book warning about mass technological unemployment wins the Financial Times/McKinsey Book of the Yearaward, and when sober centrist economists like former US Treasury Secretary Larry Summers propose radical solutions (of which more in post 10), something is stirring.

When my parents’ generation left school or university, there was a great mass of middle jobs waiting for them. If these predictions are right, they won’t be there for the next generation.

But this could be a problem for the whole economy.

After all, jobs are the main way that money flows from companies to the broad mass of people. Fewer or worse paid jobs means lower demand and growth. 

The worst case scenarios here sound so unprecedented that it seems only sensible to think about what we might do about them before we’re sure they’re going to happen.

In this series of posts, Im going to look at technological unemployment and underemployment – why it might happen, whether we can and should do anything about it, and I’ll suggest a solution.

I’ve come to the conclusion that in the worst case scenario, the only policy solutions which might make a serious difference would be well outside the boundaries of what is electorally acceptable in the UK today.

In the next part, Ill look in more detail at why middle jobs are disappearing.

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Part 3 of 10: Think a machine could never do your job? They’re getting much, much smarter

This is the third in a series of ten posts on the threat to jobs and growth from technology and online distribution, and what we might do about it. 

  • The first part summarises the argument
  • The second introduces the challenge.
  • The third looks at the threat to jobs from automation.
  • The fourth looks at the threat to jobs from online competition.
  • The fifth looks at what economic problems this might cause.
  • The sixth looks at the social and moral problems it might cause.
  • The seventh looks at some of the arguments against a policy response: are we really sure this is a problem? Doesnt technology always create as many jobs as it destroys? Surely there is nothing we can do?
  • The eighth explains why more education and training isn’t the solution to technological un and underemployment.
  • The ninth explains why more self-employment and entrepreneurship isn’t an adequate solution either.
  • The tenth looks at other solutions, and proposes a new one.

Right now unemployment in the UK is relatively low.

But the lesson of history is that as technology gets smarter and cheaper, it takes on work which people used to do.

The waves of automation have always started low, washing away only some of the worst paid and least skilled jobs – the lamplighters and ‘knocker uppers’ of history. But as the tide rises, it begins to wash away the more skilled, better paid jobs too – software replacing accountants, for example; self driving cars, ships and planes replacing taxi drivers, captains and pilots.

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A ‘knocker up’ – he knocks on your windows to make sure you get up and out to work on time

Optimists will reply that technology has always created as many jobs as it has destroyed.

It’s an important argument and I look at it in post 7.

In this post, I want to focus on one of the reasons that this time might be different from the past: todays technology is increasingly capable of substituting not just for manual work, but for mental work as well.

Why might automation threaten more jobs now than in the past?

The best known paper on this is by Professor Michael Osborne  and Dr Carl Frey. They argue that in the past, most of the jobs threatened by automation were the ones which involved following rules. The call centre operator who asks you what you want and puts you through to line one or two depending on your answer, for example.

But today’s algorithms can do more than that. They can increasingly recognise patterns. They can ‘see’ and ‘hear.’ They are increasingly dextrous.

This, say Frey and Osborne, enables them to perform a broader scope of manual tasks.

They categorised 702 different kinds of jobs, from recreational therapists and foresters, to music composers and substance abuse counsellors, by how susceptible they are to automation. Their sobering conclusion was that 47% of the jobs in the US economy today could be automated.

The Bank of England took their methodology further. As I mentioned in the last post, it calculates that that would mean 80 million jobs lost in the US and 15 million in the UK – half of the total jobs in the UK economy today*. A third of all the jobs in the UK have a 66% chance of being automated away.

A pharmacist, for example, might well feel safe from automation. But a robot pharmacist is already at work at the University of California, writing prescriptions more accurately than a human.

If you offer financial advice you might feel safe too. But youre competing with automated, algorithm-based portfolio robo-advisers and artificially intelligent asset management, which are already managing $50 billion worth of assets. Barclaysformer chief executive expects half of all the jobs in the UK finance sector to go over the next ten years.

Youre a journalist? Associated Press have already automated much of their reporting of  business results, and more will follow. In a recent survey in Sweden, 37% of readers thought an automated sports report was written by a real journalist. The technology is only going to improve.

You work in retail? The British Retail Consortium expects the sector to shed 37,000 jobs a year to automation.

You’re in construction? Here’s a video of a robot brickie.

You’re a lawyer? You may see many law firm jobs disappear as discovery – the initial work of gathering evidence from other party or parties – is automated.

Youre an accountant? The Bank of England puts the chance of your job surviving in the short to medium termat 5%.

You operate a police patrol? There are now robot public guards in Dubai and San Francisco. This way we can provide better services without hiring more people,” is how Colonel Khalid Nasser Alrazooqui, head of Dubai’s smart unit, puts it.

(Youre a teacher, personal trainer, or priest? Fair enough. Youll be fine).

Here is the Bank of England’s calculation about how vulnerable different types of job are. 

Probability

Source: ‘Labour’s Share,’ Speech by the Chief Economist of the Bank of England

Ever helpful, the BBC have set up a handy tool to tell you how likely your job is to be automated away.

Subsequent research building on Frey and Osborne’s method found that across OECD countries, 57% of jobs could be at risk. And the figures for other countries are much worse: 69% of jobs in India, 77% per cent in China, a mind-boggling 85% in Ethiopia.

In short – this time might be different because many technologies will be deployed at the same time, and many of them will replace brain workers.

There is no precedent for this.

Many people will just feel in their gut that such a collapse in employment is impossible. After all, it is not as if the global economy is about to be blindsided by a systemic flaw that had gone unnoticed before.

I think this was a respectable position until the financial crisis did exactly that.

But automation is not the only threat to jobs. In the next part I’ll look at the threat from online competition.

*And of course, automation is not the only aspect which could affect jobs. A quarter of all jobs in the US, for example, are also offshorable.

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