This is the sixth 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? Doesn’t 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.
A structural loss of middle jobs or total jobs wouldn’t just have economic consequences. It would have social and moral consequences too. Here are three.
6. Worse Health
There is plenty of evidence that being stuck without work, enough work, or the right kind of work is bad for your health.
A young person without a job, for example, is more likely to have mental health problems in their 40s or 50s, let alone a loss of confidence, cognitive skills, and optimism. Even just being underemployed or being overqualified for the job can have the same effects. Of course, this increases the burden on the health service and everyone who works in it.
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 can grow but the money flows into the pockets of a smaller and smaller pool of employees. That means customers are poorer than they would be.
John Lanchester puts it vividly:
“Imagine an economy in which the 0.1 per cent own the machines, the rest of the 1 per cent manage their operation, and the 99 per cent either do the remaining scraps of unautomatable work, or are unemployed. That is the world implied by developments in productivity and automation. It is Pikettyworld, in which capital is increasingly triumphant over labour.”
The process has started. We can’t be sure technology is the cause, but for the first time since the war, the share of US GDP that goes to owners (capital) has begun to definitively pull away from the share going to workers (labour).
Erik Brynjolfsson’s chart (from this presentation) shows how that looks in the USA.
The blue line shows corporate profits after tax, and the red line shows the non-farm labour share, both as a percentage of GDP. They skip around each other from 1947 to 2002; sometimes labour has more, sometimes capital. But from 2002, the difference is dramatic. They diverge sharply; owners make ever more, workers make ever less.
That’s also the pattern in the UK and across rich and middle income countries.
This chart comes from the ILO’s report on G20 Labour Markets, p.13
Many political centrists are beginning to wake up to this. Centrists in Britain used to believe that a rising tide lifted all boats. Not any more. Many, like John Major and Tony Blair have accepted that inequality is a problem.
Recent profit margins have even had one analyst at Goldman Sachs wondering about “the efficacy of capitalism.”
David Autor, economics professor at MIT and a leading thinker on automation and employment, sees these distributional issues as the main challenge of technology.
8. Effort and reward
We like to believe that the harder you work, the better you do in life.
It’s what we teach children. Politicians and brands are keen to associate themselves with the sentiment. Social media is awash with pithy posters expressing it. We are culturally accustomed to being prouder of what we earned than what we were given. Nobody who inherits a house boasts about being a homeowner.
We like to think that this morality tale applies to economic life too, that the rich are rich because they have worked hard, that they deserve it. Sometimes it’s true.
But if the number of middle jobs declines, then there will simply be fewer middle jobs for graduates to get. People will still put in the same effort to get them – they might even work harder – but fewer will succeed, because many of the middle rungs of the ladder which were there for the last generation won’t be there for the next.
That probably means reduced equality of opportunity as well. Like it or not, money buys opportunities for the next generation: tutors, remedial classes, networks.
Unless you have reason to think current trends towards the hollowing labour market will reverse, fewer middle jobs means fewer households able to pass these opportunities on to their children.
In short, if automation and online competition continue to eat into middle jobs – as they have been doing for years in the US – we can expect lower purchasing power and growth, deflation, wasted education and skills, lower productivity, lower interest rates, worse health outcomes, increasing inequality, and the decoupling of effort and reward, as each decade brings greater accumulations of wealth for the richest and greater debt for the poorest.
But should we do anything about this? Could we? These are the questions I will look at in part 7.