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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Part 4 of 10: Middle jobs are disappearing. Here’s why online competition might be making it worse

This is the fourth 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.

My first job was in a video and DVD rental shop. The guy who started it was dedicated, smart, and hungry for success.

Still, it soon failed.

Of course it did: it was a video rental shop. They all failed.

But they didnt fail because they were replaced by robots or artificial intelligence. They failed because the distribution of films changed: we started getting them online.

This illustrates why I suspect the current way we think about technological unemployment underestimates the problem.

Jobs are not just under threat from technology substituting for humans. They’re also under threat from online competition.

Once competition in an industry moves online, it becomes much flatter, and sometimes global. Margins normally fall. These industries can only sustain revenues and employment if growth in emerging markets offsets decline in mature ones. Otherwise, they will sustain far fewer jobs. This is already the story of newspapers in the UK and the US, recorded music (thanks to Spotify* etc), traditional taxis (Uber), and other industries.

And if competition makes the product free – as it already has with much music and journalism – the industry is able to support even fewer jobs.

This is already the trajectory in academia, with the rise of online courses and peer-to-peer paper sharing.

It’s the trajectory in local markets for household tasks, where sites like Taskrabbit.com and fountain.com offer an online marketplace.

And it’s the trajectory in legal services. Online marketplaces like legalzoom.com makes formerly local markets national; lawyers sometimes find themselves competing with thousands of others all over the country, threatening fees and margins.

But here’s the rub: I expect in the next decade or two the same will happen in the great job creator of the twentieth century: manufacturing.

When 3D printers are cheap enough for the median worker to afford, she will be able to download and print some of the things she used to have to go out and buy or have delivered. At that point, we can expect downward price pressure, shrinking margins, and fewer jobs across manufacturing.

How long will it take before we have a Spotify for 3D printable objects’?

Think for a moment what that will mean. When 3D printer ownership is sufficiently widespread, a ‘Spotify for 3D printable objects’ would mean that you could download and print objects – toys, tools, trinkets, whatever – for free.

That might be a tough idea to take seriously. But when we all bought music on CD, it was tough for the music industry to take the threat of free music seriously too. 

If a ‘Spotify for 3D printable objects’ happens, manufacturing jobs are likely to crater.

It probably also means fewer distribution jobs too. Once you can download and print out items at home, fewer goods will need transporting. Jobs are likely to go in parcel delivery, retail and wholesale, and transportation systems, like trucks and container ships (if they haven’t already been automated anyway).

In other words, one lesson from music, taxis, and newspapers is that even if robots dont eat your job, global online competition and distribution can still shrink your industry.

We will have a race between the broadly ‘job-creating’ forces and the broadly ‘job destroying forces.

On the job creating side we will have the rising middle class of developing countries providing the world economy with more demand, and the income effect: cheaper goods and services saving consumers money so they have more to spend on other things, creating new demand and jobs.

But on the job destroying side we will have automation and artificial intelligence requiring fewer humans to produce the same output, and online competition pushing down margins in new and existing industries, putting downward pressure on total demand and jobs.

It’s too early to say which will win between these forces.

But I wouldn’t bet on the job-creating forces. Not least because so many products online are infinitely replicable (music, books, journalism, products when 3D printing becomes ubiquitous). So however many Brazilians, Indians, Nigerians and others emerge into the middle class, as soon as they buy online, you surely do not create as many jobs as you would have done before the internet was around.

Some will feel instinctively that this world I have sketched sounds great – its main feature being cheap goods and services.

But these trends might cause real problems. In the next post, Ill look at why.

*Some will point out that Spotify has actually helped the music industry recapture revenues they were losing to pirating. True, compared to ten years ago. But compared to twenty, thirty, or forty years ago, the most important thing Spotify and YouTube have done is radically reduce the value of recorded music, and helped to make the music industry much less profitable.

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Part 5 of 10: Here’s why fewer middle jobs is bad news for everyone.

This is the fifth 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.

In the last two posts I sketched why automation and online competition could drastically reduce the number of middle jobs and the total number of jobs.

Here’s the first of two posts on why that would be a problem.

1. Lower Economic Growth

Fewer jobs – or even just fewer middle jobs – will mean less purchasing power across the economy.

Jobs are simply the main way that money flows from companies to the broad mass of people who consume. When there is a shortfall of jobs, there is a shortfall of purchasing power and demand, holding back growth.

This sometimes happens already, of course. In 2014, for example, the International Labour Organisation joined many commentators in worrying about low aggregate demand and slow job creation across G20 countries.

If middle jobs carry on disappearing, this will be an issue because the rich spend less of their income than the rest. Fewer middle jobs, let alone higher structural unemployment, would be bad for business: companies would be fishing for business in an ever smaller pool of purchasing power.

Ultimately, it would surely threaten long-term trend growth.

This may already be happening; long-term growth in developed countries seems to have stalled (‘secular stagnation’), and economists are debating why.

2. Deflation

Fewer middle jobs could lead to deflationary pressure, and perhaps even deflation.

If enough jobs are lost or pay falls, total spending power in the economy falls, so companies might be inhibited from putting up prices. They might even decide they need to drop them to compete.

Sustained, across the board deflation offers something for everyone not to like.

Wages would fall. People might put off purchases while they wait for prices to fall further, like you might do before a sale that you knew was due to start next week. That make it tough to do business. Debts would rise in real terms each year. And businesses would be discouraged from borrowing to invest, because they would have to pay back more than they borrowed in real terms.

This is the story of the USA during the Great Depression.

On a small scale, we already have historically high deflationary pressure.

Andy Haldane, the Bank of Englands Chief Economist – has said (p.17) that the monetary policy committee has been consistently surprisedby how weak wage growth is in the UK.  And it could be because of the effect of technology on jobs. As he speculated, it could be because technology has made it easier and cheaper than ever before to substitute labour for capital, man for machine.

3. A waste of education and skills

A loss of middle jobs would be a waste of education, skill, and human potential.

It would mean more people with hard-won skills doing jobs which dont use those skills, like the guy with two degrees and a business school Masters cleaning the toilets in Pret, or the rise of the PhD barista.

Over time, the problem would probably get worse. After all, the demand for higher education probably wouldnt fall substantially – it would still be the best chance to get the best jobs. But if the number of graduates grows faster than the number of jobs which need graduate skills, you are left with more overeducated and overtrained people each year. Thats when the skilled people start leaving the country.

Again, there is some evidence that this is already happening: in the first twelve years of the century, ‘skill unemployment’ doubled in the US and the UK and tripled in Italy and Spain. 

Could it be because in those countries, ever more skilled workers are chasing ever fewer jobs which need their skills? This is an indicator to watch.

4. Lower Productivity

Productivity drives growth and wages, so a waste of skills means the economy is less productive than it should be.

That raises issues of national competitiveness.

If, say, France finds a way to protect its middle jobs but Britain doesnt, then French skilled workers use those skills productively but British skilled workers dont. French productivity pulls further ahead of British productivity, and the motor powering the French economy gains power while the British motor sputters.

Substitute France for China, Brazil, or Nigeria – or any countries with a growing middle class of consumers – and the challenge compounds. The Civil Service has already started worrying aloud (p.29) about this.

And, sure enough, British productivity has stalled in recent years. 

VR

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

If we continue to lose middle jobs or all jobs, skills will be wasted, placing a drag on the economy compared to its potential.

5. Lower Interest Rates

A loss of middle jobs or aggregate jobs means it will be harder for people to work their way out of debt.

That could discourage central bankers from raising interest rates, as they might be inhibited from making it harder for debtors to pay their debts down. But those low interest rates would also be a disincentive to save.

It would also make it harder for central bankers to use interest rates to stabilise the economy. If central banks consistently expected low demand and inflation, they would be obliged to keep interest rates low, blunting one of the most useful tools by which policymakers try to regulate the economy.

This last aspect has already happened, of course. And at least one member of the Monetary Policy Committee has explicitly linked the problem to distributional issues – inequality.

This is a sample of the economic problems which higher technological unemployment or underemployment could cause.

The next post looks at three social and moral problems.

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Part 6 of 10: Fewer middle jobs isn’t just an economic problem. It’s a moral problem too.

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? 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.

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.

7. Inequality

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.

c & l

That’s also the pattern in the UK and across rich and middle income countries.

ILO2

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.

Its 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 its 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.

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Part 7 of 10: Some people say we shouldn’t do anything about technology taking jobs. Here’s the counterargument.

This is the seventh 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 there is a structural loss of middle jobs or total jobs, should politicians do anything about it?

The prospects of wasted education, worse health outcomes, and increased inequality are enough to horrify someone with social democratic instincts like me. But plenty of people will see those same trends and feel equally strongly that we can’t or shouldnt do anything about it.

And when they convert those feelings into arguments, here are some of the arguments they’ll use. 

1. Were not yet sure its a problem

As Ive set out in previous posts, the data is still coming in.

We know technology destroys middle jobs – American and European labour markets are hollowing out. We can see that rich countries like the US and the UK have growing skill unemployment, and that productivity, investment and median incomes have stalled relative to long term trend.

But will automation and online competition really kill so many jobs? Theres still room for reasonable people to disagree.

And, as a busy politician might add, voters are angry for plenty of reasons, but aggregate effects like ‘a hollowing labour market’ is just not something most people think about.

But this is silly. Such devil-may-care logic doesnt afflict political debate when discussing other risks, such as cybersecurity or nuclear threats. There is enough evidence to believe that we might have the beginnings of a serious problem, and it is politiciansjob to address possibilities as well as certainties.

The debate about the collapse of middle jobs and purchasing power is today in a similar place to where the political debate on climate change was in the early noughties.

Then, credible sources in the scientific community were concerned with it, some in policy circles knew about it, but it was still seen as a fringe risk. Hardly any politicians had started thinking seriously about what we should do.

Even though we arent sure we will face structural un or underemployment, we can be pretty confident that if it happens, the consequences will be dire.

Why wouldn’t we start thinking about it?

2. Technology could create as many jobs as it destroys

Technology doesnt just destroy jobs, it also creates them.

For all the lamplighters and lathmakers who have fallen into history, there are many more digital brand managers, graphic designers, and database managers. There are deodorant testing armpit sniffers. There is Shingy.

Over the last two centuries, jobs have come and gone, but the UK employment rate has fluctuated around a relatively fixed average, as this graph shows.

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Source: Speech by Andy Haldane: ‘Labour’s Share’

It might do in future as well. After all, there is no limit to what humanity might imagine or demand, so no limit to what the economy might have to supply.

No doubt supporters of the UK government would make this kind of argument. ‘Look’, they might say, ‘all this talk of a hollowing labour market is so much carping. UK unemployment just hit a ten year low. The employment rate is at its highest since records began. There will always be enough jobs.

I hope they’re right. 

But employment now only gives us one data point. The trend is more important.

And there are at least five reasons to think that this view about the future is too complacent.

1. As set out in post 2, this time, automation will affect mental work as well as manual work. Machines can increasingly learn, recognise patterns, sense, and be taught dexterity. All this is new in human history.

2. As set out in post 3, this time we are reckoning with online competition, often global, which puts unprecedented downward pressure on prices and margins, making it hard for existing industries to support as many jobs. This too is new in human history.

3. The industries of the future probably won’t create as many jobs as the industries of the past.

Martin Ford puts it well: “you can imagine lots of new industries: nanotechnology and synthetic biology – but they won’t employ many people. They’ll use lots of technology, rely on big computing centres, and be heavily automated.”

You can already see this trend at work. Take photography, for example. As Henrik Killander points out, at its pinnacle, Kodak employed more than 140,000 people; when Instagram was sold to Facebook in 2012, it employed 13.

It’s hard to find research indicating that technology creates lots of jobs, but it’s not hard to find research showing that it doesn’t. One study calculates that of all the new jobs created in the US in 2010, only a puny 0.5% were in industries which didn’t exist at the turn of the century. It looks more and more like new technologies create plenty of wealth but not much work.

I don’t think we yet know enough to say for sure that the new industries of the future will need fewer jobs than the industries of the past.

But one thing is for sure: business leaders look for the most efficient way to get the task done, and labour is a cost. If technology can do a better job than people, or the same job more cheaply than people, or both, they will employ fewer people. Nobody goes into business first and foremost to create jobs. If the industries of the future don’t need as many jobs as those of the past, fewer will be created.

Uber is a salutary example. It talks a good game about how much work it has provided to drivers around the world. But it is still working on replacing them with self-driving cars.

3. Higher unemployment which lasts for five, ten, twenty years is still an apocalyptic problem for the generation which experiences it.

Often people argue about technological unemployment as if it’s something that either will or won’t happen, forever. One side says employment will hold up – technology will create as many jobs as it destroys. The other side says this time it might leave us with fewer jobs permanently. But something else could happen: technology could destroy many jobs in the short run and create just as many in the long run, but give us five, ten, twenty years of transitional high unemployment. 

Long-term, high, but non-permanent unemployment has happened before. Whether or not it was because of technology, unemployment in Britain stayed above 10% from the early twenties until the beginning of the war.

In other words, even if the optimists are right that technology will create as many jobs as it destroys in the long-term, it can still devastate purchasing power, growth, and human potential for a generation.

4. Fewer middle jobs can still hurt demand and growth. The total number of jobs isn’t the only thing that matters. Getting enough money into enough pockets is important too. Even if technology creates as many jobs as it destroys, if the labour market carries on hollowing out – losing middle jobs – we can still expect a net loss of purchasing power, demand and wellbeing: security, status, opportunity, and development, because the rich spend a lower proportion of their income than everyone else.

And for me, this is the strongest counterargument to the boast that today’s low unemployment means there is no problem: boasting about how many jobs have been created but ignoring how much they pay is like boasting how many cans of beer you’ve got in the fridge but ignoring how little beer is left in each can.

Whereas permanent technological unemployment is a prospect, hollowing out is already happening.

I think we can be pretty confident it has depressed demand relative to trend: many more workers are on the minimum wage. Fifteen years ago, only one in fifty jobs were paid minimum wage; today it is one in twenty, and its predicted to be one in nine by 2020.

3. There is nothing we can do

Tyler Cowen, for example, believes that in the coming decades, the top ten to fifteen percent of workers whose skills will complement those of intelligent machines will prosper, and the rest will stagnate. In his telling, it’s inevitable.

A flippant way of putting the argument is: if driverless vehicles are going to kill driving jobs and 3D printing is going to kill factory jobs, then, with the best will in the world, theres not much any Minister for Work and Pensions can do about it.

I don’t buy this.

Market forces are shaped by laws, institutions, customs, and culture. They have, at various points in history, involved owning slaves, employing children, and letting multinationals negotiate their own tax rates. These things are inevitable until politics changes the rules. Not everyone will like the solutions, but that doesnt mean there arent any.

But if technology really does reduce jobs and work, isnt the solution just better education and training, skilling up?

In the next post Ill look at this argument.

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