Part 8 of 10: Why more education and training won’t fix technological unemployment

This is the eighth 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 really does reduce jobs and work, isnt the solution just better education and training, skilling up?

This seems to be the conventional wisdom.

This solution comes in a number of forms: more money for schools, colleges, and universities, more and better apprenticeships and training, on or off the job. Perhaps an expanded scheme of career development loans and lifelong learning schemes.

When the Civil Service considers more automation and unemployment, this is what it recommends, for example here (p.21).

More and better education is a good thing in itself. But it wont fix the problem.

A good education, training scheme or apprenticeship will only mean a good job if there are enough good jobs out there.

If the problem is not enough middle jobs, the solution is more middle jobs. If the problem is not enough jobs, the solution is more jobs.

Larry Summers put it well:

If we allow the idea to take hold that all we need to do is: there are all these jobs with skills and if we can just train people a bit, then theyll be able to get into them and the whole problem will go away. I think that is fundamentally an evasion of a profound social challenge. The core problem is that there arent enough jobs.

That challenges a very ingrained mindset.

Parents are accustomed to waving their children off to schools or universities safe in the belief that their education means they can expect a good job. And yes, it will always help. But the bigger the hole where the middle jobs should be, the harder it will be for education alone to fix the problem.

And in one sense, more education and training is not helpful because it adds to the demand for middle jobs, and so bids down their salaries. Italy, Spain, the US, and the UK have all experienced rising skill unemployment because they have ever more skilled graduates chasing a dwindling number of skilled jobs. Germany hasn’t. As economist Dalia Marin put it: ‘in Germany, skill unemployment is low and did not increase between 2000 and 2012 precisely because education was advancing slowly there’.

This boils down to an uncomfortable trade off. In a country with a permanently lower proportion of middle skill jobs, should we prefer commensurately fewer skilled people to do them? Or an equal or greater proportion of skilled people, even if it means more people get stuck in jobs they’re overqualified for?

Anyway, if education and skills arent the answer, what about entrepreneurship? Surely if there are fewer jobs, more people are just going to have to create their own?

The next post looks at this argument.

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Part 9 of 10: Why ‘more entrepreneurship’ isn’t the solution to technological unemployment

This is the ninth 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.

I think my dad is worried about how worried I am about the future of work.

The other day he emailed me an article about the rise of self-employment in the EU, with the message: you could stop worrying about the future of work, as so many people are finding their own solutions!

And he is well qualified to say so; he started a small business in 1987 and has run it ever since.

Certainly, anyone who has created their own job or dreams of doing so probably cringes at the idea that the total number of jobs can fall. After all, if you have defined your working identity by making a job not taking a job, cant everyone? Isnt the solution to fewer aggregate jobs more self-employment, entrepreneurship, and enterprise?

The argument acquires a moral flavour if you add words like self-relianceand rugged individualism.’ If robots, technology, or online competition mean fewer jobs, wont people just have to pull up their socks and take some personal responsibility?

The argument also has a strong cultural aspect. We want to believe this. If an American ‘single mom’ working low-paid jobs with three kids can make it big with a mop head you can wring out without getting your hands wet, cant anyone?

I would never discourage anyone from trying.

But that doesnt mean the economy can automatically expect to rely on self-starters to keep the jobs numbers and aggregate demand stable, for three reasons.

1. Most self-employed people dont make much money

In 2013-14 in the UK*, the typical self-employed person made roughly half the median wage of employees. (£210 per week (p.21) vs £385 per week).

And 2013-14 wasnt a one off. Since the turn of the century, the typical self-employed person has earned between two thirds and half of the median employee, as this graph shows.

The dotted lines – the medians – are the relevant ones here because the full lines – the means – are skewed by a few high earning self-employed contractors.

The red dotted line is median self-employed earnings, the green is employee earnings.

ResFound2

Source: The Resolution Foundation: ‘All Accounted For: the case for an ‘all worker’ earnings measure’

2. If jobs move from big companies to small ones, there would still be fewer middle jobs

Okay, you might say, so self-employed people don’t tend to make as much money as employees. But what about new companies which grow and employ new people? If middle jobs carry on disappearing, couldn’t new companies replace them?

I hope so. But it’s a risky bet. The conventional wisdom is that growth is driven by improvements in productivity, improvements in output per hour of work. Traditionally, bigger companies have been more productive than smaller ones; they have economies of scale and it’s easier for them to afford new technologies.

You can already get a sense of that when you look at the businesses in the UK today.

In the UK, most businesses are small, but the businesses with the most turnover are big. 99.9% of businesses employ under 250 people, but 53% of all the turnover in the country was made by the remaining 0.1% – the big boys.

Unfortunately, all other things being equal, that means that an economy-wide shift from employment in big companies to employment in small ones means an economy-wide shift from companies which make a lot of money to companies which don’t make nearly as much, from more productive big companies to less productive small ones.

That would make it harder for an economy of small companies to pay as much as an economy of big companies, putting downward pressure on pay, demand, and growth.

3. Self-starters would have to replace a lot of jobs

The Bank of England estimates that automation could threaten 15 million UK jobs in the next decade or two. If that turns out to be right, would self-starters be able to replace those jobs?

Maybe, but it would be hard.

Here’s a very rough and ready way of thinking about it. Britain, with its relatively entrepreneurial culture and ease of doing business, has 12.4 million people working in small businesses (firms with fewer than 50 employees).

Assume for the moment that all of the jobs at SMEs – companies with 250 or fewer employees – were safe. In other words, that the 15 million jobs lost to automation came from big companies with deep enough pockets to take on the labour-displacing technology first. Let’s also assume that the workforce stays the same size: perhaps net migration cancels out the effects of an ageing population.

In that scenario, the only way the employment rate could stay steady would be if self-starters or small companies created 15 million new jobs. That’s more than the 12.4 million they have created to date. That’s a big ask.

In reality, plenty of other things would complicate the picture. Perhaps the Bank’s estimate for jobs lost to automation could prove optimistic or pessimistic. Perhaps automation eats into the numbers employed by small companies as much as big companies. But in that case, self-starters would have to create even more jobs to keep the employment rate steady.

But I think we can be sure about two things.

Historically, most of the countries which have enabled the broad mass of people to get richer together are those which have produced a mass of middle-income jobs, like Germany or France in the decades after the war. One of the reasons poor countries are poor is because they tend to have a lot of self-employed people. I think about the people selling fruit, snacks, and trinkets in the streets. These jobs are better than nothing, but they’re not a strategy to bring a broad mass of people towards prosperity.

Secondly, if millions of people do move from being employees to self-starters, it would represent millions of self-starters who would prefer a job – a seismic cultural shift.

It’s not hard to see why most people who come out of education want a job: they want the certainty of regular pay, knowing when they can expect to pay off their student loan, build a credit history, get a mortgage, learn skills, not to mention security, status, structure, and the smaller things you take for granted when you’re an employee, like knowing there will be a Christmas party whether or not you organise it.

In short, even though an increase in self-employment and entrepreneurship would be good news, we shouldn’t expect it to maintain the employment rate, purchasing power, or demand.

But if more education and training or self-employment wont solve the problem of lower growth due to a big loss of middle jobs – what might? In part 10 Ill look at that.

*All these figures are British. But compared to most other European countries, Britain has a relatively good culture and environment for self-employment, so the argument is likely to hold for most countries.

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Part 10 of 10: If companies won’t create enough jobs, government should

This is the last 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.

The story so far: economists are beginning to think seriously about the possibility of technological unemployment – automation making an unprecedented number of jobs unnecessary.

Frey and Osborne calculate that 57% of the jobs in OECD countries are at risk. The Bank of England conclude that that would be equivalent to 15 million jobs in Britain and 80 million in the US.

Historically, technology has created as many jobs as it has destroyed. But I’m not sure it will this time, as I explained here.

The debate is beginning to move towards a discussion of solutions.

In moments of acute crisis, radical ideas suddenly dont look so radical any more.

If in 2007, Gordon Brown had proposed allocating 80% of the governments annual spending to private banks in loans and guarantees, everyone would have said he was bonkers. The year after, he did just that to stave off the financial crisis. The move received widespread support. The prospect of financial meltdown made the radical sensible.

If it happens, widespread technological un and underemployment would be a chronic problem, not an acute one; there would probably never be a crunch moment when it was clear how radical the solution might have to be.

Still, thoughtful centrists are beginning to conclude that if unemployment does begin to creep up to levels not seen in generations – say 15%, 20% – or the labour market hollows out in an extreme way, there is no private sector solution, and probably no solution that falls within the bounds of what is electable today.

Former US Treasury Secretary Larry Summers, for example, says that in any solution, the tax and transfer system has got to be a very, very large part of the picture.

Robert Rubin, deregulating Treasury Secretary and Goldman Sachs veteran, wondered whether, if the forces of technology and globalisation continue to create rising inequality[there should be] increased redistribution to accomplish the broad objectives of our society?

Various solutions have been proposed.

The Directors of the McKinsey Global Institute suggest the marketisation of household work such as cooking, cleaning, and childcare.

Citibanks Chief Economist Willelm Buiter and Martin Ford suggest a minimum income for all.

There seems to be a consensus that the only policies which might work are radical ones.

I agree. If unemployment reaches unprecedented levels and stays there for a decade or more, one solution would be to create an enlarged sovereign wealth fund and use the dividends to create jobs.

It makes particular sense for the fund to buy shares in technology companies like Alphabet where profits are exceptional and job creation is low compared to the big companies of the past.

The Shareholder State

If millions of jobs are lost and not replaced over the coming decade, it will in part be because companies, understandably, see opportunities to make more revenue more efficiently from automation.

In this world, as long as demand holds, some firms, especially technology firms, would be extremely profitable. Already, six of the top ten biggest companies by market cap on US stock exchanges are tech companies.

This wealth is already taxed – a bit. But if  in the long term we find ourselves in a world of unprecedented long-term structural unemployment, states could also raise revenues by buying shareholdings in the companies which benefit the most from the automation and flat competition which displace workers. These shareholdings would form part of a sovereign wealth fund.

To an extent, this already happens.

In France, for example, the government manages over €100 billion worth of shares in over 70 French companies, including many of the most profitable and innovative companies in the country.

Alaska decided in the seventies to share out oil profits equally to each citizen. Each year since 1982, each Alaskan has received a deposit – sometimes of a couple of thousand dollars – into their bank account. 

There are already 73 sovereign wealth funds worldwide, many non-oil and gas. They are a good idea for many other reasons anyway. 

Renewable energy is also a particularly apt sector for state shareholding. The case that resources like the sun and the wind belong to every citizen is easy to make. As the Alaskan example shows, the decision on who is entitled to benefit from energy companiesrevenue is, ultimately, political.

Energy companies will counter that they take the risk so they deserve the revenue. But this is a norm, not a natural law. Statoil, the Norwegian oil and gas multinational, takes risk too, but it is still 67% owned by the Norwegian government, and contributes to the Norwegian sovereign wealth fund.

This sovereign wealth fund would be a means to an end of supporting demand and growth by creating jobs, by spending the dividends on job creation programmes. 

A New Deal for Jobs

The best solution to a loss of jobs is creating new jobs.

Thats what the US did when it was facing unprecedented loss of jobs after the crisis: the 2009 Recovery Act created or saved 1.6 million jobs a year for four years.

It spent $279 billion* putting people to work mending bridges, roads, and railways; building new trains and rail routes; cleaning property; retrofitting diesel engines to reduce their carbon dioxide output; making tap water safer to drink; improving schools; researching energy efficiency which led to progress on biofuels, more efficient batteries, superconducting wires and vehicles powered by natural gas. It paid the salaries of people working on wind, solar, and geothermal energy; improving hospitalsand surgeriesaccess to health information; building tens of thousands of miles of broadband lines, and training millions of people how to use it.

But the USA was not exceptional. Plenty of countries around the world also stimulated their economies, even if most didnt make direct job creation their primary objective. Economists now have plenty of evidence about what does and doesnt work.

Granted, dividends from a sovereign wealth fund would be unlikely to generate enough cash to fund public jobs on the scale the Bank of England research anticipates. Granted, there would be managerial hurdles. But the point here is to raise the idea.

The jobs which a new New Deal should create would depend on the political priorities at the time.

If it were being enacted in Britain today, I would suggest installing more residential and commercial renewable energy sources, training more carers to prepare for an ageing population, reducing waste and improving sustainability, shoring up flood defences, and building more houses**.

But my preferences arent the point. The point is we do not lack for work to be done.

Conclusion/TLDR

Technology and online competition could mean a net loss of millions of jobs and an unprecedented structural hit to purchasing power, demand, and growth.

The most authoritative research by Frey and Osborne calculates that 57% of the jobs in OECD countries could be at risk. The Bank of England concludes that that would be equivalent to losing roughly half the jobs in Britain today.

Its too early to say whether or not the worst case scenario will happen. We will have a race between the broadly ‘job-creating’ forces – the rising middle class in developing countries and cheaper stuff saving consumers money – and the ‘job destroying forces’ – automation and artificial intelligence and online competition pushing down margins.

But it’s not too early to say that we are heading for fewer middle jobs and more skilled workers doing less skilled jobs. Technological underemployment is with us today.

And surely this has contributed to some of what we’ve seen for the last few years: below trend investment and demand in the US and the UK, rising skill unemployment in some countries, and growth rising much faster for the richest than the majority.

Jobs are the main way money flows into the pockets of the vast majority of people.

If in the next decade or so we do get unprecedented technological unemployment, the consequences would be: lower purchasing power and growth, deflation, lower productivity, lower interest rates, worse health outcomes, increasing inequality, the decoupling of effort and reward, a pool of wasted education and skills, ever greater accumulations of wealth in the hands of the owners of the technologies and greater debt at the bottom.

It is sensible to start to think about how to plan for this possibility. Already, low long-term growth has led to calls for developed countries to take advantage of record low, in some cases negative, interest rates to borrow and spend more to stimulate their economies, such as this one from the OECD.

If it becomes clear that large scale unemployment and underemployment is dragging down demand and growth, the best solution is to create new jobs. As in the response to the global financial crisis, if companies wont, governments should.

One solution is a permanent new deal to support employment and growth, funded from a sovereign wealth fund, comprising shareholdings in the companies which benefit the most from the automation and online competition which displace workers.

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*$279 billion was the part that went on discretionary spending which put people to work. Much of the rest of the total bill went on tax cuts or Medicaid and unemployment benefits.

**Absurdly, the UK has a shortage of affordable houses, 1.7 million people looking for work, and a shortage of construction skills – all at the same time.

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