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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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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