Where are all the workers? | What if the rest of the U.S. economy starts to look like manufacturing?
There is a famous economic fallacy that posits the amount of work to be done is fixed or static. So if machines do more, human do less. Classic zero-sum thinking that has been disproved in the many decades since the start of the Industrial Revolution. In 1900, 40% of American workers were farmers. Now it’s less than 2% thanks to better techniques and technology. But we found other things for those folks to do. They went to work in factories. As the above chart shows, however, manufacturing is also becoming ever-more productive with fewer workers. What if the employment-output charts of an increasing number of non-manufacturing sectors start looking the same thanks to automation? Andrew McAfee:
Because of advances in sensors, software, chips, and the other components of robots, and because of lots of innovating and tinkering with them, the industries that deal with physical products — distribution, transportation, wholesaling, and so on — are about to become a lot more productive. My guess is that their output-vs.-employment graphs are going to start to look a lot like the manufacturing one above.
And because of similarly impressive advances in artificial intelligence, machine learning, crowdsourcing, and exploitation of Big Data, the same will in the near future be true of industries that deal with virtual products like knowledge, information, media, decisions, and communication. In many cases, their employment will start to trend downward even as their output rises over time.
I don’t know of any economic law that prevents this from happening. Yes, I’m aware of the “lump of labor fallacy.” But I think the more up-to-date fallacy is the assumption that a growing industry means that there will be more work for people to do, rather than for ever-more capable machines to do. The graph above shows that this has clearly not been the case for US manufacturing over the past 30 years. In an era of astonishing technological progress, why won’t the same be true for other industries in the US and elsewhere? If you have some faith that employment must keep rising as output does, please leave a comment and explain where it comes from. Because the evidence, both past and present, is making me a skeptic.
Indeed, there was another kind of worker a hundred years ago that didn’t adapt so well to technological progress. There used to be millions of horses plowing fields, transporting goods, and carrying passengers. But as economist Gregory Clark has noted, ” … the arrival of the internal combustion engine in the late nineteenth century rapidly displaced these [equine] workers … There was always a wage at which all these horses could have remained employed. But that wage was so low that it did not pay for their feed.”
And the horses were not able to upgrade their skills set to command a higher wage. People are more adaptable, of course. But how many will be able to upgrade their skills, both cognitive and non-cognitive, to take advantage of the high-wage, tech-driven jobs of the future? One possible scenario is the one painted by Tyler Cowen where a small slice of workers have great-paying, high-skill jobs, a much bigger bit has high-touch jobs where wages are stagnant, and many fewer people work at all. The exact ratio, I suppose, will depend on how many new innovative firms the economy can create, how well we reform education, and whether we choose to subsidize work at the low or move further toward a basic income model.