Skip to comments.The Missing Middle Class: Jobs in the Second Machine Age
Posted on 04/27/2014 2:55:50 PM PDT by anymouse
Technological change is not a tide that lifts all boats in our economy. The truth is that its more like a tsunami. It threatens to overturn all the boats and drown their occupants, sparing only the lucky few who have already reached safety in the hills.
Thats the kind of admission you wont often see here in the pages of Xconomy. The X in our name, after all, stands for exponential, a reference to the stunning pace of technological progress and economic growth over the past 75 yearsgrowth attributable largely to advances in computer hardware and software and the organizational changes companies have made to exploit them.
But the reality is that technologys great bounty isnt reaching everyone. This is the flip side of the phenomenon I described in my column last weekthe Medici effect. Thanks to the ongoing technology boom, theres a growing supply of super-rich companies and individuals in Silicon Valley. To their credit, theyre making philanthropic investments on a scale so large that you have to look to places like Renaissance Florence for parallels.
But in between the rich and the poor, the skilled and the unskilled, theres a big hole opening up, as millions of middle-class workers lose their jobs and cant get them back. Its fair to blame computer technology for widening this gap. Its a phenomenon MIT economist David Autor has called labor market polarization. In his words, this is a pattern of expanding job opportunities in both high-skill, high-wage occupations and low-skill, low-wage occupations, coupled with contracting opportunities in middle-wage, middle-skill white-collar and blue-collar jobs.
Because we here at Xconomy cover the business of innovation, we tend to focus mostly on the mechanisms of economic growth, and not so much on the question of whos benefiting from this growth and who isnt. But I have looked at the issue of technology-induced unemployment a couple of times before, in a 2011 column and in the run-up to our 2013 robotics forum. And this week, after spending a couple of days at an interdisciplinary conference on technology and employment, its on my mind again.
Experts at the Innovation for Jobs Summit, organized by Swedish-born innovation journalism advocate (and Xconomist) David Nordfors and Internet pioneer Vint Cerf, offered a range of solutions for labor market polarization. Ill describe a few of these in a moment. Some of them are being tested in places like Sweden and Finland, whence many of the conference attendees hailed; none will be simple to implement. But neither are they out of reach, if we can start an honest conversation now about what we value as a society.
First, lets get clear about the scope of the problem. While the jobless rate in the United States has dropped since the height of the Great Recession in October 2009, the bigger unemployment picture is far from encouraging. Looking at the official rate of 6.7 percent masks the real extent of the crisis, because it leaves out people who have given up searching for work. The total unemployment rate, which counts discouraged workers as well as those who have part-time jobs but would prefer full-time work, is stubbornly high, at 12.7 percent. The youth unemployment rate is even higher, at 16.3 percent for all 16-to-24-year-olds and 28.2 percent for black youth. (These are all Labor Department statistics, and theyre up to date except for the youth unemployment data, which is from mid-2013.)
And while the economy is slowly getting stronger, youd be hard pressed to find an economist who thinks unemployment will ever return to the 4 percent range, where it stood before the recession. If you want to understand why, go read two recent popular-economics books: Tyler Cowens Average is Over: Powering America Beyond the Age of the Great Stagnation, and Erik Brynjolfsson and Andrew McAfees The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Machines. The basic problem, these three authors agree, is that the recession gave employers the excuse theyd been waiting for to eliminate millions of workers whod become too expensive. They were overpaid, in the sense that theyd been doing jobs that could now be done more cheaply by people in other countries orjust as frequentlyby software or machines.
The result has been a thinning out of the middle class, with many moderately skilled, medium-wage jobs disappearing for good. When Steve Jobs told President Obama at a 2011 dinner that those jobs arent coming back, he was referring to manufacturing jobs that Apple had moved from the U.S. to contractors in Asia, but he could just as well have been talking about jobs lost to improved automation. Apple partner Flextronics boasted that it was creating 1,700 new jobs when it upgraded a factory in Austin, TX, to make Apples new Mac Pro. But that was just a fraction of the 8,800 jobs eliminated in Austin when Dell closed a desktop manufacturing plant there during the recession.
The new factories always need fewer workers than the old factories. Thats great for productivity, but its a bit of a problem for people adapting to Brynjolfsson and McAfees second machine age, in which were starting to feel the full force of advances in computer technology.
To repeat, these big structural changes in the job market arent a product of the downturnthey were merely laid bare by it. The labor force participation rate, the percentage of people who have jobs, peaked in 1999 and has been on a steady decline ever since. (1999 was also the year when the real income of the median American household reached its height of $55,000; it has since fallen by 10 percent.) Whats happening is that organizations are shedding every single one of the mid-wage, routine jobs that can be handed over to machinesthink telephone receptionists or toll collectors at bridges. At the same time, theyre creating a lot of new, low-wage jobs, but the folks who lost their medium-wage jobs havent yet lowered their expectations far enough to take them. So theyre staying out of the workforce, by the millions. However unrealistically, most of these individuals are holding out for a better offer than what the American economy is serving up, as Cowen puts it.
If you are highly educated, or you have skills that cant easily be translated into software algorithms, then congratulations: youve made it to the hill. Youre part of the high-skilled elite; you fared far better than your fellow Americans during the downturn, and now you are once again enjoying an economic windfall. In 1983, the top 20 percent of U.S. families held 81.3 percent of household wealth, according to an Economic Policy Institute briefing paper. By 2009, they held 87.2 percent. In essence, 100 percent of the new wealth created in that 26-year period went to the top fifth of U.S. households. (More than 100 percent, in fact; the top 20 percent of households also captured some of the wealth that had formerly belonged to the bottom 80 percent, as Brynjolfsson and McAfee point out.)
To a large degree, what differentiates winners from losers in this economy is whether they have the right education, training, skills, experience, and talents to benefit from skill-biased technical change, the economists term for cases where technological progress isnt benefiting everyone equally. The right skills today are those that can be used to augment the things computers already do well (finance, consulting, software engineering), or those computers wont be able to mimic until far in the future (gardening, marriage counseling, advertising, management). If youre looking for job security these days, Cowen writes, The key questions will be: Are you good at working with intelligent machines or not? Are your skills a complement to the skills of the computer, or is the computer doing better without you? Worst of all, are you competing against the computer?
But even if youre in the first or second quintile of wealth, education, and skill, you may not be as safe as you think. There are still a lot of inefficient, essentially guild-dominated professions where huge productivity gains will be extracted once technology starts to disintermediate things, just as it has in manufacturing, the media, and so many other fields.
Im talking about areas like government, healthcare, education, and law. In each of these fields, Silicon Valley is starting to carve away at the establishment. Just think of services that consumers can use to get a rough self-diagnosis without going to the doctor, such as WebMD or HealthTap; or sites where students can learn college-level material without ever setting foot on campus, like Khan Academy, Udacity, and Coursera; or online legal services sites such as Nolo Press, Rocket Lawyer, or LegalZoom. Such services arent putting downward pressure on wages yet, but the technology is still in its infancy. The process appears to have a long way to run, Cowen speculates. To be bluntwhile I know I cant prove thisI wonder how much of the middle class consists of people in government or protected service-sector jobs who dont actually produce nearly as much as their pay.
And if true machine intelligence emerges in our lifetimes, all bets are off. So far, progress toward systems that can reason and act as effectively as humans has been limited. Even Googles self-driving cars only work under normal traffic conditions (which is why theres always a human in the drivers seat, ready to take over). But somewhere down the road, maybe a few decades from now, maybe longer, that will probably change. As Robin Hanson, a colleague of Cowens at George Mason University, has shown in a widely read paper, an economy where machines can do most jobs will be almost unrecognizable to us. At first, there will likely be rapid and enormous productivity gains and economic growth, as robots build everything people need for ever-lower prices. But eventually, the wages of the remaining human workers will start falling even faster than prices, making it impossible for people to afford the things the machines are making. The potentially dystopian result: impoverishment and starvation for everyone except the owners of the machines.
Scenarios like that are enough to bring out the Luddite in the most hard-core tech optimist. But renouncing technology isnt the answer to labor market polarization. Short of abandoning free-market capitalismwhich even China has embraced, in its own waytheres no way to stop companies from adopting machines and systems that improve productivity.
So what can individuals do to adapt to an era when skill-biased technical change is the norm? What can policymakers do to put middle-skill people back to work?
Here are some ideas, drawn partly from Cowen, Brynjolfsson, and McAfee, and partly from talks I heard at the Innovation for Jobs Summit. (The meeting was held under Chatham House rules, meaning I cant reveal who said what.) Some of these proposals are more plausible than others, given the political realities in Washington, D.C., and in the nations state houses and city halls. But theyre all worth weighing, and even testing through pilot programs.
1. Get Used To It. Accept the idea that there will be a large and permanent class of unemployed people. Improve and extend public benefits to reduce the stigma and suffering of joblessness. Pay for these benefits partly through increased taxes, and partly through productivity gains from modernizing the agencies that administer benefits. (You might also call this the Nordic Solution, and it has a downside. In countries like Finland and Sweden, which have an overall tax burden in the 45-percent range, unemployment benefits are so generous thatby the admission of the countries own policymakerstheres little incentive for hundreds of thousands of long-term unemployed to look for jobs.)
2. Grow Our Way Out of It. Pursue monetary, fiscal, budget, and tax policies that stimulate economic expansion. In theory, increased demand for goods and services will eventually force companies to start hiring at all levels.
3. Get On the Retraining Train. Reengineer public services to vastly improve the scope, quality, and responsiveness of job retraining programs. The U.S. Department of Labor is beginning to have some with success with career search sites like MyNextMove and the Transition Assistance Program for military veterans reentering the civilian workforce, but the advice these sites offer isnt always tailored to the skills employers need today. In Finland, an experiment is underway to hand over some retraining programs to the private sector, which presumably understands the job market better, and would be offered financial incentives to get trainees back into the workplace.
4. Replace Old Technology Clusters with New Ones. Figure out what skills people in a given region already have, and give private industry incentives to innovate in areas that match those skills. In the Skåne region of southern Sweden, the contraction of companies like Ericsson and Sony Mobile has left many people with skills in the mobile industry out of work. At Lund University, theres a new research institute, the Mobile and Pervasive Computing Institute, dedicated to supporting startups that are exploring the Internet of Thingsthe emerging network of distributed, cloud-connected devices, from thermostats to digital contact lenses. Much of the underlying technology comes directly from the mobile industry, and those companies will need experienced workers.
5. Reinvent Education. Shore up mass education by rewarding the best teachers with much higher salaries. Encourage experiments with other ways of learning, such as massive online open courses (MOOCs), and agree on a system of certificates or credentials that will help the people whove completed MOOCs find jobs. At the same time, make room for new ways to finance traditional higher education. Look to examples like Pave, Upstart, and Michigans proposed pay it forward plan, which help students raise the money for college tuition in return for a percentage of their future income.
6. Outwit the Computers. Through college counseling and retraining programs, nudge future workers and job seekers toward roles that are unlikely to be disintermediated by technology: sales, marketing, finance, support, personal services, management. These are irreducibly complex jobs where the human touch matters.
7. Support Startups and Small Businesses. As the Kauffman Foundation has been arguing for years now, all net new job growth comes from startups. Yet while the overall rate of new business formation is still healthy, many startups have just one employee: the founder. The rate of formation of larger companies is actually falling, perhaps due to immigration restrictions and overly burdensome regulations. Its time to clear these thickets, and uncork the banking system so that the operating capital small businesses need in order to hire people will be cheaper. Crowdfunding could be a help: sites like Indiegogo and Kickstarter are giving more and more ventures the ability to gauge market demand for their products even as they raise seed funding. But its important that the emerging regulations around equity-based crowdfunding arent so restrictive that they end up driving investors away. And this isnt just about technology startups: its better to create 10,000 small services companies with 10 jobs each than to create one Google, which has only 44,000 employees.
8. Rethink What It Means to Have a Job. My suggestion above that we just get used to long-term unemployment was mostly facetious. There are good social and moral reasons, not just economic ones, for believing that everyone needs work: its one of our main sources of self-worth, dignity, and purpose. But our definition of work is curiously narrow. It doesnt seem to include raising children, for example: stay-at-home moms and dads arent counted in the workforce and arent compensated for the absolutely vital work they do to give children a foundation of learning and support.
In an ideal world, people who choose to add value to society by caring for children or elders, volunteering for community groups, or maybe even being poets or painters or actors, would be appropriately compensated through mechanisms like a government-guaranteed basic income or a negative income tax. Or maybe we should think about lowering, rather than raising, the minimum retirement age. In such a pretirement scheme, people could opt to begin receiving their Social Security and Medicare benefits early, in return for a commitment to doing community service.
Or we can just do nothing at all and wait for technology to evolve, trusting that it will reveal new kinds of jobs that we never anticipated. (In a world where Amazon is sending us packages via quadcopter, for example, Im betting there will be a need for UAV repair technicians and micro-air-traffic-controllers.) This laissez-faire approach to labor force adaptation is how weve handled technological unemployment for the last couple of centuries.
The problem is, it doesnt seem to be working anymore. There wasnt a job waiting for you on the other side of the buggy-whip era if you were a horse. Millions of people face the same dilemma today, from warehouse pickers being replaced by robots to postal workers who have less and less physical mail to deliver.
An idea often attributed to sci-fi author William Gibson says that the future is already here, its just not evenly distributed yet. And it never will be, unless we come to grips with the fact that technology doesnt welcome all workers equally. If we want to survive the tsunami, were going to need more routes to the hills.
I forget how the story ended but I don't think it ended very well. Something like the robots deciding that humans didn't need to be around anymore.
Thank you, major corporations for hiring illegals or outsourcing labor to the Third World.
Thank you, education system for allowing our system to be dumbed down to the least common denominators in all the classrooms.
Our culture has become convinced that manual work is demeaning. I think that may have to change. Personally, if I could work on a farm, hoe beets, tend cattle, etc. and just know that some automated factory someplace could send me a tractor when I needed one, or bananas from Guatemala could show up at the farmstand down the road -- I would call that a darn good life. There would be hard work (just for fun), I'd be in great shape, I'd have dirt under my fingernails, and I'd be really happy. And that sort of glorious life of manual labor could be made possible when robots do the work that ensures a foundation economy so that hobby farms can exist without fear of not being viable.
Man needs work.
The economy may not need much human labor, but Man needs work.
As a culture, we need to build values that convince people to embrace the simple need for work.
The alternative is ghetto violence in every neighborhood in every city in every state. Just 'cause sitting and watching TV and waiting for the EBT card gets boring for everyone -- so why not go play the knockout game??
There is every sort of job in Texas:
Thank you US Government for bringing in over 29 million legal permanent immigrants since 1990 to take American jobs and depress wages.
The globalists’ push for world wide feudalism has been quite successful.
In any discussion on this topic it must be remembered that half of all human beings are of below-average intelligence.
“..you have to look to places like Renaissance Florence for parallels.”
For more than philanthropy- for the very ill he speaks of, and others,it is the government’s desire to concentrate wealth in a few hands that is the cause.
There is always more work available than workers to do it. If people were willing to live by 18th century standards, we would only need a few thousand dollars a year to be very wealthy.
The claim that free market systems are not working is only valid because they are not being allowed to work.
Invest in the companies that are doing well, and people will be able to live off of the dividends.
It sounds like regurgitated Marxist doctrine to me, except robots will be holding all the wealth...
This article, which I have not read in detail, appears to me to miss something important. When our government permits international corporations to structure our national laws such that they may manufacture a product in another country and sell them in the US at a profit to the detriment of US workers something in radically wrong. Consider the iPhone. Apple could just an well have manufactured it here and sell it at a profit using skilled American workers (it might have cost $6 more to do so, but maybe not) something is radically wrong. It is in the US’s interest to keep a base manufacturing capability in this country for the people’s benefit.
Not in my "ideal world"
Socialism at its finest.
P.S. We already have a negative income tax, it's called the Earned Income Tax Credit, (E.I.T.C.)
There is always more work available than workers to do it. If people were willing to live by 18th century standards, we would only need a few thousand dollars a year to be very wealthy.I think I read that George Washingtons salary as POTUS would correspond to about $25,000 today.
Yes, we need to reward people who are willing to work. At the moment, we reward people for *not* working. *Not* working should be at least a little uncomfortable, unless you have earned enough to not to *have to work* to be comfortable.
It is possible that material things will become so cheap that people will only need to work a few hours a week, like the Jetsons.
It may be possible for a distopian future where wealth is so concentrated that a few have everything and many have nothing. It has only worked out that way in highly authoritarian societies so far.
If material things get extremely cheap, we can use those robots to terraform Mars, and colonize the asteroid belt.
Save your thank yous for technology.
It is technology that is eliminating all jobs.
No one is safe from being replaced by a machine or from losing all your clients because they or their companies were replaced by machines.
I see what is happening.
I refuse to use checkout booths without a person manning the register.
All the cheap gizmos and other crap that technology clutters our lives with is not worth the loss of freedom that results when the world is too complex for people.
I guess there will need to be laws that say no one is allowed to work more than two hours a week because there won't be enough jobs to go around, so we'll all have to share what work is left.
Say goodbye to a world where people who are more able can rise to the top by working harder.
And hasn't some foreign country already passed a law that says no one is allowed to work more than so many hours a week, and no one is allowed to take work home?
Doubtless an early sign of job sharing.
And so far, the only things getting cheaper are computerized gizmos made in China.
But the things you need to sustain life: food, shelter, energy, healthcare, have all gone through the roof. Well, I guess we can all be buried in cheap 3D printed caskets after we die of exposure or starvation.
and who is going to PAY anyone who knows gardening or marriage counseling when most people will be scrapping by?.....
it seems these types of jobs will be gone too....
the real world runs on manual labor...
what would all the yuppies do if they couldn't drive up to their favorite latte station and drop $5 every morning for a fancy coffee?
With a degree in Geology I made a hell of a lot of money until 1983 when the oilfield crashed and burned. The reason it crashed and burned is they paid us a hell of lot money to go out and find oil. We found it and the price of oil went down the tubes. It hit 7 dollars a barrel, today it is about 100 dollars a barrel. This is also the reason that the Soviet Union collapsed.
I sold my house and my airplane and went back to school because I no longer held any valuable and marketable skills.
Today I am a pharmacist and they pay me handsomely for my skills.
No one gave anything for my educations with the exception of my grand parents who raised me and gave the greatest gift of all. They gave me a home and instilled the work ethic and the desire to succeed. They are and were my heroes and mentors.
Our great nation gives the opportunity to anyone regardless of race, creed, or religion to achieve anything they want to be. I have zero sympathy for any person than can not live well in our great nation, with the exception of those few that can not compete due to physical and or mental problems. Those individuals need help and deserve help. All others deserve nothing.
Both of my degrees were paid for by my work and not government grants. For my second degree I did take out a loan and it was paid back in full within 18 months of my graduation.