The admirable James Crabtree has reviewed very favourably (in the FT) the new e-book by Erik Brynjolfsson and Andrew McAfee, [amazon_link id=”B005WTR4ZI” target=”_blank” ]Race Against the Machine[/amazon_link]. He agrees with their argument that for the first time technology is not creating more jobs than it destroys. I haven’t read the book, but there can be few economists who know more about the mechanisms through which the adoption of the new technologies is reshaping firms and work, so this argument must be taken seriously. And I’d certainly agree with their further point that institutions and policies have not kept pace with the dramatic structural economic shifts caused by the technologies.
The best framework for thinking about adjusting to technical change is Will Baumol’s ‘unbalanced growth’ model (1967, 1993), which he originally applied to the arts and then healthcare and similar services. (I write about this in chapter 6 of [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough[/amazon_link].) There are some sectors of the economy where productivity growth is inherently below average (musician, nurse) but the workers in those sectors need to have their pay grow more or less in line with the more productive sectors if social tensions are not to emerge. If the scope of the ‘non-productive’ sectors increases, new redistribution mechanisms are needed. Today’s technologies are causing exactly this dynamic, making a relatively few workers in some parts of the economy highly productive thanks to their complementarity with the machines, but creating a high share of economic output in services/products with public good-like characteristics, and extending the share of the economy accounted for by people working in slow productivity growth sectors.
As James ends his review: “Machines work for free but their benefits end up in someone’s pocket.”
So the book is certainly going to be worth reading even though only available in electronic format. Meanwhile, I look at the Occupy movements and seem to see the inevitable social reaction to socially unsustainable trends.
[amazon_image id=”B005WTR4ZI” link=”true” target=”_blank” size=”medium” ]Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy[/amazon_image]
But don’t the official figures show that over the last few years the British economy created quite a few new jobs – its just that almost all of them were filled by immigrants while our underclass was left to fester.
The UK employment rate did reach a peak, pre-recession – I don’t think the US employment rate was so high, and it certainly wasn’t in other western economies. So specific labour market institutions make a difference. As well as the cross-country variation, angst about jobs always rises during a recession viz all the talk about the ‘downsizing of America’ in the early 1990s. Nevertheless, I think the distributional arguments are valid. Immigrants to the UK have typically had either very high or rather low skills – City lawyers or labourers and fruit pickers, to caricature it.
I liked Krugman’s NYT piece on the same theme: “the Luddites weren’t the poorest of the poor, they were skilled artisans whose skills had suddenly been devalued by new technology…”