I’m in New York to do a talk at NYU on Tuesday. My plane reading was The Mark and the Void by Paul Murray, author of the hilarious and tragic Skippy Dies. His new novel is set in Dublin’s financial centre at some stage after the financial crisis has struck and before it has ended (not that it has, really). It is extremely funny – I particularly liked the character of Jurgen, the protagonist’s immediate boss. It also seems to me a pretty accurate representation of the rotteness of the system and the helplessness of many perfectly decent people (if eccentric, at least in this tale) trapped inside it. Actually, for readers who haven’t ploughed through the many, many booksabout different aspects of the crisis, The Mark and the Void would be a decent introduction. But I recommend it for the out-loud laughs as well. (And apologies to the lady next to me on the plane who must have thought she had a nutter next to her.)
James Bessen’s book Learning By Doing: The Real Connection between Innovation, Wages and Wealth is excellent. It strikes a balance between meaty analysis and description of historical episodes of technical change, and is at the same time very accessible.
The book argues that it is important to distinguish between ideas, which can be codified and transmitted and know-how attached to workers, which takes experience to accumulate. This is familiar – Paul Romer recently blogged about the role played by this distinction in his famous model. But Bessen adds that the distinction makes it important to consider the incentives for workers to invest in new skills so that new technologies can be implemented – and the part played by these incentives is usually overlooked and yet crucial for forming views about the “future of work” when there are ubiquitous robots.
He uses the historical examples to demonstrate that in the early stages of implementation of a technology, returns to workers with generally high skills will rise. They are able to make the adjustments and minor additional innovations that get the big innovation to work. During that period, the wages of ordinary workers stagnate – as in the famous Engels’ Pause (pdf). However, when the technology is thoroughly bedded in and the technical knowledge needed to work with it is standardised, ordinary workers have the incentive to invest in in gaining skills and experience. A thick labour market develops. Workers are able to threaten credibly to switch jobs. Their real wages rise and the high-level skill premium narrows.
“The specific skills associated with a major new technology are not standardized at first, which limits the market. Initially, these skills are always limited to specific employers.'”
He emphasises the need for the necessary technical knowledge to be standardised too – the example he uses is the periodic table’s invention, standardising the chemical knowledge workers in the growing industry needed, and making it easier to teach.
Bessen then uses some new examples to demonstrate that with digital technologies, this standardisation of technology, tasks and skills has not yet happened. His example is digital publishing, where the specifics of the technology are still changing, and so do the specific technical knowledge and experience needed.
In addition to the development of a standardised know-how labour market on demand and supply sides, Bessen points out that new technologies can also raise demand and employment in existing work. His example here is the continuing increase in the number of bank tellers (still going on) even as the number of ATMs grew rapidly, with the humans’ tasks changing to focus on customer relations, and the number of bank branches and transactions increasing. This is not the case with all technologies – the job market for people making oil lanterns is tiny – but the book suggests it happens more often than one would think.
The book ends with policy reflections, of which the most interesting concerns education. The reasoning about standardised knowledge, and the importance of experience, as a technology matures points to the need for skills-focused education rather than piling as many young people as possible through conventional academic tertiary education. Bessen argues that demands to make vocational jobs such as nursing or medical assistants require a university degree represent a form of job protectionism. He also – along with many other scholars – points to the dysfunctional nature of the patent/copyright system as it operates now, especially in the US.
This is a very US-focused book, but none the less interesting for that. This review has skimmed over the top of the argument; I’d strongly recommend the book to anyone interested in the automation/inequality/employment issues. It is a broadly optimistic perspective but does underline the length of the transition and the likely impact on individuals. All the more reason to pay attention to the policy implications.
A bit late this year, here is my shortlist for my personal prize for the best book I’ve read since last year’s shortlist. The rules are that date of publication doesn’t matter, only my date of reading the book, and that the winner in a week or so will be entirely my arbitrary choice – the one I enjoyed the most. The prize, apart from glory, is my offer to take the winner out for dinner .
So here they are in no particular order:
Learning by Doing James Bessen – (Technology and work – will review very soon)
A request via Michelle Brook on Twitter: what has been written about the relationship – in the context of large scale infrastructure – between standards/interoperability and innovation? A quick search via Google Scholar revealed a few papers, mainly about communications networks. Other than that, all I could think of was Pierre-Richard Agenor’s Public Capital, Growth and Welfare. Oh, and also business history case studies such as Bernard Carlson’s terrific Tesla biography, Jon Gernter’s The Idea Factory, or maybe Fast Second by Geroski and Markides. But if others have other suggestions, please do add them – or let Michelle, @MLBrook, know.
As I prepare to lecture on behavioural economics in public policy tomorrow, I’ve been riffling through the books I have in the room here & am struck by how similar they all are. The most recent is Richard Thaler’s Misbehaving: The Making of Behavioural Economics, which is as the subtitle suggests about the debate within economics about foundational assumptions as well as the content of behavioural economics. It’s very good and accessible. Daniel Kahneman’s Thinking Fast and Slow is still my favourite. There’s Nudge, of course, by Thaler and Sunstein. The Dan Ariely books – I have Predictably Irrational here – are jolly reads. Mullanaithan and Shafir’s Scarcity is an important book. A more scholarly volume is Eldar Shafir’s edited volume The Behavioural Foundations of Public Policy. Somewhere too in here is Colin Camerer’s Advances in Behavioural Economics. And I have Government Paternalism by Julian LeGrand and Bill New, somewhat cautious in its embrace of behavioural policies.
The thing that strikes me looking at these volumes covering a dozen years is how much overlap there is in the material they cover, often exactly the same examples. Does this mean behavioural economics has not really moved on from the central insight about people’s inability to calculate probabilities as if they were Mr Spock from Star Trek, and hence the “irrationality” of much decision-making concerning uncertainty and predictions of the future? The big questions I have – and can’t readily find the answers to – are:
1. What do we know about the boundaries between situations in which people are “rational” and “irrational” (ie individual choices lead to the market outcome as predicted by conventional economic theory, or not) – is it as simple as any situation involving having to predict the future?
2. What do we know systematically about the interaction between individual decisions and social influencing (other than that it exists)?
3. What do we know about whether people adjust over time to ‘nudge’ policies and change their behaviour, as they do to any traditional economic policies?
If those who have read more of the behavioural literature know where I can find relevant material, I’d be very grateful.