Jobs Emergency Hollowing Out The Middle Class

Dave Johnson

We have a jobs emergency that is hollowing out the middle class. Some say automation is the cause of our high unemployment and that it will get worse. Others say there are other structural problems and that our high unemployment is a “new normal.” Perhaps these are contributing to the problems. But let’s do the things that we know we can do and need to do today, and then we can talk about how to restructure our economy to help us deal with these changes.

The Discussion

In the New York Times, Thomas B Edsall writes about some who make a case that automation is a major cause of the “hollowing out” of our economy, killing off jobs and pushing income to the top. Dean Baker responds at CEPR that there are plenty of other factors that are pushing income upward, and they involve policies we can do something about right now.

But First

Before any discussion of longer-term or structural effects of automation on employment and income and what to do about them, this has to be said: We have millions of jobs that need doing and we could employ many millions if we would just get started on doing them. Here are a few:

Infrastructure needs: We have been putting off maintenance and modernization of our infrastructure for decades. This is work that has to be done, and doing it will employ millions. We can finance this at the lowest cost in history, and the payoff will be an improved, efficient and competitive economy. The only reason we are not putting people to work fixing our infrastructure is that Republicans are intentionally sabotaging employment to give themselves an edge in the coming election. There is no way around that conclusion, but the media is not bringing the story to the public.

Energy efficiency: Another urgent need — we urgently need to get our economy off of oil, and we can employ more millions of people doing it. We can start with a project to retrofit all of our buildings and homes to be more energy efficient. If we did this we would all spend less on energy from now on, our economy would more efficient and competitive and it would reduce imports and help our balance of trade. Just as with infrastructure work we can finance this work at the lowest cost in history. (Also, people don’t need college degrees to install thermal windows, paint roofs white and insulate houses.)

Green energy: The world is turning away from oil and coal, with wind and solar and other alternatives climbing up to take their place. Smart-grid systems will efficiently transport the electricity generated with these new methods. Cars will move to electric. Mass transportation will be built in cities with high-speed rail linking them. This means a manufacturing revolution is taking place that will bring millions of jobs and trillions of dollars to countries that win a share. But so far certain entrenched interests are fighting to keep our country from gaining a share of the new industries.

Government: Even as we face terrible unemployment, anti-government conservatives are forcing layoffs of hundreds of thousands of teachers, police, firefighters, postal workers and others We, the People hire to do things we want done for each other. As these people lose their jobs they stop patronizing grocery stores and other businesses, stop buying clothes and cars and other things that also provide jobs. This has obviously contributed to the unemployment emergency we face.

Trade: We have policies that drive factories out of the country and drive remaining wages down. In the Bush years we pushed more than 50,000 factories out of the country, losing millions of manufacturing jobs! Our huge trade deficit drains money from our economy, forcing us to borrow from China and others.

Let’s put people to work in those jobs that need doing, like fixing and modernizing our infrastructure, moving to a green non-oil pollution economy, teaching, policing, firefighting, administering, etc. Lets fix policies that drive jobs out of the country. THEN let’s start working on what to do about our economic system that lets some people grab billions and lets others just starve.

Structural?

Even though we currently have millions of jobs that need doing, but are not hiring people to do them, there are some who claim that those without jobs are somehow to blame for their own unemployment, or are claiming that we have “structural” reasons for the unemployment emergency. They say we need to get used to high unemployment, that it is a “new normal” so we shouldn’t make the effort to fix the problem, because we can’t.

Edsell

In The Hollowing Out at the NY Times’ Campaign Stops blog, Thomas B. Edsall writes about “the most important issue facing the United States: the hollowing out of the employment marketplace, the disappearance of mid-level jobs.” This hollowing out of the middle class means a few people end up with most of the money and the rest are either at the bottom or are falling down toward the bottom.

The issue of the disappearing middle is not new, but credible economists have added a more threatening twist to the argument: the possibility that a well-functioning, efficient modern market economy, driven by exponential growth in the rate of technological innovation, can simultaneously produce economic growth and eliminate millions of middle-class jobs.

Michael Spence, a professor at N.Y.U.’s Stern School of Business, and David Autor, an economist at M.I.T., have argued that this “hollowing out” process is a result of twin upheavals: globalization and the hyper-acceleration of technological progress.

[click through for graphic]

… On his blog, McAfee explains the graphic:

Since the Great Recession officially ended in June of 2009 G.D.P., equipment investment, and total corporate profits have rebounded, and are now at their all-time highs. The employment ratio, meanwhile, has only shrunk and is now at its lowest level since the early 1980s when women had not yet entered the workforce in significant numbers. So current labor force woes are not because the economy isn’t growing, and they’re not because companies aren’t making money or spending money on equipment. They’re because these trends have become increasingly decoupled from hiring — from needing more human workers. As computers race ahead, acquiring more and more skills in pattern matching, communication, perception, and so on, I expect that this decoupling will continue, and maybe even accelerate.

… Policies to ameliorate the process – a shorter work week, a massive investment in education (for example, at the community college level), the disaggregation of complex tasks into simple functions that could be executed by mid-skill workers — may only slow the decline, not stop it. This is a deeply pessimistic vision.

Edsell also quotes economists and others who dispute that automation is the cause of the hollowing out, and brings up some of the ideas for how we might react.

Brynjolfsson and McAfee have a list of 19 proposals that they support — which range from massive investment in education, infrastructure and basic research, to lowering barriers to business creation, eliminating the mortgage interest deduction and changing copyright and patent law to encourage new (as opposed to protecting old) innovations.

But,

Any effort to ameliorate the damaging consequences to the employment marketplace stemming from technological innovation, according to Brynjolfsson, requires substantial government action at a time when “the political system is the most dysfunctional part of our society.”

Baker

Dean Baker responds, in Income Is Definitely Being Redistributed Upward, but Why Do We Think It’s Technology? at the Center for Economic and Policy Research’s Beat the Press, (emphasis added to emphasize):

Thomas Edsall devoted his blogpost today to several economists who claim that the upward redistribution we have seen over the last three decades is a result of revolutions in technology and that it will be difficult to reverse this development. In fact, much of this economic analysis is quite sloppy and it is easy to show that many of the factors leading to upward redistribution had nothing to do with technology.

Baker writes that last decade’s manufacturing job loss is instead because of the trade deficit,

…the piece refers to the millions of manufacturing jobs that the United States lost over the last decade. The biggest factor behind the job loss was not technology; productivity growth in manufacturing was not markedly faster in the 2000s than in prior decades. The main factor leading to job loss was the growing U.S. trade deficit.

The predicted result of an over-valued dollar is the loss of jobs and lower wages in the sectors of the economy that are exposed to international competition. However, the availability of low-cost imports raises the living standards of those who are protected from international competition.

The latter group would include highly paid professionals, like doctors and lawyers. Note that it is not technology that protects these professionals from seeing their wages depressed by competition from their low-paid counterparts in the developing world, it is deliberate policy. While it has been the explicit goal of trade policy to put manufacturing workers in direct competition with workers in the developing world, the barriers that make it difficult for qualified doctors, dentists, and lawyers in the developing world to work in the United States have been left in place or strengthened.

The System Must Change

If we are entering a period where automation increasingly takes over the work previously done by working people — and we may well be — this presents us with tremendous opportunities for advancement, or terrible suffering and eventual economic collapse. Under our current economic system a machine can replace a person and it means that person is left with no income and the “owner” of the business can just pocket the money that person was making. But after enough machines replace people there would be so many people unemployed that whatever those machines do doesn’t matter because there is no one with the money to use the products or services they make. The system must collapse. (We are seeing that sort of thing in our economy right now.)

But what if we instead change our economic system so everyone shares to some degree in the gains from technology and other increases in productivity, instead of all the gains going into the pocket of a few at the very top? Suppose a person displaced by a robot or computer received some continuing income? Or suppose that person and everyone else at that company worked fewer hours without so much of a pay cut? Or suppose all of us receive a guaranteed income? Then everyone would benefit from these advances, instead of a very few people benefiting at the expense of everyone else, as our system is currently structured.

Economic systems come and economic systems go. America’s South used to have a system under which a few people could actually own other people, make them work, and keep the proceeds of their work for themselves. This economic system was very beneficial to a few people, and they fought a war to preserve it. But that economic system did eventually fall.

Baker writes about a corrupt system rigged and manipulated by a wealthy few to benefit themselves at the expense of the rest of us. He writes that, “The high pay going to top executives in the United States also has little to do with technology.” But technology is coming, and we can change things to make it help us rather than just take our job and income. Like past systems that didn’t work, the current system can also eventually fall if we decide that it should — and it really should.

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