PRODUCTIVTY PARADOX - Keynes' "Technology Unemployment" & the "Reservation Wage"
NOTE: The following has been extracted, modifed and 'reworked' from the ECONOMIST: The Future Of Jobs: The Onrushing Wave. The facts cited were excellent, however the message of the facts was misunderstood -- Gordon T Long.com
One of the worries John Maynard Keynes admitted was a "new disease". His readers might not have heard of the problem, he suggested--but they were certain to hear a lot more about it in the years to come.
"Technological Unemployment…due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour."
'GUTTED' MIDDLE CLASS
The rise of the middle-class--a 20th-century innovation--was a hugely important political and social development across the world. The squeezing out of that class could generate a more antagonistic, unstable and potentially dangerous politics.
Some now fear that a new era of automation enabled by ever more powerful and capable computers could end badly. Across the rich world, all is far from well in the world of work. In rich countries the wages of the typical worker, adjusted for cost of living, are stagnant. In America the real wage has hardly budged over the past four decades. Even in places like Britain and Germany, where employment is touching new highs, wages have been flat for a decade. Recent research suggests that this is because substituting capital for labour through automation is increasingly attractive; as a result owners of capital have captured ever more of the world’s income since the 1980s, while the share going to labour has fallen.
Larry Summers, a former American treasury secretary, looked at employment trends among American men between 25 and 54. In the 1960s only one in 20 of those men was not working. According to Mr Summers’s extrapolations, in ten years the number could be one in seven.
This is one indication, Mr Summers says, that technical change is increasingly taking the form of "capital that effectively substitutes for labor". There may be a lot more for such capital to do in the near future. A 2013 paper by Carl Benedikt Frey and Michael Osborne, of the University of Oxford, argued that jobs are at high risk of being automated in 47% of the occupational categories into which work is customarily sorted. That includes accountancy, legal work, technical writing and a lot of other white-collar occupations.
Answering the question of whether such automation could lead to prolonged pain for workers means taking a close look at past experience, theory and technological trends. The picture suggested by this evidence is a complex one. It is also more worrying than many economists and politicians have been prepared to admit.
Previous technological innovation has always delivered more long-run employment, not less. This is going to change.
Adaptation to past waves of progress rested on political and policy responses. The most obvious are the massive improvements in educational attainment brought on by:
- The institution of universal secondary education and then by
- The rise of university attendance.
Policies aimed at similar gains would now seem to be in order. The gains of the 19th and 20th centuries will be hard to duplicate.
Boosting the skills and earning power of the children of 19th-century farmers and laborers took little more than offering schools where they could learn to read, write and do algebra. Pushing a large proportion of college graduates to complete graduate work successfully will be harder and more expensive.
Perhaps cheap and innovative online education will indeed make new attainment possible. But such programmes may tend to deliver big gains only for the most conscientious students.
WELFARE & the "RESERVATION WAGE"
Another way in which previous adaptation is not necessarily a good guide to future employment is the existence of welfare. The alternative to joining the 19th-century industrial proletariat was malnourished deprivation.
Today, because of measures introduced in response to, and to some extent on the proceeds of, industrialisation, people in the developed world are provided with
- Unemployment benefits,
- Disability allowances and
- Other forms of welfare. They are also much more likely than a bygone peasant to have savings.
This means that the "reservation wage"--the wage below which a worker will not accept a job--is now high in historical terms.
If governments refuse to allow jobless workers to fall too far below the average standard of living, then this reservation wage will rise steadily, and ever more workers may find work unattractive. And the higher it rises, the greater the incentive to invest in capital that replaces labour.
NEW WORK - Few Required & Below a Living Standard Wage
The productivity gains from future automation will be real, even if they mostly accrue to the owners of the machines. Jobs may look distinctly different from those they replace. Just as past mechanisation freed, or forced, workers into jobs requiring more cognitive dexterity, leaps in machine intelligence could create space for people to specialise in more emotive occupations, as yet unsuited to machines: a world of artists and therapists, love counsellors and yoga instructors.