Weak labor market: President Obama hides behind automation
from Dean Baker
It really is shameful how so many people, who certainly should know better, argue that automation is the factor depressing the wages of large segments of the workforce and that education (i.e. blame the ignorant workers) is the solution. President Obama takes center stage in this picture since he said almost exactly this in his farewell address earlier in the week. This misconception is repeated in a Claire Cain Miller’s NYT column today. Just about every part of the story is wrong.
Starting with the basic story of automation replacing workers, we have a simple way of measuring this process, it’s called “productivity growth.” And contrary to what the automation folks tell you, productivity growth has actually been very slow lately.
Source: Bureau of Labor Statistics.
The figure above shows average annual rates of productivity growth for five year periods, going back to 1952. As can be seen, the pace of automation (productivity growth) has actually been quite slow in recent years. It is also projected by the Congressional Budget Office and most other forecasters to remain slow for the foreseeable future, so the prospect of mass displacement of jobs by automation runs completely counter to what we have been seeing in the labor market.
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Real-World Economics Review Blog 
In his latest blog, Thomas Picketty show that labor productivity (GDP per hour of work) in the US is the highest in the world, on par with France and Germany; and only blemished by the poor distribution of wealth. He allocates cause to quality education, which he sees as being endangered in the US http://piketty.blog.lemonde.fr/2017/01/09/of-productivity-in-france-and-in-germany/
In a laissez faire, free enterprise economy there is no mechanism by which the additional profits or surplus are automatically recycled into redeploying displaced workers either in new jobs (e.g. public sector personal services) or into sharing non automated work where productivity growth sustains better working conditions like length of the working day/week. To deal with the threat-opportunity of automation vigorous intervention is needed.
Automation (robots, etc.) will displace some jobs and the people in them for precisely the reasons Trump’s labor secretary nominee, Andrew F. Puzder cites. Puzder, chief executive
of CKE Restaurants is quoted as saying robot employees are “…always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall, or an age, sex or race discrimination case.” And besides you don’t have to pay them, give them bathroom breaks or a pension, and they never grow old. As long as work and income are tied together this way, and the current versions of capitalism are the mantra this result is inescapable. Conclusion … the mantra needs to change. In regulatory language, income and work need to be decoupled. One will not be dependent on or the result of the other. This allows free reign to redesign both in ways that provide the most benefit for the greatest number of people, while also not devastating the planet.
Yes, Ken, splendid choice of quotation and I’m glad to be able to totally agree with your conclusion. Agreement this far allows our imaginations to focus on how to do it.
We are reminded of the retort that a union leader made to a GM manager, when he asked “how are you going to collect union dues from the robots,” being installed in the assembly line,”how are you going to sell cars to the robots?”
One problem with imagination among homo sapiens is that what we imagine can be, ought to be can just as often fail as succeed. There’s no universal criteria that assures imagination always works as we want or need. It’s a mixed blessing.
Dean Baker is misreading the economy, and therefore, the automation message, for treating total output uniformly. If the goods producing industries were treated separately (for reasons outlined below, telegraphically, though), the picture of productivity and its import would have been quite different from the one shown by Baker.
The number or employees in US manufacturing went down from 17,560 thousand in 1998 to 12,188 in 2014. Yet, the real value added per employee increased (in 2009 dollars) from $82,000 to $155,000 i.e., 90%, attributable mainly to automation. And according to most experts, this trend will intensify, as Adam Smith would have had it: less and less labourers performing greater and greater ‘quantity of work’.
In contrast, the number of employees in the rest of the private sector (excluding manufacturing) increased from 88,688 thousands to 104,991, whereas output per employee increased from $95,000 to $113,000, i.e., 19% (for technical reasons, the ‘rest of the private sector’ includes in the above presentation some goods producing branches, e.g., agriculture and construction, but that only improves the productivity results of ‘the rest’).
In the private sector of Health and Education, for example — 14,570 thousands workers in 1998 and 21,474 in 2014 — the ‘output’ per worker increased by just 1%, i.e., stagnated. But aggregating productivity in, say, education and motor vehicles production, or goods and services in general, as Baker is doing, is, for several reasons, totally wrong. Theoretically, fatally wrong. Most of the reasons are covered in the literature, but I would focus on (unconventional) one: whereas the motor industry creates, or is supposed to create, the income with which the people engaged in the industry can purchase cars, teachers do not and cannot create the income with which their labour time can be purchased.
Or healthcare example: the surgeon, staff and owners of the operating facility would laboriously and faithfully be earning the income with which the patient could have had, say, a new Mercedes, but chose instead to purchase medical treatment. However, after its completion (and payment), and irrespective of the invaluable service/treatment, the equivalent of only one Mercedes could be purchased (or paid in debt settlement) with the combined incomes (pruchasing power) of patient, surgical team and hospital. In contrast, the labour time of two full operating teams, plus the usage of the facility itself, could be purchased with the exchange value of two such cars.
Put in general terms, because of the particular characteristic of service production, service producers cannot generate the income with which their services, or anything, can be purchased, because unlike goods production, whatever it is that is produced by services, and however vital it is for our individual and collective existence and wellbeing, it carries no exchange value whatsoever.
Once it is understood that the main difference between goods and services production is the function of income creation, no one would anymore measure the productivity in services together with, or by the same criteria as, goods production.
However, irrespective of the pace of automation in the services sectors, household income creation will become the crucial socio-political issue in the 21st century, due to the accelerated automation, productivity gains, if you will, in the goods producing industries.
For the last several years I’ve been working with economists and others on implementing a no-growth or degrowth strategy in the US and Europe. Rather than efficiency, sufficiency (in consumption) has been proposed as an organizing societal principle. With government and non-government organizations asked to implement this standard. A lot of the discussion has focused on coalition-building in the direction of absolute (rather than relative) consumption reduction. There are many obstacles to overcome. This strategy is particularly important in regard to natural resources, such as water. For example, a struggle is ongoing in the City of Barcelona, where a growth discourse is still dominant and a source of a technological and institutional deadlock against softer, decentralized and more participatory forms of water management. Work is a central element in these discussions. For example, the policy option of a Job Guarantee scheme is being examined as a tool to decouple jobs from economic growth and fiscal policy by bringing them to the realm of political rights. This is complemented by a discussion of the social benefits of an “amateur economy” through work-sharing and a socially beneficial reduction in labor productivity. For example, we know from research that household activities, an essential component of a more amateur economy, have a much lower intensity of energy use than the paid-sector delivery of equivalent services, especially government and privatized caring services. Many questions remain unanswered, among them whether reducing paid work will be possible in an energy-scarce future.
Just wanted all those reading here to know that maximizing production and improving productivity are not the only options on the table.