March 7th, 2015
in Op Ed
by Fabius Maximus, FabiusMaximus.com
Summary: We're on course to repeat the mistakes of the first 2 industrial revolutions in the 3rd. The wonders of increased productivity benefit the 1%, while the middle class seeks easy but chimerical ways to preserve their way of life. Anything but the work and risk of collective political action. Today we examine the favorite recommended cure to automation: more education. It works as well as frogs climbing over each other to escape a pot.
More education is the most common response to the job losses and wage stagnation caused by automation. People, young and old, frantically train and retrain themselves for jobs in the ever-shrinking pool of jobs supporting a middle class lifestyle. Only lately has the futility of this become obvious, as experience shows its flaws.
Nick Bunker (Washington Center for Equitable Growth) gives a summary of the fallacies: "Is higher education the answer to reducing income inequality?" - The money paragraph, undercutting the key assumption of more education as a solution:
Intuitively, then, increasing the supply of educated workers should reduce inequality as it would increase wages among a broader supply of more educated workers. But that assumes the demand for educated workers will continue to rise. Problem is, recent research finds that the demand for skilled labor appears to be on the decline.
Education puts workers on a new kind of boom-bust cycle.
Americans seek more education as a lifeboat to save them from the rising tide of automation, hoping for a ticket to a middle class lifestyle. Our colleges gear up to meet the increased demand, producing a flood of newly credentialed people. American does this very well. We produced legions of aerospace engineers in the 1960's and geotech & petroleum engineers in the 1970s. Unfortunately that doesn't mean they'll have jobs. Both these booms ended in busts. What do you call an aerospace engineer in 1974 or geotech engineer in 1990? "Waiter!"
What was an extraordinary boom-bust pattern has become common. Colleges supply degrees irrespective of the demand for people with those degrees, increasingly often in excess of demand.
Law schools making too many lawyers. Prescient article by Newser 21 May 2011.
Law was the first large profession affected by this new form of boom-bust cycle. The resulting bust has crushed demand for law degrees, imperiling the finances of lower-ranked schools - and reducing the profits of most schools, as they compete for students (with wider effects, as law schools are cash cows for universities). For details see this Newsweek article by a former Dean, apparently still oblivious to the glut of attorneys that is the core problem. Time will open his eyes, as bust in student-financed advanced degrees undermines universities finances (details here).
Others fields follow close behind law. For another example see "The Pharmacy School Bubble Is About to Burst." The latter describes a problem that's become increasingly common in many fields:
"One of America's most reliable professions is producing too many graduates and not enough jobs."
There might even be an overall surplus of people with advanced degrees in non-professional fields. "Glut of postdoc researchers stirs quiet crisis in science". "Adjunct professors get poverty-level wages. Should their pay quintuple?", WaPo -
"Inside the fight to dramatically hike pay for adjunct professors, who are now a majority in higher education."
Skills: only useful if there are jobs.
Effects of the glut
What happens when a glut hits a profession? There are not enough jobs for new entrants (who then cannot pay their student loans). Wages fall in that field, due to the surplus of labor supply over demand. Those are the first-order effects.
Americans are adaptive, causing second order effects. Under pressure professions seek new opportunities, often by entering adjacent fields - often ones requiring more education than their own. Here new technology helps, allowing them to do tasks previously allowed only for those with still more education. Yesterday's post described this process with optometrists going for ophthalmologists' business. That's how the American Pharmacists Association plans to handle the surplus in their field:
How can we ensure both the long-term viability of the profession, particularly health-system pharmacists, while at the same time growing the demand for pharmacist services to accommodate the large volume of pharmacist graduates entering the workforce?
A movement is under way for pharmacists to become health care providers. This would allow health-system and community pharmacists to expand their service lines to help more patients. Although pharmacists cannot yet bill for many services, the current crop of pharmacist graduates is prepared to provide a wealth of important services that have been shown to positively affect patient-centered outcomes, reduce total health care expenditures, and prevent patient harm.
It's a pattern we see today and will see more often in future. Tax calculation software pushes tax preparers to go after the business of Enrolled Agents, and Enrolled Agents to go after CPAs' business. Falling dominoes, putting pressure on a widening range of workers. Including those so far protected from foreign competition, and so with good incomes.
It's between how much they want to pay for skills and how much you need to eat.
Does education fill the "skills gap"?
Other than for a few fields experiencing extraordinary growth spurts, much research shows that there is no "skill gap". See this NBER report shows that it's a minor factor at best (for more evidence see these posts: part 1 and part 2). The best-known story is the shortage of STEM workers, a bogus crisis created to provide corporations with an ample (and hence cheap) supply of workers.
Ill effects from more education.
Corporate executives love an excess supply of workers. They creatively exploit the shifting supply-demand balance not just by paying less but also by shifting risks and cost from them to workers. Increasingly workers pay for their own training, in time and money. More drastically, corporations move employers off the books as temps or independent contractors, so the cost of benefits, licensing, and downtime (layoffs) are borne by workers.
Training expense shifts from corporations to workers. Timothy Taylor, 26 Feb 2015.
These dynamics so far affect only a small fraction of the work force. But automation of professionals' work will make it more common. Not only is education not a solution - as it helps only a lucky few - but the rush to add skills might increase the destabilizing effect of automation - setting other dominoes falling.
Unless we act, automation will not only shift national income from workers to profits, but perhaps even lower it - since with less wage income, we must spend less. So new technology will gives us less leisure time, more stress, less security, and an inability to buy the goods and services our new machines can produce.
It need not be this way. The increased productivity from new technology can benefit everybody, if we work together to make it so.