Reshaping Employment Growth

Econintersect: The disappearing middle class has been a topic of much discussion in recent years and a paper presented at Jackson Hole Friday, 22 August has focused on analysis of this situation. David A. Auter, Professor and Associate Department Head, Department of Economics, Massachusetts Institute of Technology is the author of Polanyi’s Paradox and the Shape of Employment Growth. While much has been made of the loss of jobs to automation and robots, Prof. Auter says that data indicates rather than a loss of jobs occurring, a rearrangement of jobs within the economy is taking place.

Auter finds that for Europe and the U.S., growth is occurring in low wage occupations and in high wage occupations while middle wage jobs have been declining over the past couple of decades.  He relates this to the relationships between men and machines which he structures in the context of the 1966 proposition of physical scientist, social scientist and philosopher Michael Polanyi that intuitive knowledge is something that transcends learned theory.  Following this reasoning he is not surprised to find that the onset of an age of automation and robots is not marked by the obsolescence of human “labor” but actually a redefinition of what that effort is, as reflected by the empirical data.

Here is the abstract of his paper (paragraph structure added by Econintersect):

In 1966, the philosopher Michael Polanyi observed, “We can know more than we can tell… The skill of a driver cannot be replaced by a thorough schooling in the theory of the motorcar; the knowledge I have of my own body differs altogether from the knowledge of its physiology.“

Polanyi’s observation largely predates the computer era, but the paradox he identified-that our tacit knowledge of how the world works often exceeds our explicit understanding-foretells much of the history of computerization over the past five decades. This paper offers a conceptual and empirical overview of this evolution.

I begin by sketching the historical thinking about machine displacement of human labor, and then consider the contemporary incarnation of this displacement-labor market polarization, meaning the simultaneous growth of high-education, high-­wage and low-­education, low-­wages jobs – a manifestation of Polanyi’s paradox. I discuss both the explanatory power of the polarization phenomenon and some key puzzles that confront it. I then reflect on how recent advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth. A key observation of the paper is that journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities.

The challenges to substituting machines for workers in tasks requiring adaptability, common sense, and creativity remain immense. Contemporary computer science seeks to overcome Polanyi’s paradox by building machines that learn from human examples, thus inferring the rules that we tacitly apply but do not explicitly understand.

Click on the page image below to read Auter’s complete paper:

Click on page to read paper.

John Lounsbury

Sources:

• Polanyi’s Paradox and the Shape of Employment Growth (David A. Auter, MIT, NBER and JPAL, 11 August 2014)

• ‘Robot Overlords’ Job-Stealing Exaggerated: Jackson Hole Paper (Jeff Kearns, Bloomberg, 22 August 2014)