The Growing Global Threat Of Labor-Saving Automation

by Elliott Morss, Morss Global Finance

Background

There is a sense, perpetrated by the American President and others, that US job losses are primarily the result of Chinese currency manipulations and its low-cost labor. Certainly some US jobs were lost that way.

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But as I and others have documented, most job losses in the US (and globally) have been the result of labor-saving automation. Earlier, I wrote about the impact of labor-saving technology in manufacturing. But labor saving technology has had a much wider impact: it is causing lost jobs in most service industries as well as in other goods producing sectors. The share of retail done in stores is declining as online purchases increase. We used to need housing and auto personnel to tell us what was available and at what prices. All of that information is now available online. In medicine, web sites now provide excellent on all forms of maladies. Law firms now use artificial intelligence scanners to do jobs done previously by junior staffers. And much of the drudge work in banks has been automated.

What is happening is documented in Table 1.Since 1990, goods producing jobs have fallen by 15%, with manufacturing jobs down 30%. Service jobs are up since 1990. But the 2012-2017 period captures some of the effects of labor saving automation in the Services sector. Perhaps most notable is the decline in department store employment, down 18% since 2012.

Table 1. – Changes in US Employment

Sources: US Bureau of Labor Statistics and US Bureau of Economic Analysis

Government Employment

It is worth mentioning in passing true that globalization and automation are not the only forces responsible for the loss of reliable paychecks. So is the steady erosion of the public sector. From the late 1950s through 1980, the United States added 350,000 new state and local workers a year. The rate slowed in the mid-1980s through the early 2000s, but payrolls still grew annually by 300,000 workers. Government hiring failed to bounce back after the recession. There are now fewer government workers per capita than there were three decades ago. Teachers are a major component of government workers. And so far, their unions have done a good job for them. But in the future, major employment reductions are possible via high quality canned lectures.

Falling Wages

Even with US unemployment falling recovering from being as high 10% in 2009 to full employment today, automation is having a significant effect labor market impact. Average real wages are falling as huge numbers of middle class jobs are eliminated. A recent study from the Brookings Institution concluded:

Wages have risen for those in the top of the distribution but stagnated for those in the bottom and middle. Much of the growth in wages has been concentrated at the top, with wages in the top quintile growing from $38 per hour in 1979 to $48 per hour in 2016 – a 27 percent increase…. In the bottom fifth, real wages fell slightly over the same period….Despite the more rapid increase at the bottom of the income spectrum, along with continued growth at the top, wage growth for workers in the middle quintiles has continued to be sluggish.

The main conclusion from another study:

…wealth inequality is making a comeback. In 2012, the wealth share of the top 0.1% was three times higher than in 1978, and almost as high as in the 1916 and 1929 historical peaks. The key driver of the rapid increase in wealth at the top is the upsurge of top incomes. Income inequality has a snowballing effect on wealth distribution. Top incomes are being saved at high rates, pushing wealth concentration up; in turn, rising wealth inequality leads to rising capital income concentration, which contributes to further increasing top income and wealth shares. Our core finding is that this snowballing effect has been sufficiently powerful to dramatically affect the shape of the US wealth distribution over the last 30 years.

Where Will It All Lead?

a. Mark Carney – Danger of Communism

Bank of England Governor Mark Carney has recognized the threat that labor-saving technologies represent. He recently warned that mass job losses caused by advancing technology could result in mass unemployment, wage stagnation and the growth of communism within a generation. He suggested that:

“Marx and Engels may again become relevant. There is a disconnect in expectations. In surveys, over 90 per cent of citizens don’t think their jobs will be affected by automation, but a similar percentage of CEOs think the opposite, in the number of jobs which will be materially affected.”

b. Mordecai Kurz – What About the Displaced Workers?

In a recent article, Kurz worries about workers displaced by automation. He claims this results from a new form of monopoly power:

The Gilded Age monopolies were created via collusion, intimidation and bribery by corporate bosses. Today’s monopolies, however, are legal and were created by true innovators who received various forms of legal protection as their firms rose to dominance. John D Rockefeller, J. P. Morgan, Andrew Carnegie or Cornelius Vanderbilt were corporate bosses, not innovators like Jeff Bezos, Sergey Brin, Steve Jobs and Mark Zuckerberg.

He Concludes:

There will be no happy ending unless the US radically changes its approach to managing the impact of innovation.

He suggests establishing a principle of “required compensation” for workers whose lives have been damaged by today’s new monopoly power. And to deal with the need for better-trained workers, Kurz details Germany’s apprenticeship system:

Not only does Germany’s system offer workers better opportunities; it also provides a constant stream of highly qualified industrial workers, who go on to produce top-quality German products. Every year, 500,000 young candidates enter the program; and over the course of a year, each receives a one-week dispensation every month to attend a government-funded trade college. Having received a year of both expert and on-the-job training, they are awarded a certification of proficiency in their chosen area. An apprentice system has been started in the US, but its scale and funding are minimal.

Kurz concludes:

Whatever the solution, rising corporate monopoly power and the growing despair of workers, both the result of the IT revolution, can no longer be ignored. The current situation is not just deeply unfair. If unchecked, it threatens to precipitate political strife and economic turmoil, with disastrous consequences. Neither economic efficiency nor democratic stability can be sustained if the wealthiest individuals continue to enjoy falling taxation on rapidly rising monopoly profits, while the vast majority of working Americans live in neglect and despair.

Conclusions

Yes, US unemployment is at less than 4% – full employment.

But –

For the foreseeable future, new technologies will continue to wipe out large swathes of jobs globally.

Income and wealth disparities will widen and social unrest will grow.

There are no apparent ways to resolve these problems. Guaranteed incomes might help but they do not address the “what is the meaning of life” issue that will emerge.

Very few political leaders are aware of the magnitude and danger of this growing problem.