Thursday, October 27, 2011

Not All the Economic News is Bad


The past decade has been terrible in terms of job growth and median wage growth, and sadly that was true even before it culminated in the worst recession since the 1930s.

But not all the news is bad. Although it’s not much discussed, this has actually been the best decade since the 1960s for productivity growth. Last year, labor productivity grew by over 4% and it has averaged over 2.5% in the preceding 10 years.

Why does this matter? Simply this: productivity, output per unit input, is by far the most important determinant of our living standards. As Bob Solow showed in his Nobel Prize winning work, the main thing that makes an economy richer is not working harder or even using more capital or other resources. Instead, the main driver is innovations in products, services and business processes that let us create more value without using more inputs. Productivity comes from new technologies and new techniques of production. The most important of these is what economists call general-purpose technologies like the steam engine or electricity. They contribute to productivity directly, but more importantly, they also spur countless complementary innovations that can keep driving productivity growth for decades.

Our era is fortunate to work with one of the most important and powerful general-purpose technologies in history, information technology, in all its forms. Some of my research suggests that IT has been driving the lion’s share of productivity growth in recent years. What’s more, there is no sign that the digital revolution is slowing. On the contrary, I think we are only in the early stages of a transformation that will be no less important than the ones engendered by the steam engine and electricity.

Unfortunately, not everyone is benefitting from strong productivity growth. In fact, many have been directly hurt as their jobs are automated. This is one of the main themes of my new ebook with Andrew McAfee, Race Against the Machine. Grappling with this paradox, high productivity but stagnating employment, is one of the great challenges for our generation.

How do you think we should address it?

4 comments:

  1. I greatly enjoyed the book and appreciate you bringing attention to the technological unemployment issue. It's a welcome and timely update to Martin Ford's 2009 book and the work of Rifkin, Brain, et al.

    The suggestions in the book about "improving the rate and quality of organization innovation" and "increasing human capital" and the 19 step plan didn't resonate very strongly with me. I suspect it's time for a bolder plan focused on transitioning from the "work for wages" orthodoxy to something more sustainable. (Did you see Douglas Rushkoff's piece for CNN last month? http://edition.cnn.com/2011/OPINION/09/07/rushkoff.jobs.obsolete/index.html)

    Per your blog post, perhaps the other good news coming from the current economic meltdown is the number of creative ideas being raised which may reduce the magnitude of future creative destructions? Without picking winners and losers: Mohamad Tarifi's Panoply (http://ieet.org/index.php/IEET/more/tarifi20110908), Martin Ford's stipends, Rifkin's Third Sector, Robert Anton Wilson's RICH Economy, James Albus People's Capitalism, Robert Frank's progressive consumption tax, Marshall Brain's Robotic Freedom, Kelso/ Ashford/ Shakespeare's Binary Economics (interest free national bank, economic democracy), behavioral economics, ...). Care to synthesize these :-)?

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  2. I greatly enjoyed the book and appreciate you bringing attention to the technological unemployment issue. It's a welcome and timely update to Martin Ford's 2009 book and the work of Rifkin, Brain, et al.

    The suggestions in the book about "improving the rate and quality of organization innovation" and "increasing human capital" and the 19 step plan didn't resonate very strongly with me. I suspect it's time for a bolder plan focused on transitioning from the "work for wages" orthodoxy to something more sustainable. (Did you see Douglas Rushkoff's piece for CNN last month? http://edition.cnn.com/2011/OPINION/09/07/rushkoff.jobs.obsolete/index.html)

    Per your blog post, perhaps the other good news coming from the current economic meltdown is the number of creative ideas being raised which may reduce the magnitude of future creative destructions? Without picking winners and losers: Mohamad Tarifi's Panoply (http://ieet.org/index.php/IEET/more/tarifi20110908), Martin Ford's stipends, Rifkin's Third Sector, Robert Anton Wilson's RICH Economy, James Albus People's Capitalism, Robert Frank's progressive consumption tax, Marshall Brain's Robotic Freedom, Kelso/ Ashford/ Shakespeare's Binary Economics (interest free national bank, economic democracy), behavioral economics, ...). Care to synthesize these :-)?

    JW Johnston (j.w.johnston@earthlink.net)

    ReplyDelete
  3. You know that whole evil socialist thing? Unless we can find actual jobs for the population or start enforcing a smaller population, automation will make people less necessary. A basic income will be necessary, or at least jobs digging ditches.

    We could all have service jobs, but that level of competition within service jobs is going to bring down the value of each worker even more. Prices of automated goods will have to go down to little more than material costs, otherwise who will afford them? It's like the music industry... when everyone and their brother can make a quality album in their garage, albums should not still cost $9.99 or $18.

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  4. It seems like one good partial solution would be increased leisure time. For example, we could shift to a system of 4 9-hour workdays as the standard, rather than 5 8-hour days.

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