Tom Edsall does a nice job summarizing the increasing
hollowing out of the job market in his New York Times column today. The employment/population ratio has fallen drastically since 1999 even as Real GDP hit an all time high this month. Edsall quotes Andy McAfee and me arguing that
technological progress is part of the story for both these trends. Fewer people
are working in America today than in the late 1990s, even though overall income
is higher.
James Hamilton and Amar Bhide are quoted by Edsall as being
skeptical that the restructuring of the economy contributed to job losses. While Andy and I agree that the Great
Recession is undoubtedly the biggest driver of the job losses since 2007, we
also see a longer-term forces at work.
In fact, employment growth was sluggish well before 2007.
Digital technologies have advanced very rapidly in recent
years. This can and does create enormous
wealth. That’s the good news. But
there’s no economic law that everyone will share in this wealth. In fact, as David Autor has noted, in recent
years, the demand for middle skill jobs, involving routine cognitive and/or physical
skills has plummeted. This is reflected both in wages and in employment. At the
same time, those in the top 1% have seen their incomes soar. The median family actually has less income
today than 15 years ago, even though the nation is producing more goods and services
than ever before.
Of course, creative destruction has always been important to
the US economy. 90% of Americans worked
in agriculture in 1800. By 2000, it was
less than 2%. This switch did not result in mass unemployment. Instead, new industries, from autos to
computers, were created to employ people more productively. However, this time around, job destruction is
happening faster than job creation, at least for certain types of workers.
Demand for jobs involving routine work is rapidly falling since those jobs are
the easiest to automate. As
entrepreneurs discover and invent new ways to employ the laid off workers, the
economy should come to a new equilibrium and re-employ those who lost their old
jobs. However, even though the overall
economic pie will likely grow, the new equilibrium may involve lower wages for many
types of workers, and many may choose to drop out of the labor force entirely,
as they have over the past decade.
The first step to addressing the challenges of this great
restructuring is correctly diagnosing it.
It won’t do to assume that, just because things worked out in the past,
everything will ultimately work out this time as well.
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