11 January 2011

Efficiency Doesn't Destroy Jobs

Hunter Richards really, really would like it if I discuss his post on unemployment, technology, productivity and education, and since I'm feeling particularly indulgent this afternoon, I will.

Basically, he argues that increased productivity due to information technology has increased profits for the educated and corporations, while putting the less educated out of work, ergo, we should devote more resources to education, with lots of fancy graphs and charts.

Mostly, his logic is solid. Technology has driven productivity increases and efficiency, and efficiency reduces the demand for labor. Hurray! This is what we need to increase per capita GDP and I don't know many people who favor intentionally producing things in ways that are less efficient and reduce value.

I'm skeptical, however, of his claims that this produces unemployment. He, like a whole lot of very smart people, conceptualizes jobs as a basically fixed quantity that is created and destroyed. But, unemployment is fundamentally a failure of entrapreneurship - a failure to find worthwhile things for people to do and sensible ways to finance that work, rather than a lack of work to be done per se. There are lots of things that our society could do with idle workers, but our political economy is too dumb to find ways to finance that activity and instead is letting that productive capacity be forever wasted. Efficency really has nothing to do with it. In the 1950s, at times when unemployment was at record lows, we were wildly more efficient than we had been a couple of decades earlier when unemployment was immense. In the same way, immigration doesn't take away jobs. Jobs are not a fixed quantity. If we have people capable of doing things that need to be done and firms that can connect them, unemployment goes down.

It is possible to have a situation where a person's capacity to do productive work is less than the value of that work. Indeed, its common. We send children to school instead of work, and we put the disbled and elderly on pensions in express recognition of this possibility. But, have we really reached that point for most of the unemployed? Given the fact that more than two-thirds of them have had gainful employment within the last few years, that is unlikely. Also, even if it is true, this doesn't tell us what a good policy reaction to that situation should be.

The oversimplified example is a severely developmentally disabled person who is able, ready and willing to work, but can't do very much very productively. How should society handle that situation? Should King Soopers hire him to collect grocery carts from the parking lot even if someone else could do a better job, perhaps aided by a machine? But, some of the work force is in essentially that situation, although it is less obvious, at least on a statistical basis. Maybe at some point we are so efficient that we don't need everyone to work. How do make that society function mercifully?

The story regarding lack of wage growth for less skilled is more complex than it seems as well. Technology has made less skilled workers dramatically more productive than they were before it was available. Indeed, it has often reduced the amount of skill necessary to do a job. But, those productivity gains haven't been shared with the worker, because we have lots of less skilled people, but haven't figured out what to do with them, thereby depressing the wages of the highly productive less skilled people who are working. The less skilled have suffered in the job market because they are easily replaceable, not because they aren't productive when put to work. The analysis also fails to recognize that irrational flows of funds into the finance sector driven by market failures may be as important as real economy factors like efficiencies driven by the IT sector.

Education may very well be a good thing, but it isn't as obvious a choice as it seems. A lot of the economic benefit that comes from being educated flows from the power of educational credentials to sort smart and reasonably disciplined people from less sharp and less disciplined people, not from the knowledge that flows from the educational process itself. This is particularly true in the case of general educational credentials, as opposed to skill training and narrow pre-professional programs. And, our economy isn't at all clear what it wants people to know. Hunter Richards has clearly been brushing up on his SEO skills, and maybe that will bring returns to his business. But, it is hard to know and the brightest minds in our economy are mostly clueless about what skills the economy needs right now. Training people to do carpentry work, for example, probably won't help an economy that has just lost 2.3 million construction jobs in since its peak a few years ago.

Bottom line: The answers aren't easy, but most of us are looking at the problem in the wrong way to make any progress towards solving it.

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