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Rise of the machines: Does automation explain recent jobless recoveries?

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The past three economic recoveries have been “jobless” ones. Job growth has lagged far behind GDP growth. In “Jobless recoveries and the disappearance of routine occupations,” economists Henry Siu and Nir Jaimovich point out that since the end of the Great Recession in June 2009, U.S. real GDP per capita has grown by 3.6% but per capita employment has fallen by 1.8%. Popular explanations include lack of demand and policy uncertainty. But Siu and Jaimovich offer another explanations. They argue that jobless recoveries “can be traced to a lack of recovery in a subset of occupations; those that focus on “routine” or repetitive tasks that are increasingly being performed by machines.”

Now it is hardly news that robots and computers have had a big impact on employment over the past thirty years, from machinsts to bank tellers:

All of the per capita employment growth of the past 30 years has either been in ‘non-routine’ occupations located at the high-end of the wage distribution, such as software engineers and economists, or in low-paying jobs, such as service occupations like restaurant waiters and janitors.

But the striking finding by Siu and Jaimovich, which can bee seen in the above chart, is the link between this phenomenon and the business cycle:

Following each of the 1991, 2001, and 2009 recessions, per capita employment in routine occupations fell and never recovered. This lack of recovery in routine employment accounts for the jobless recoveries experienced in the aggregate.

And what if routine jobs bounced back as they did in previous recoveries? “Had employment in routine occupations recovered as it did prior to job polarisation, the US economy would not have experienced jobless recoveries,” the economists conclude. It would seem that during downturn, companies turn to technology to replace labor and maintain productivity. Here is what the current recovery would look like under that scenario:

Image Credit: Henry Siu, Nir Jaimovich,This reminds me of a chat I had last year with Erik Brynjolfsson, co-author of Race Against the Machine:

Me: The book suggests the pace of technological change is accelerating, yes? If machines can learn and evolve faster than men, how will we ever catch up and “race with the machines?” Is better education, for instance, a solution or just a mitigating force?

Brynjolfsson: Education is a mitigating force for sure, and to the extent it helps people adapt faster, perhaps more than just mitigating. We don’t need to win a race against machines. As the book argues in ch 4, the right approach is to race using machines. That means entrepreneurs need to keep inventing new ways combine technology and people to create new industries and innovations. There’s never been a better time to be a a talented entrepreneur and they will be needed even more in coming years as the economy undergoes faster creative destruction.

 

2 thoughts on “Rise of the machines: Does automation explain recent jobless recoveries?

  1. While most folks think the recession was cyclical rather than secular, it’s also true that no one really know until after the fact. Consider: The Post Office is toast; libraries are toast; colleges compete now with free online coursework; Amazon is steadily rolling over bricks and mortar. Entertainment is toast in its present structure. (MSM routinely mines YouTube but Reddit does it much better.)

    What endures has significantly smaller labor requirements and higher standards. There are no HS dropouts in an automated warehouse.

    If this is secular there won’t be inflationary pressures for a long time to come, not counting commodities. And the prescription is education, education and more education.

  2. Todd, given the range of human intellect, if more and more education produces even more creative inventors of automation at the top end, how do the intellects at the bottom end keep up with the pace at the top?
    It seems to me that to find work, a person must either be faster or stronger than a machine (a battle generally lost at the industrial revolution), or capable of more creativity and judgment than a machine (a battle that the information revolution has begun, but by no means ended).
    Now that articles are starting to appear that predict sex robots might soon ‘service’ their ‘masters’ who might then come to ‘love’ them, it is doubtful that even the service industries are safe over the long term, education or no education, no? Are you expecting education to expand creativity at the bottom end of human intellect more than at the top? But I agree with your previous points.

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