I think that it's impossible to rationally ignore the fact that economies seem to contort to absorb however many workers are available to it. I have yet to hear a totally convincing explanation for this, but it seems to happen.
That's what's supposed to happen. It's called Ricardo's Law of Comparative Advantage. For as long as people's labor has any value whatsoever, they ought to be employed.
Unemployed doesn't mean zero income or zero utility. If the utility you offer them for working is less than the utility they get from being unemployed they won't take the job.
There may be enough labour to keep everyone employed, but not enough of that labour has a high enough value that it's worth while for people to do it, and thus you have unemployment.
I'm not sure that that is exactly Ricardos law. That applies more to trade and specialisation.
The basic laws of supply and demand (price of labour will adjust until all labour is employed) should theoretically be enough to cover it. But I don't find this to be sufficiently explanatory of what we observe in the world.
For one thing, you would expect that the price of labour be extremely volatile, especially at the bottom, in response to technologically driven change. This is not the case. The price of labour tends to be stable and rises slowly across most categories at the bottom (though it does not necessarily keep pace with the economy).
For another, in such a world one would expect the effects of minimum wage on employment levels to be easy to predict (like price restrictions on the consumption of goods and services). They are not. We can play games in the extreme margins (see what happens if you set minimum wage to $1000 p/h), but in the moderate ranges, the effects are usually pretty foggy.
In any case, citing some fundamental economic principle is not what I meant when I said explanation. I meant at least to some idea of how the mechanics of that principle apply in this case.
Labour is different to most inputs in that production of its raw materials is not really sensitive to prices or market forces,. It is, from the market's perspective, arbitrary.
Empirical study is a tad tricky in a field where experimentation would probably be considered wildly unethical and you wouldn't be able to set up a control anyway.
While presence of controls is admirable, it's still reasonable to simply look at countries that implemented a minimum wage and ask, what happened to the unemployment rate?
As a side note, I would be interested if anyone here can give me what they believe is the most convincing explanation. If it's more then can be explained in short (EG, wages fall until everyone is employed) , a link is great.
Not an economist, but I have recently been thinking about it. Probably there are lots of factors, but it seems to me that people are resourceful (if they are unemployed, they'll seek ways to survive/find employment). Also I think they'll tend to only have children when it seems economically viable to do so. As an example, consider coal miners (they've gone out of business in my country). I suspect as long as mining was a viable line of work, they continued having children and producing more coal miners. Now that it has gone away, there are lots of unemployed ex-miners for a while. But I suspect those who fail to find other sources of income won't have that many children, so eventually that "strain" of unemployment will just phase out of society. In the end, only those people with viable jobs survive.
interesting essay, but you could have made the exact same argument in the early years of the industrial revolution...as one example. 'The real problem with the economy is that it doesn't need you anymore' could have been said, and probably was said, many, many times throughout history, every time big technological changes appeared on the horizon.
agriculture? sorry hunter gatherer, the economy doesn't need you anymore :)
Wealth is stuff people want, not what people need. True, if there's shortages of something people really need people will focus on spending their wealth on those things first as there are painful price hikes in basic necessities. But if it's really true that a few numbers of limited people can, using technology, produce everything "really needed" by all of society, the remaining people are then freed to work on whatever else people might want. The fact that people don't "really need" those things doesn't stop anyone from paying for them.
By this article's logic, at the point agriculture was developed and not everyone needed to hunt for food all day, a big chunk of the population should have sat idle and impoverished.
I'm not sure why we need to assume that we'll ride the curve all the way down before coming back up.
Its true that manufacturing jobs are going to poorer countries because wages are lowered there. For now, it seems like in richer countries the jobs are being (imperfectly) replaced by services. If this can't continue (and I'm not sure if it can or can't) than wouldn't we expect wages in (currently) richer countries to start dropping and manufacturing jobs to move back?
The above may sound like I'm assuming a frictionless economy and maybe some other pseudo-idealistic assumptions... but I don't think I am. I realize that the process will not be instantaneous, but that doesn't mean it won't happen (albeit with some pain along the way).
Aha! You, sir, have hit upon the greatest reason to be optimistic about globalisation; even though the evil soulless multinationals <warning, satire> are currently destroying good, well-paying jobs in developed nations and creating nasty, hellish, unsafe, penurrific jobs in the concrete slum-nightmares of the Third World, they have to move on to new concrete slum-nightmares every so often when the locals get too rich to endure slavery!
The key fact is this: There are a limited number of slum-nightmares to move on to! One day, the t-shirt manufacturers will find that Darfur has become too well-heeled, and look around, and curse the skies, because there's nowhere left to exploit!
And the world will be doomed to become more homogenous, more wealthy, and more high-standard-of-livingy every single day.
The other side of this, that I rarely hear discussed, is "What happens when automation renders some people permanently redundant?"
It's an easy platitude to say that technology obviates some jobs whilst creating others, but the new jobs tend progressively to more complex and/or creative work, that use the leverage of technology to do work that would have once needed many people (if possible at all).
Currently, the issue is cloaked in arguments over protectionism and trade, because Chinese workers are (for now) cheaper than robots for many things. What happens when automation is cheap and sophisticated enough that starting a manufacturing business is only slightly more difficult than a web startup is today? (Exhibit A: Projects such as Fab@Home and RepRap) It is, I suspect, not reasonable to expect even a significant percentage of people to handle the kinds of career that will remain.
While it's fun to imagine a world where one person can create enough wealth to support hundreds of people... what do you do with those hundreds, who can no longer create any wealth a machine can't do better?
"AMONG THE MOST viable of all economic delusions is the belief that machines on net balance create unemployment. ... Whenever there is long-continued mass unemployment, machines get the blame anew....
The belief that machines cause unemployment, when held with any logical consistency, leads to preposterous conclusions. Not only must we be causing unemployment with every technological improvement we make today, but primitive man must have started causing it with the first efforts he made to save himself from needless toil and sweat.
what do you do with those hundreds, who can no longer create any wealth a machine can't do better?
The snarky answer would be "wait for the revolution". However, more realistically, the odds of rebellion would depend on whether or not someone somewhere (most likely some combination or other of government + industry, as has been pretty much standard for most of human history) would succeed in keeping the Unwashed Masses more or less content with the way things are.
Mind you, by taking away anything even resembling an excuse for people to say "I am having a non-negligable, tangible effect on the world around me," that would probably be rendered a tad tricky.
On the other hand, remember how back in the 50s the plan was that all Americans would eventually have, e.g. a 25-hour work week, due to the massive productivity gains technology would bring about? Remember how that turned out? Never underestimate people's ability to waste their own time.
Never underestimate people's ability to waste their own time.
That would be the bureaucratopian scenario, where 29% of the people are managers, 70% are employed to handle the paperwork generated by the managers, and 1% of the people do all the actual work to support the whole system.
I just don't see that as a long-term sustainable solution absent heavy government interference (read: crushing regulatory burdens) in an environment where technology exists to allow a couple hackers and some salesmen to spin up a company that provides, not another social media platform, but all the fundamental necessities of life--an idea that is not particularly far-fetched.
But what really happens is that stuff finally becomes so cheap that people will stop buying more than they need of it and will presumably spend the rest of the money on things that are hard to make by robots: books, movies, professional services.
The they the robots can do that? Well then we will finally have obliterated the concept of scarcity, at which point the entire concept of economies are obsolete.
That's a seriously great story. When I first read it, I wasn't sure whether to be afraid of Manna or to start a startup to create Manna. It seems so very real.
Consider the following EU definition of a free economy:
The freedom of movement for workers is a policy chapter of the acquis communautaire of the European Union. It is part of the free movement of persons and one of the four economic freedoms: free movement of goods, services, labour and capital.
But of course is only applied within the European Union. Foreign workers can actually expand an economy - not contract it (See US, Austalia, Canada). By restricting immigration, the jobs get exported rather than stay home. Would a more permissive immigration policy by the US have kept these jobs home? I believe it would. The world now has reached a stage where goods, services and capital almost move freely but not the last resource the labour. By slowly opening the gates the world will slowly adjust to a new Global Economy.
> When we create devices that individuals will be able to own that will be able to produce everything that we need, the solution will be at hand. This is not science fiction. We are starting to see that happen with energy with things like rooftop solar panels and less expensive wind turbines. We are nowhere near where we need to be, but it is obvious that eventually everyone will be able to produce his or her own energy.
I don't think that's going to happen. Technological progress does make small-scale production cheaper, but it makes large-scale production cheaper faster.
Yeah, fine. But at a certain point, I can buy a replicator, print out some solar paint, and disconnect from the grid. All I need now is small amounts of raw materials to top up the inevitable losses from my recycling loop.
Your large-scale production will certainly be cheaper, but it will be possible for an individual to build, say, a fully automated chip-fab given enough raw materials. So large-scale production will be instantiated ad-hoc on a needs basis.
I'm assuming that the last bastion of human labour will be creative work, since that'll have sentimental value even when the robots get better at it.
It's entirely possible to bake your own bread or grow your own vegetables today, do you do that? Food independence!
I just don't see why division of labor would decrease. In the past it's pretty much always increased with growth of technology. As Robin Hanson said in "Dreams of Autarky" http://hanson.gmu.edu/dreamautarky.html :
I suspect that future software, manufacturing plants, and colonies will typically be much more dependent on everyone else than dreams of autonomy imagine. Yes, small isolated entities are getting more capable, but so are small non-isolated entities, and the later remain far more capable than the former. The riches that come from a worldwide division of labor have rightly seduced us away from many of our dreams of autarky. We may fantasize about dropping out of the rat race and living a life of ease on some tropical island. But very few of us ever do.
Grow your own vegetables? Bake bread? That takes HOURS. But with a replicator/food printer/reprap, it's a push-button process. No work involved. Makes a difference, eh?
Ever lived in the third world? You don't have washing machines, you get your clothes washed down the street. In the first world, you just chuck them in your washer/dryer, push a few buttons, wait an hour.
See the difference we're talking here?
One way requires someone to swoosh clothes around with a stick all day. The other requires a designer, a few supervisors at the factory, an assembly line, and a washing machine repairman, all of whom ADDED TOGETHER still don't work as many hours per washed knicker as the laundry people do in the third world.
Of course we'll still be dependent on others. Do you think the average schlub will be designing his own printer templates? Nah, he'll download them from the Internet like everyone else.
Interesting, thought provoking, and most likely correct general premise - followed by a bunch of incorrect correlations and details.
> Clearly, more and more jobs will move from more developed nations to countries like China, and it is difficult to see how, as this process continues, the United States retains its leadership position. In fact, it seems entirely possible that the U.S. will exchange places with less well-developed nations.
The United States has never been good at continuing dominance in a field they invent. Basically, it gets invented in the USA, and another part of the world gets better at it and takes over within 30-70 years. Historically, the US economy would've collapsed many times over had we not kept "inventing our way out of it". If it keeps up, USA keeps going. If not, starts to fall apart. Of course, the following isn't true:
> And the labor that is needed can’t be done in more developed nations because there are people elsewhere who will happily provide that labor less expensively.
"Can't" isn't the right word. There's certainly enough people that would be happy to work for the ever-increasing buying power of a modern day $5 to $20 per hour, and people would pay a premium to not have to ship things across seas and to be closer to their factories. The problem is that the labor laws in the USA has changed it from an economy with very many $15-per-hour jobs into one with a few $40 to $70 per hour jobs due to our laws.
> When we create devices that individuals will be able to own that will be able to produce everything that we need, the solution will be at hand. This is not science fiction. We are starting to see that happen with energy with things like rooftop solar panels and less expensive wind turbines. We are nowhere near where we need to be, but it is obvious that eventually everyone will be able to produce his or her own energy.
This is, of course, very false. It ignores economies of scale. Energy will eventually get closer to free, but it will most likely be because of giant nuclear fusion or hydrogen plants or something like that. The trend is towards even fewer institutions providing our basic needs, not spreading it out. What will happen is people will turn to more "intangible" sorts of work - sciences, philosophy, aesthetics, design, communication, and so on. There'll be lots more people working on things that would have been frilly or an unnecessary luxury in years past.
> This means that a small number of people, the people in control of the creation of goods, get the benefit of the increased productivity.
False! The quality of life across everywhere has increased a lot faster than the quality of life has improved for the rich. Now, the barriers to entry into industry as all but disappeared, and the "American Dream" of rags to riches is more possible than ever. You can get the benefits of economy of scale without a lot of money by having Amazon host it for you or some such. I had dedicated warehouse and automated shipping for orders at a company I ran for $200 per month + $2.50 per package shipped at my small company. It's going to be possible to get wealthier than ever.
Now, the wages for unskilled labor will fall off a bit, even as the prices of things get cheaper. I don't know which will fall faster going forwards, but so far, prices of essential goods and luxuries have fallen faster than unskilled wages. But also, there's been a shift to skilled labor in the developed countries, and what Peter Drucker called "knowledge work". Yeah, gradually there will be less people needed to tar roofs and roof-tarring wages will fall, but nobody really wants to do that anyway. As cheap, easily installed roofings improves more and more, there will be less roof tarrers, but kids that would've become roof tarrers will become computer programmers or writers or systems engineers or biochemists or whatever.
> Unfortunately, that wealth will be held by a very small number of people. And their operations will need to employ very few people.
This is such old world thinking. Yes, there will be less traditional, unskilled jobs. No, those people won't die in the streets. People are resilient. They'll move into other, more necessary positions that fill the new needs, as the old needs get cheaper than ever to buy.
> In short you will have a few very wealthy folks, and a much larger majority that will just not be needed for the most important things that the country needs to do.
Author could've written this about cars too, and how it's going to kill all those horseshoeing and horsebreeding and carriage driving and carriagemaking operations, and how the world is going to be a mess, and it would've looked correct.
Again, interesting premise, hadn't thought about it, probably correct. The follow-on conclusions are way off base.
When robots are making robots that make our stuff, noone will be able to buy any of the cheap stuff, except the people that controls the goods.
Labor is the only good most people have, and it's worth is declining. The previous generation could maintain the same lifestyle, doing less work. For years the rich are getting richer and the poor get poorer, but the last years the middle class is shifting to poor as well.
The more "intangible" sorts of work are only getting paid, after the basics needs are paid, and thanks to the internet people are sharing those skills for free.
> When robots are making robots that make our stuff, noone will be able to buy any of the cheap stuff, except the people that controls the goods.
I'm not sure if you're joking or not, but the rest of the comment looks serious. Here's the standard answer:
As long as any human needs or wants are unfilled, there's a capacity for an unlimited amount of work and labor. As robotics gets less expensive, it will progressively replace unskilled, repeatable, monotonous labor.
As of yet, we're nowhere near having quality enough robotics to do abstract, creative work. Thus, more (human) work will become abstract and creative. The more mechanical, automatic, less skilled work will gradually become streamlined, mechanized, and replaced as that becomes safer and more efficient than paying people to do that kind of work.
> Labor is the only good most people have, and it's worth is declining.
Completely unskilled labor - working at Taco Bell, pressing a button every 17 seconds, unloading crates from a truck - the worth of those is declining. Skilled labor - including servicing robotics or operating a complex crane - the worth of those is slightly increasing. Knowledge work - research, biochemistry, computer programming, genetics, engineering - the worth of those is greatly increasing.
There has been and will continue to be a general shift from completely unskilled labor to skilled labor, and skilled labor to knowledge work.
> The previous generation could maintain the same lifestyle, doing less work. For years the rich are getting richer and the poor get poorer, but the last years the middle class is shifting to poor as well.
This is patently false. The average person today has twice as many possessions as the person of forty years ago. The resources, necessities, and luxuries available to people has greatly increased on the low end and slightly increased on the high end. Look at technology - what do wealthy people use online? Google for search, Gmail for email, Facebook for networking, Amazon for books, Ebay for auctions. Those are all available to anyone of any social class in the developed world. Think about computers in general - you can get a totally functional computer for web browsing and word processing for dirt cheap, almost free. This is an incredible thing. You can get a Personal Transportation Device (aka a "car") for very cheap! My 1995 Infiniti J30 was $1900, and that was a luxury car 15 years ago. It still totally gets the job done. Even the poorest people in America can buy a nice enough car, outright, in cash, for less than a month's work in a bad job.
That's amazingly marvelous. The quality of life gap is closing tremendously. The difference in goods, services, availability, and access is getting closer all the time. The wealthier are getting slightly wealthier because it's possible to leverage your good works to more people to help the world. The poor and middle class are getting much wealthier because they can transact with the people doing the best job globally at everything. Google is the best in the business, and it's available to everyone that can get online.
> The more "intangible" sorts of work are only getting paid, after the basics needs are paid, and thanks to the internet people are sharing those skills for free.
Actually, that's a good point that people are grappling with. How can we convert our skills that other people want to money? I don't have the answers on that, but I'd feel confident wagering a lot of money that there's where there's going to be a lot of growth in those areas. Creative people will find creative solutions to monetizing their work.
We're going to be seeing more writers, artists, programmers, researchers, designers (yes, the demise of design has been greatly exaggerated), and so on. Short of a brutal WWIII, I feel pretty good that my children are going to live in a much more pleasant, clean, stimulating, enjoyable world, with meaningful and interesting work to do, inexpensive necessities, and ever improving design, experience, and aesthetics of the everyday world.
We have more stuff than 40 years ago, but less than 20. What also changed is that many single income households are double incomes now. Or that people are working 60-80 hours a week.
15 years ago you also could buy a second hand car for cheap, but since then the gas price quadrupled. You can have a DVD player for the same price as a VCR 20 years ago, but does it really mean the quality of life has improved? Over time we also lost quite a few things, like real food or personal service.
But still you are looking at now, and more specifically to your personal situation at the moment, and not on what's happening and what the future will bring.
If cheap labor disappears a part of that group will become competitors in an already overcrowded market. And as I mentioned before, the global marktplace and internet is going to work against us. We will end up fighting over breadcrumbs, and only a very few, those with a truly unique skillset, will manage to have a somewhat decent lifestyle.
What you also forget, a big part of our current wealth is based on air. On big loans we used to pay for cheap labor in far away countries. And one day those loans will have to be paid back.
But try to imagine what would happen to your life when the dollar would become complete worthless overnight. Do you have enough goods to buy your way around, or do you still have the right skills to make a decent earning?
Well! You can force everyone your economy doesn't need to go to military!
This way, it's a win-win: you still retain your dominance and don't suffer from having no real jobs!
