The Wealth of Humans, Part III: An Abundance of Labor

<Part I, Part II>

In what ways does technological progress lead to a ‘wealth of humans’, i.e. a surplus of labor? Avent identifies three. The first is automation: Robots and software have enabled some tasks to be completed without the aid of any humans, eliminating jobs. Think warehouse robots, bookkeeping programs, and soon to come, driverless cars. The second, related, way is that technology significantly augments the productivity of the highest performing workers, allowing them to perform the duties of several lower productivity workers, again reducing the demand for jobs by employers. Finally, globalization has added hundreds of millions of workers (if not billions) in the developing world to global supply chains. One need only consider the aftermath of the China Shock to get a sense of the impact.

In simple supply and demand terms, the labor supply curve has shifted out and the labor demand curve has shifted in, which reduces equilibrium wages and employment. But how does this explain increasing inequality of income? Well, we have to think of the labor market not as one giant pool, but several segmented markets that are difficult to move across. So in the market for low skill labor, supply has greatly increased and demand has fallen. But in certain professions (programmers, for example), demand has increased greatly and supply has not yet adjusted.

If this is the case, then one of the best ways to deal with the problem is through education. When workers raise their skill levels, they are able to move across segmented labor markets, shifting supply to where it is needed (computer science) and reducing it where it isn’t (manufacturing).

Indeed, in Avent’s telling, this is exactly what happened during the Industrial Revolution. Despite being considered low skill work by today’s standards, at the time factory work required a certain set of skills that weren’t in common supply. Apparently, the modern education system sprang forth precisely to ensure the populace would be prepared for the mass employment of the day. Education was a way to transfer out of the agricultural labor market and into a potentially more lucrative manufacturing job. And for several decades, education has served this purpose well as the economy has evolved.

But nowadays, according to Avent, the option to educate yourself into a higher labor market segment is running out of steam. Rates of educational attainment have started to stabilize in many advanced countries, while the wage premium to a college or advanced degree continues to rise. Avent supposes that we can only reasonably expect a certain level of educational attainment in a society. And if so, then as the required skill level of the most advanced jobs increases beyond what most people can achieve, fewer and fewer workers will be able to perform them, driving up wages for the lucky few and down for the rest.

What would lead education to basically stop working? I can think of a few reasons, all speculative. One could be that there are still gains to be made from education, but the way our system is set up is not setting people up for the types of jobs brought about by the Digital Revolution. As mentioned above, our education system was largely brought about during the Industrial era, and is in many ways set up for certain types of work: work that mostly involves showing up and following instructions. So, if the high value jobs of the future involve different types of skills, a rethinking of education could help shift people into those labor markets and reduce inequality.

Another could be that our education system works fine and we’ve just reached a hard limit of human ability. If an education can only supplement our natural cognitive ability so much, then as the technology frontier shifts out only a small set of gifted workers will actually be able to perform work with any substantive value add.

 

But maybe we should take a step back and think about how much of a problem an abundance of labor really is. In big picture terms, we are now able to create much more output with much less labor input. In theory, this should be a great thing; it means we’re able to provide for the whole of humanity with less labor. If we have a vision of a utopian future where work is no longer required, this seems to indicate we are on the path. Of course, these predictions have been made before. In 1930 John Maynard Keynes famously thought that by our time, productivity growth would allow the average person to work on the order of a dozen hours a week. Obviously, that hasn’t happened. Why?

Many people have attempted to answer this question (for some examples, see this Tyler Cowen lecture or this David Graeber article). Avent stresses the social and political elements. Yes, we have the technical means to drastically reduce work, but not the will. There are two main challenges. One is that work is a fundamentally social enterprise: it’s how we structure our lives, how many of us find meaning, and perhaps most importantly, how we’ve decided to allocate purchasing power across society. This leads to the second challenge: convincing those who are currently thriving in the digital economy to accept a massive redistribution of income. As happened during the Industrial Revolution, we may now be in the beginning stages of a “political battle over the spoils of economic growth”.

 

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