The Wealth of Humans, Part V: The Employment Trilemma

<Part I, Part II, Part III, Part IV>

What then does this combination of automation, an abundance of labor and the rise of social capital mean for the future? Avent suggests that we now face an employment trilemma between three factors, of which we can choose at most two: high productivity/wages; resistance to automation; and mass employment.

The reasoning is thus: Any job with the potential to have all three characteristics will become self limiting almost immediately. Jobs with high productivity inevitably limit the amount of employment, either because output quickly exceeds demand (lowering prices and thus productivity) or the high wages incentivize producers to automate the tasks (lowering employment).

We can see this in the data. Let’s look again at the BLS data on industry performance from 2004-2014. Again, for this data the measure for productivity is output per worker rather than the usual output per labor hour. I’m working on getting another data set from the BLS together that has the usual productivity measures in it, but this will have to do for now.

First, a look at the headline sectors. The size and color of each bubble are the number of employees and productivity of each sector, respectively. The x-axis is employment growth, y-axis is output growth, and the 45 degree line marks where the two are equal (above the line means output has grown faster than employment, and vice versa).

headline2

An industry that avoided the trilemma would be big and dark red, and we do see one of those: manufacturing. But the sector is also shrinking and has been for decades thanks to automation and globalization. The information sector is promising in having high productivity and resistance to automation, but again employment is shrinking. The sectors that are commonly touted as being the future of mass employment, education and health care, have low productivity. Indeed it is clear from this graph that all the large sectors and growing sectors have low productivity, as the trilemma suggests.

What about mining? That has high productivity and rapid employment growth, after all. Could this be a future source of mass employment? Well, consider again that as employment increases, so does output, which will push down oil and gas prices (the main driver of the job increases). This is already happening.

Let’s dive a little deeper into these industries:

First, here are the top 10 industries in terms of employment growth from 2004-2014:

Industry
1 Support activities for mining
2 Other information services
3 Individual and family services
4 Management, scientific, and technical consulting services
5 Home health care services
6 Oil and gas extraction
7 Metal ore mining
8 Promoters of events, and agents and managers
9 Outpatient care centers
10 Computer systems design and related services

And the top 10 in terms of output growth:

Industry
1 Wireless telecommunications carriers (except satellite)
2 Other information services
3 Federal enterprises except the Postal Service and electric utilities
4 Other transportation equipment manufacturing
5 Data processing, hosting, and related services
6 Railroad rolling stock manufacturing
7 Facilities support services
8 Computer and peripheral equipment manufacturing
9 Computer systems design and related services
10 Medical equipment and supplies manufacturing

What’s the intersection of the two, i.e. high output growth and high employment growth?

Industry
1 Other information services
2 Computer systems design and related services

Let’s move to our productivity measure. Here’s the top 10:

Industry
1 Funds, trusts, and other financial vehicles
2 Lessors of nonfinancial intangible assets (except copyrighted works)
3 Petroleum and coal products manufacturing
4 Tobacco manufacturing
5 Wireless telecommunications carriers (except satellite)
6 Grain and oilseed milling
7 Motor vehicle manufacturing
8 Basic chemical manufacturing
9 Oil and gas extraction
10 Cable and other subscription programming

A lot of manufacturing is very productive, but we know those sectors are largely shrinking and highly subject to automation.

And now the top 10 in terms of total employment as of 2014:

Industry
1 Food services and drinking places
2 Administrative and support services
3 Local government educational services – compensation
4 Retail, except motor vehicle and parts dealers, food and beverage stores, and general merchandise stores
5 Ambulatory health care services
6 Hospitals; private
7 Local government excluding enterprises, educational services, and hospitals – compensation
8 Employment services
9 Social assistance
10 Nursing and residential care facilities

Are there any industries with high productivity and high employment growth? Only one:

Industry
1 Oil and gas extraction

Indeed, this is the only of the top 10 productive industries to show any employment growth. But alas, as mentioned previously this industry has already begun shrinking due to the collapse in oil prices in 2015, brought about because of the increased supply shock.

And that’s it for intersections! There are no growing industries with mass employment and high productivity. The industries with high productivity tend to be shrinking, and large sources of employment have low productivity. There is some promise, perhaps, in sectors with high employment and high output growth, but again the nature of high productivity probably means those employment gains can’t be sustained. The trilemma seems to be well supported, from this reading of the evidence.

 

 

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