14 08 2013
The Low Quality of New Jobs Threatens the Economy
In The Software Society and in this blog (Where are the jobs?), I’ve argued that celebrating each quarter that we’ve added a few jobs misses the issue, noting that the quality of jobs and median income have continued to decline. I argued that “productivity” has evolved into “over-automation,” a preference by companies to “hire” computers rather than people. Increasingly, the jobs being eliminated by technology impact the economically and socially critical middle class at a rate faster than the workforce can adapt. Economist Joseph Schumpeter’s “creative destruction” caused by technology advances now is doing more destruction than creation.
The Wall Street Journal on August 10 discussed some statistics that emphasize this trend in “Roots of the Living Wage Wave.” The article said, “Economic changes of the past decade have led to a decline across the country in well-paying jobs, such as those in manufacturing, and an increase in jobs that pay less, such as those in hotels and food services…Positions are increasingly being filled not with the young and inexperienced, but older and more skilled workers who can’t find other jobs.” The decline in average buying power implied by this trend must eventually lead to an overall decline in sales and profits for all companies. Lower wages today may temporarily boost profits, but the long-term macroeconomic effect will be a decline in GNP. A company can’t maintain revenues without buyers.
Unfortunately, the “living-wage” solution discussed in the article is a trend toward local governments requiring a higher minimum wage; the Washington DC city council, for example, has taken such a step. By raising the minimum wage, one could argue that low-paying jobs can simply be turned into higher-paying jobs. The result in DC is the usual unintended consequences when a government tries to set prices or wages. For example, Walgreens is threatening to open fewer stores (and thus create fewer jobs) in the city.
The better solution is to restore classical middle-class jobs so that there is less competition for the lower-paying jobs, and so that employers must pay more than the minimum wage to get good employees for those jobs, letting Adam Smith’s “invisible hand” create a balance. Government policies must encourage using technology to give employees better tools rather than using technology to replace the employees. Today’s government policies promote the opposite—preference for machines over people through costs and obligations for employees such as payroll taxes and health insurance while driving interest rates to lows that make capital investments in machines cheaper.
In The Software Society, I outlined several solutions that would help tip the scale toward the human solution, including an approach based on the corporate tax system. This isn’t the place to argue the details, but the core problem of over-automation must be addressed if there is to be a healthy long-term solution to today’s worldwide economic malaise.