The Software Society

How digital technology is changing our culture and economy

Where are the jobs?

The Federal Reserve recently made comments suggesting it is cautiously optimistic about the economy and would begin reducing its bond-buying program when certain goals are met. The Wall Street Journal in an article “Slow-Motion U.S. Recovery Searches for Second Gear,” June 24, 2013, authored by Brenda Cronin, sounded a similar tone of cautious optimism.

The caution was reflected in cited statistics: “The U.S. has 2.4 million fewer jobs today than when the recession began. Adjusting for population growth, it will take more than nine years at the current rate of hiring to return to prerecession employment levels, according to estimates from the Brookings Institution.” Other statistics listed in the article revealed that business investment in equipment and software rose by 35.2% and industrial production (manufacturing) rose by 20.2% during the recovery starting in 2009, but private industry jobs rose only 5.4%, a disconcerting mismatch.

These statistics support the concern expressed in The Software Society and an earlier posting in this blog that industry is choosing to replace jobs through automation rather than hiring workers. Statistics not cited in the article suggest that even the few jobs being created represent workers taking jobs at lower salaries. The Bureau of Labor Statistics reported on June 5 that, in the first quarter, while nonfarm business sector labor productivity increased at a 0.5% annual rate, there was a 3.8% decrease in hourly compensation. The report noted, “The decline in hourly compensation is the largest in the series, which begins in 1947.” Median income has also dropped more than 5% during the “recovery.”

Government policies indirectly encourage “hiring computers” over hiring people. The low interest rates artificially created by the Federal Reserve make it inexpensive to borrow to finance automation. Government requirements such as payroll taxes and requiring health care insurance increase the cost of employees. It seems rational for individual companies to minimize headcount, but, as dropping income reduces consumption, the economy will eventually contract, affecting all companies.

Over-automation is reminiscent of the subprime mortgage debacle, when all the banks assumed that they had to make poor loans because all their competitors were doing it. The danger in most companies embracing over-automation is perhaps less obvious, since “productivity” has historically been good for the economy. But, nevertheless, there is no rational argument that the process can’t go too far. In their 2012 book, Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, MIT professor Erik Brynjolfsson and Andrew McAfee highlight this issue.

Government action is required to break the downward spiral driven by computers eliminating jobs. In The Software Society, I suggested an “automation tax” to counter government policies that indirectly encourage hiring computers rather than people. Others will have alternative solutions, but we must admit the problem before there can be serious discussion.

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