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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Quick Thought on Job Destruction and Job Creation



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Are we being too pessimistic about the future labor market prospects of human workers in a world in which the pace of automation is accelerating? I tend to think that the answer is yes, provided we allow for the emergence of new business models that give rise to new modes of consumption, which in turn will create new opportunities for human endeavor. This is why, as Brink Lindsey often argues, most recently in an interview with Jim Pethokoukis, deregulation is more important than ever: regulatory accumulation stymies the trial-and-error emergence of new business models, which in turn drives productivity growth as successful new business models spread and older models either adapt to successfully compete or fade away. The classic example of job-creating innovation is the rise of the automobile. Though automobiles displaced a wide array of other transportation technologies, it gave rise to a new universe of economic opportunities as new business models emerged around it. The rise of the smartphone has stimulated new business models and new modes of consumption, and as software eats the world, the pace of small-scale, incremental improvements to the consumer experience has picked up considerably. To some extent, however, software-enabled services are able to improve the consumer experience at a rapid clip because they are spared the friction of having to constantly train and retrain a less- or semi-skilled consumer-facing workforce, hence the anxieties about the future of work.

Farhad Manjoo offered an illuminating discussion of these larger issues in a column on Instacart, a new grocery delivery service that eschews warehouses and fleets of trucks (think of AmazonFresh, FreshDirect, and Peapod) in favor of a peer-to-peer model in which customers hire “personal shoppers” to shop for them at local grocery stores and then deliver the groceries to their home with their own automobiles. Brilliantly, Instacart doesn’t pit itself against existing brick-and-mortar grocery stores. If anything, it is their ally in their efforts to compete with services like AmazonFresh, which aim to displace brick-and-mortar grocery stores by offering lower prices or greater convenience, and which cut their costs by locating their warehouses in relatively low-cost areas, spending less on lighting than grocery stores that aim to create an inviting environment, etc. The Instacart insight is that there is a large market of affluent, price-insensitive customers who are disinclined to wait several hours for their AmazonFresh delivery, and who are happy to pay a substantial mark-up for speed, convenience, and variety. And the fact that Instacart doesn’t have the same upfront start-up costs as AmazonFresh et al. means that it can spread to new markets faster, bringing to mind the concept of “big-bang disruption.” It could be that what we thought was the wave of the future — all groceries will be delivered from huge warehouses on the outskirts of cities — will wind up as just one of many niches in a diverse grocery economy. This in turn has implications for the labor market, as Manjoo writes:

Instacart’s success suggests that rather than simply automate workers out of their jobs, technology might create new labor opportunities for people who haven’t acquired formal credentials or skills in an economy where low- and medium-skilled workers face a bleak outlook. Like the ride-sharing service Uber, Instacart creates work by connecting affluent customers who have more money than time with part-time workers who have the opposite problem — lots of time, not enough money.

To his credit, Manjoo provides a contrary view, and he coaxes a telling observation from Instacart’s 27-year-old founder, Apoorva Mehta:

Lawrence F. Katz, an economist at Harvard who studies technology and labor, offered a few reasons to stifle excessive optimism about Instacart’s model. First, technology may yet one day render Instacart’s shoppers obsolete. Drones could pick our groceries, after all.

Another possibility, he said, is that wages will be bid down as more people compete to become Instacart shoppers. Or, as the company’s software becomes more sophisticated, it could squeeze more efficiency out of workers; they may end up doing more work and not earn any more money for it.

A third problem is the lack of job security and benefits, which were once considered standard features of middle-class jobs. But Mr. Mehta says he doesn’t see that shifting. “The advantage to this model is that you choose your own hours,” he said. More corporate control over work habits “is something that would drive a lot of people away. The independent contractor model — I’m not sure that’s going to change.”

Katz raises the familiar anxiety, which is that the jobs created by innovative technologies will soon fall to the next round of innovative technologies. It is also true, however, that Katz’s scenario implies a world in which the cost of drone technology has plummeted, thus reducing the cost of a wide array of goods and services that now depend on expensive infrastructure and labor. If excessive optimism about Instacart’s model is misplaced, it is misplaced because we’re not being optimistic enough about future advances in drone technology, which have the potential to greatly increase real or effective income even as they depress wages for those who compete with drones. (The deeper concern is that wealth in this world will accrue to the owners of the drones, or the underlying intellectual property embedded within them.)

Mehta, meanwhile, speaks to how workers might adapt to this new environment. Many of Instacart’s personal shoppers are, according to Manjoo, college students and middle-aged mothers looking for flexible work. One wonders if jobs like being a personal shopper for Instacart might work because they are compatible with a lifelong learning, in which people continuously upgrade their skills.

Elsewhere, Matt MacFarland reports that, according to data provided by Uber, the median wage for UberX drivers working at least 40 hours a week in is $90,766 a year in New York city and $74,191 in San Francisco $74,191. The problem, however, is that as MacFarland goes on to observe in the next paragraph, the numbers provided by Uber don’t factor in the costs of owning and operating a vehicle, including fuel costs. Among the UberX drivers I’ve encountered, I’m told of the ways in which Uber’s consumer-friendly practices, including its openness to steady increases in the supply of drivers, have squeezed net income over time, and so my sense is that MacFarland is offering too sanguine a picture, at least with regards to take-home pay. In New York city, UberX has a minimum fare of $12, a base fare of $6, and a charge of $0.75 per minute at speeds of less than 11 miles per hour and $3 per mile at speeds above 11 miles per hour. The vehicles Uber has approved for use for its UberX program tend to be fairly fuel efficient, yet one assumes that drivers are driving quite a lot to earn a substantial amount, and much of this driving is between pick-ups. One of the many reasons some drivers prefer to drive for Uber than for traditional taxi companies is that payment is guaranteed, and so drivers don’t face the risk of being stiffed after traveling to a peripheral locale. Yet this also means that there is an increased risk that you’ll be driving with an empty vehicle for some stretch of time. None of this is to suggest that driving for UberX is a bad deal. Yet if the median wage reported by Uber for its New York city and San Francisco UberX drivers were close to their net income, I suspect that we’d see a much larger and faster exodus of workers from traditional taxi services to UberX.

It has been widely-reported that Uber intends to move to self-driving vehicles as quickly as it can, which tends to reinforce Katz’s point. As Stephen Smith of Next City has observed, however, it will be a long time before self-driving cars can successfully navigate densely-populated cities, as the very fact that they are safe for pedestrians suggests that they will be crippled by routine jaywalking. And just as Instacart demonstrated that AmazonFresh wasn’t the last word in business model innovation in the grocery space, one can imagine new labor-intensive business models emerging as drivers are let go. In his New York Times Magazine article on the use of technology in public spaces, Mark Oppenheimer reported “that people like hanging out in public more than they used to, and those who most like hanging out are people using their phones.” Technology appears to have made public spaces more inviting, which in turn has created new opportunities for vendors, buskers, and others who make money by attracting a crowd.

In the latest issue of City Journal, John McGinnis, a professor at Northwestern Law School, describes how advances in machine intelligence “will create new competition in the legal profession and reduce the incomes of many lawyers.” And his conclusion tentatively suggests that the ultimate result of this development might be “a decline in lawyers’ social influence”:

Since the birth of the modern regulatory state and social democracy, lawyers have had incentives to increase and revise legislative mandates; they became the technocrats of regulation and redistribution. The more a nation intervenes in the free market, the more in compliance costs and transfer payments that lawyers can expect to receive. As a result, lawyers don’t tend to be strong proponents of economic liberty or even of a stable rule of law. Their interest frequently lies in legal complexity and the uncertainty it brings.

The decline of lawyers may therefore prove a boon to the rule of law and to market norms. Computational innovators benefit from capitalism’s process of creative destruction; their new applications transform industry after industry. Their success lies with a stable rule of law and relatively light regulation. True, once successful, innovators become incumbents and may seek to use government to hamstring new entrants. But the dynamism of technological acceleration will make it difficult even for big government to hold back waves of new “disruptions.”

So we come full circle. If, as Brink Lindsey suggests, regulatory accumulation limits our ability to respond creatively to technological change, the wave of creative destruction that is already transforming the legal industry might make us better able to navigate the larger current.

 



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