The Corner

Me, Inc.

Megan McArdle and Arnold Kling (two bloggers who are very helpful in understanding the actual economy where we now live, by the way) make the point that life can be good when you have a comfortable job, but it’s dangerous, because it is likely to go away. Here’s Kling:

A job seeker is looking for something for a well-defined job. But the trend seems to be that if a job can be defined, it can be automated or outsourced.

The marginal product of people who need well-defined jobs is declining. The marginal product of people who can thrive in less structured environments is increasing.

The way I have put this is that workers in our economy are in a race between development of as-yet-non-commoditized cognitive capabilities on one hand, and wage reductions as capabilities are commoditized through technological advances (broadly defined) on the other. This has been going on for a long, long time, but it does seem to be speeding up — why?

I think there are several non-mutually-exclusive causes:

1.      Information technology. Moore’s Law is creating the kind of advances in information storage, processing, and transmission that automate knowledge work in the way that technologies 50–150 years ago were automating physical labor. Market-research managers, journalists, software engineers, and most of the people they know, are now being subjected to this unpleasant process. As a practical example, the Internet has automated out of existence much of the labor that journalists, librarians, many middle managers in corporations, and others used to do.  The term we normally use to describe this (when it is not happening to us) is “productivity growth.”

2.     Globalization. The decreasing relevance of large-scale war under Pax Americana combined with the economic re-emergence of Western Europe and Japan by the 1970s — and the Asian heartland more recently — have created trans-national labor pools through a mix of outsourcing, immigration, and importing labor content via shipped manufactured goods. We move the stuff, the jobs, or the people; but, in all cases, labor in Indiana increasingly competes with labor in India. Ceteris paribus, this creates upward pressure on wages for the most skilled, and downward pressure on wages for the less skilled.

3.     The market for corporate control.  Starting with the leverage-buyout movement of the 1980s, U.S., and later European, companies became more aggressive about seeking shareholder value through automation, outsourcing, and just not doing things that did not generate returns above cost of capital. The underlying causes were technology change and globalization, combined with a flexible American political economy which made the best of a worsening situation.

4.     The death of the “Detroit model”. The comatose state of the whole Big Auto, Big Steel, and related industrial supply chain is a very important example of these effects, but that was also accelerated by other contingent factors. Because of its size, this matters. American domestic production of oil peaked in 1971; oil imports doubled between 1970 and 1975; and OPEC was able to drive large price increases. This tended to disproportionately harm those industries that were the source of high-wage union jobs. Private-sector unionization has withered across the economy as the bargaining power of industrial workers declined. In what is probably inextricably both cause and effect, “non-distributive services” (finance, professional services, health care, and so on) became in 1970 a larger part of the private economy than goods-­producing industries. This shift to services tended to enhance the prospects of the cognitive elite at the expense of traditional industrial workers.

I think that what both McArdle and Kling are pointing to is less an aberration, than a return to what is a more natural situation. The comfortable post-WWII combination of high incomes plus stability is the anomaly.

Of course, what sticks out like a sore thumb in all of this is the position of public-sector workers.

Jim Manzi is CEO of Applied Predictive Technologies (APT), an applied artificial intelligence software company.


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