Thursday, December 24, 2009

The Future of Labor

In 1850 about 50% of Americans made their living as farmers or farm laborers. In 2000 it was about 1%. Increases in productivity can dramatically decrease the demand for labor in a particular part of the economy. This is all for the best, but it is difficult for the displaced laborers.

I haven't seen data to support it, but the conventional wisdom is that demand for unskilled labor is in steady decline. One story to illustrate this idea is that increased automation in factories eliminates unskilled positions, but may increase the number of skilled positions in the form of an expanded technical staff who develops and maintains the automation equipment. I think that story is at best an oversimplification of reality (e.g. increasing automation may mean that a factory doesn't eliminate jobs but trades skilled labor, like machinists, for unskilled labor in the form of machine operators who only need to push some buttons and measure parts), but even if it's accurate it doesn't tell us what's happening to the number of unskilled labor positions in the overall economy.

Productivity increases in an industry lower the cost of production for that industry, meaning that society can spend less on that industry's products. That's why I spend a smaller percentage of my income on food than did my grandfather, and why fewer people are working on farms today than were in 1850. As we've gotten to be better at producing food we have saturated demand. The US produces more food than it knows how to consume. You can just as easily blame farm worker displacement on the 'low' demand for food as on high farm worker productivity.

Interestingly, increases in farm worker productivity have lowered the costs of non-farm products as well, because all that displaced farm labor was freed up to be used to produce more valuable items like cars and houses. And now we're choking on too much supply of those items as well (due to increasing productivity), and workers are again being displaced.

As Arnold Kling puts it:

"...before you tell me that we are outsourcing to China, you should remember that (a) our manufacturing output has been increasing, even though the number of people working in that sector is declining; and (b) employment in China's manufacturing sector has been shrinking, also."

So what is the future of labor, skilled and unskilled? Continual displacement from one industry to another, and a falling cost of necessities and luxuries. These are near certainties. But what else? Will the unskilled be left behind? The unskilled will always earn less and be less productive than the skilled, but I don't see any evidence that they are simply being left without work. I do see that average, middle class people are spending more of their income on paying someone else to care for their lawns, to service their cars, and to clean and repair their homes.

One day cars will be rolling off of 'lights off' manufacturing lines, with only a handful of humans monitoring entire factories. I don't believe that we'll have high unemployment, or (more to the point) a human welfare crisis when that day arrives.

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