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There’s a good article in the NY Times about long term unemployment and how it is likely to persist for years.

Here’s a chart from the article:

I’ve been arguing here that technological advance is the primary factor underlying this trend, and that it is likely to accelerate. Economists are predicting that it will take years for the job market to recover—but if technology continues to accelerate one has to wonder if it will ever really recover. Perhaps we are at the threshold of a new reality.

As an economist quoted in the article points out:

“American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics. “You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.”

There’s also a shorter article in Yahoo Finance on the unemployment problem.

I think one issue is our fixation on GDP numbers as a way to measure economic growth. A number of economists have pointed out the GDP is really not a good way to measure overall prosperity, and I think this is becoming increasingly true. GDP can continue to grow for some time even as the fruits of that growth are increasingly concentrated in the hands of just a few people. Ultimately, though, I think that will become unsustainable.

James Anderson at Miyanville displays the same graph (from CalculatedRisk) I used in my last post on jobless recoveries getting longer and notes that advancing technology is underlying the trend. He gives the example of UPS which has recently announced the elimination of 1800 white collar jobs specifically due to improving automation technology:

Not to pick on a great company, but here’s a typical example. UPS (UPS) last month guided higher fourth-quarter earnings…, and also said that it planned to lay off 1,800 people in management and administrative positions in 2010. Here is the operative quote: “By leveraging technology and the management strengths of its people, UPS will reduce the number of Districts and Regions in its US small package operation.” That technology was not faster trucks, it was better computer systems.

Anderson goes on to wonder how long it will take the job market to recover and speculates 2016. But, as I’ve pointed out here previously, technology is not going to stop advancing and by 2016 there will be many more jobs subject to both automation and outsourcing than is the case today. Full employment is a moving target that is going to get harder and harder to hit.

Steve Roth at Asymptosis has a graph (originally from Calculated Risk) showing how jobless recoveries are getting longer and longer—in fact quite dramatically so. I think the primary reason for this is advancing job automation technology (see the post below), and I think there’s no reason at all to expect that this trend won’t continue and quite possibly accelerate in the future. Mainstream economists, of course, are oblivious—and by the time they start to see reality, things may get truly scary.

We’ve been hearing more about “jobless recoveries” over the years, but it’s pretty profound how rapidly the trend is increasing.

Months to Return to Full Employment
1981:  28
1990:  31
2001:  47
2007:  ??

(cross posted on HuffingtonPost)

The official unemployment rate remains at 10%, and economists are projecting that the job market will take years to recover. Is it possible that, beyond the obvious impact of the financial crisis, there is another largely unacknowledged factor contributing significantly to the dismal unemployment situation?

I believe that there is, and I argue that case in my new book, The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. In the past two decades, information technology has advanced dramatically and is increasingly being employed to eliminate jobs of all types. Job automation technology, together with globalization, has been the primary force behind the stagnant wages and diminished opportunities for less educated workers we’ve seen in recent years.

Because information technology accelerates (roughly doubling every two years), rather than increasing at a constant rate, we can expect that the coming years and decades will see even more dramatic progress. In the future, automation is no longer going to be something that primarily impacts low wage, uneducated workers. Technologies such as artificial intelligence, machine learning and software automation applications will increasingly enable computers to do jobs that require significant training and education. College graduates who take “knowledge worker” jobs will find themselves threatened not only by low-wage offshore competitors but also by machines and software algorithms that can perform sophisticated analysis and decision making.

At the same time, continuing progress in manufacturing automation and the introduction of advanced commercial robots will continue to diminish opportunities for lower skill workers. Technological progress is relentless, and machines and computers will eventually approach the point where they will match or exceed the average worker’s ability to perform most routine work tasks. The result is likely to be structural unemployment that ultimately impacts the workforce at virtually all levels — from workers without high school diplomas to those who hold graduate degrees.

Most mainstream economists dismiss this scenario. They continue to believe that the economy will restructure and create adequate numbers of jobs in the long run. Historically this has, in fact, been the case. Millions of jobs were eliminated in agriculture when mechanized farm equipment was introduced. That resulted in a migration to the manufacturing sector. Likewise, manufacturing automation and globalization has resulted in the transition to a largely service-based economy in the United States and other developed countries.

In the past, technology has typically impacted one employment sector at a time, leaving or creating other areas for workers to transition into. That’s unlikely to be the case this time around. Accelerating information technology will offer a completely unprecedented level of work capability — and it can be applied virtually everywhere. As technology providers compete and innovate, automation will certainly become more affordable and more accessible to even the smallest businesses. If a business can save money through automation, competitive pressures will leave it no choice but to do so. While there will certainly continue to be jobs that cannot be automated, the reality is that a very large percentage of the 140 million or so workers in the United States are employed in jobs that are fundamentally routine and repetitive in nature. Enormous numbers of these jobs are going to be vaporized by technology in the coming decades, and because that technology will be available across the board, there is really very little reason to believe that entirely new employment sectors capable of absorbing massive numbers of workers will be created.

The problem is not just one of unemployment. In my book, I use a thought experiment or mental simulation based on “lights in a tunnel” to illustrate the overall economic impact of relentlessly advancing job automation technology. As unemployment increases and wages fall, discretionary consumer spending and confidence will likewise plummet. The result will be a downward economic spiral that will be very difficult to arrest. Beyond some threshold, the business models of mass market industries would be threatened as there would simply be too few viable consumers to purchase their products. We would also likely see unprecedented levels of debt defaults, plunging asset values and financial system disruptions that might easily exceed what has so far occurred in the current crisis.

I believe that the impact of accelerating automation technology is likely to present an enormous economic, social and political challenge over the next ten to twenty years and beyond. Yet, the issue is simply not on the radar. In The Lights in the Tunnel, I suggest some possible reforms that might address the issue, but the reality is that the problem is potentially so disruptive that even progressive thinkers would probably find some of my ideas extreme. Conservatives will likely view my proposals as unthinkable. Nonetheless, if we are ultimately destined to progress into a world where traditional jobs are simply unavailable and where a huge percentage of the population has little in the way of marketable skills or opportunity to earn an income, there will be few if any viable solutions that would not be perceived as radical.

Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future.

Brad Feld, a prominent venture capitalist and the co-founder of several VC firms, has posted a review of The Lights in the Tunnel on his blog.

As Brad points out in his review, the book is roughly divided into two parts. The first part argues that automation technology is ultimately going to advance to the point where most average workers will be unable to find employment within their capabilities. Brad found a lot to agree with in this first part of the book:

Ford does a good job of spending the first half of this book making the case for this.  He draws nicely from the notion of a technological singularity (which many of us are now calling simple “the singularity” for convenience), explains why mainstream economists (and the notion of econometrics in general) are basically historians rather than effective predictors of the future, does a nice job weaving the Luddite Fallacy into the mix,  makes a compelling argument about China’s role in this he calls the “China Fallacy”, and wraps it up by revisiting a variety of conventional views of the future while asking “do we really believe they are going to play out this way?” (answer = no).

The second part of the book proposes some fairly radical ideas about how we might adapt capitalism to the new reality if jobs are in fact going to disappear for most people. Brad found these ideas very difficult to accept, writing “Sometime during reading this stuff my brain exploded and I had to go take the dogs for another walk. ”

I’ve found that to be a fairly common reaction to the book. Many people see the logic in my argument about where automation technology is going to ultimately lead, but very few people are ready to really think about the solutions—because there probably are not any solutions that aren’t fairly radical.

If you accept the basic premise that:

A. At some point in the future, automation technology will advance to the point where MOST  people are essentially unemployable.

then,

B. Is it possible to sustain consumer spending, mass market business models, economic growth—and quite possibly democracy and civil order—without some form of radical intervention or reform?

I’ve found that most people who try to address this start by denying the premise: we’ll never have massive unemployment due to technology, so it won’t be a problem. Ok, but can you sustain capitalism without reform if you accept the premise?

Remember that technology would not stop advancing, so we could reasonably expect that over time, a smaller and smaller fraction of the population would have marketable skills. If we take things to the extreme, the advent of genuinely intelligent machines could conceivably vaporize almost the entire job market. Advanced virtual reality technology—perhaps linking directly into your brain—might someday even eliminate opportunities for human celebrities and entertainers. Who could compete with that kind of digital fantasy?

If most people don’t have jobs, where does consumer spending come from? What drives the economy? Why would automated production continue if there is no one to buy the output? Will automation make everything so cheap that it won’t matter if people have virtually no incomes? I don’t buy that argument.

One person who believes everything will work out without any major reform is Robin Hanson, a libertarian economist at George Mason University. Hanson argues that intelligent machines would eliminate nearly all jobs but would also cause productivity and economic growth to increase exponentially—driving up interest rates and returns on productive assets to incredible levels.  He brushes aside the obvious reality that most people don’t own much and suggests that the returns would be so high that even people who owned only tiny slices of the pie would have investment incomes sufficient to support themselves.

I think Dr. Hanson must be smoking some really weird and potent libertarian stuff. I pointed this out in a response to his paper on the economics of intelligent machines.

Aside from that idea, is there another way to accept the premise and have a reasonably prosperous and civil society without radical reform (such as some type of  guaranteed income funded by taxation)? If you have any ideas please post in the comments….

Aaron Saenz at SingularityHub has a review of my new book The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future.

You can read the full review here.

This was originally posted on Angry Bear.

The Mythology of the Future Job Market

Angry Bear recently picked up an article by Michael Lind at Salon on the jobs of tomorrow. The story notes that advancing job automation technology is going to be the primary force that will shape the future job market. That’s something that I have also been talking about here.

Lind’s article then goes on to do a pretty good job of fleshing out the conventional wisdom on where jobs are going to come from in the future:

The most numerous and stable jobs of tomorrow will be those that cannot be offshored, because they must be performed on U.S. soil, and also cannot be automated, either because they require a high degree of creativity or because they rely on the human touch in face-to-face interactions. The latter are sometimes called “proximity services” and they include the fastest-growing occupations, healthcare and education.

So we are led to expect that, over time, the bulk of the workforce is going to migrate into jobs that require creativity or innovation, or jobs that depend on uniquely human traits or talents. Furthermore, these new jobs are going to require that any innovation, creativity or personal attention occur pretty much while actually holding onto your customer’s hand—so that the job can’t be offshored. Is that really a likely scenario?

The first thing to note is that the two sectors singled out as being promising—healthcare and education—are by no means exempt from automation. Specific healthcare tasks are likely to be automated, while decision making and patient monitoring may migrate increasingly into expert systems.

Automation is clearly going to be a major factor in specialized, vocational-type education and training. Today in California, you can get your real estate license completely online. You won’t encounter an actual human being until you run into a proctor at the licensing exam. A similar thing has happened with the traffic school programs that drivers have to complete after getting a ticket. If training can be offered online, it will be. I see no reason why something similar won’t eventually occur in college education, especially since new graduates have been seeing a lower financial return on their investment. It seems likely that if the credential is worth less, many people will gravitate toward less expensive, automated online learning.

The biggest problem with the conventional wisdom is the number of jobs we are talking about. In the U.S. we have a workforce of around 140 million workers. The majority of these jobs are basically routine and repetitive in nature. At a minimum, tens of millions of jobs will be subject to automation, self-service technologies or offshoring. The automation process will never stop advancing: computer hardware and, perhaps most importantly, software will continue to relentlessly improve. Therefore, simply upgrading worker skills is not going to be a long-term solution; automation will eventually (and perhaps rapidly) catch up. If you are willing to look far enough into the future, the number of impacted jobs is potentially staggering.

Can we really expect that such an enormous number of these supposedly safe creative/“proximity service” jobs are going to materialize? And even if they do appear, can we reasonably anticipate that millions of workers who are now employed as cashiers, accounting clerks, materials movers—or even as college-educated “Dilberts”—are going to be able to successfully transition into those jobs?

Historically, the job market has always looked like a pyramid in terms of worker skills and capabilities. At the top, a relatively small number of highly skilled professionals and entrepreneurs have been responsible for most creativity and innovation. The vast majority of the workforce has always been engaged in work that is fundamentally routine and repetitive. As various sectors have mechanized or automated, workers have transitioned from routine jobs in one sector to routine jobs in another. In many cases, skills have been upgraded, but the work has nonetheless remained routine in nature. So, historically, there has been a reasonable match between the types of work required by the economy and the capabilities of the available workforce.

Now, as it becomes clear that automation is going to ultimately consume the entire base of the job skills pyramid, the conventional wisdom is that we are going to somehow cram everyone into the very top. And even if we somehow manage to do that, the jobs will be highly susceptible to offshoring, so we also have to require that the jobs be somehow anchored locally. I think this is somewhat analogous to having the agricultural sector mechanize and then expecting that everyone will get a job driving a tractor. The numbers don’t work. The problem with the conventional wisdom is that it underestimates the long-term impact of automation, and it expects too much in the way of occupational acrobatics from the average worker.

Yet another problem is that even if all these creative jobs materialize, the result would likely be far from optimal. Jobs that rely heavily on creativity, talent or unique personality traits (think authors, actors, musicians, commission sales people) very often have a power law income distribution. In other words, a few people do phenomenally well, while nearly everyone else struggles to survive. Even if vast numbers of workers could successfully migrate into these more creative areas (and I doubt that), it would probably do very little to slow down our drive toward ever-increasing income inequality.

The bottom line is that, at some point, we are all going to have to wake up to reality. It will be a long, arduous trek across the wasteland of denial, but someday all of us will have to start thinking the unthinkable and saying the unsayable: The jobs of the future…are not going to be there. Jobs are disappearing, and we will have to somehow adapt to that. In the long run, the solution will likely have to involve some type of job sharing, and it will also have to incorporate income supplementation for most people. It’s almost impossible to imagine how that will happen in a world that includes Fox News, but I think it will nonetheless have to happen. Perhaps the chances of it happening will improve when conservatives and business owners begin to recognize that workers and consumers are basically the same people and that the vast majority of consumer spending is supported by wage income.

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Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future and has a blog at econfuture.wordpress.com. 

The Wall Street Journal’s Real Time Economics blog has a post on A Lost Decade for Jobs:

The U.S. now produces fewer private sector jobs than it did a decade ago. This been the case since August, and it’s getting worse. In October, private sector companies employed 108.401 million U.S. workers, a million fewer than in October 1999, when they employed 109.487 million. Not since the Labor Department began tracking payroll employment in 1939 has there been such a stretch with no net job gains.

The WSJ post, as one might expect, doesn’t express any concern about of the type of structural unemployment I’ve been talking about here. It does briefly note that productivity has increased, and even the Journal seems a little less than enthusiastic about the conventional wisdom that increasing labor productivity will always lead to greater prosperity:

The other answer is that the U.S. has enjoyed a big burst of productivity growth during this stretch — which means firms are producing more with fewer workers. In the long-run this is supposed to be a good development because it leads to profit and income gains. But the short-term costs are looking increasingly more debilitating.

‘As I’ve pointed out previously, labor-saving technologies are going to continue to advance while we are all waiting for the job market to recover. High employment will, of course, result in weak consumer confidence, and that may result in job automation being one of the few truly attractive new technology investment sectors. Hence my concern that we may be looking at beginning of significant structural unemployment—with no real end in sight.  The danger is that we might be looking at a labor market which is fundamentally losing its ability to spring back.