Hiding from the Computers Part 4: Time to Get Skeptical on Lump of Labour Skeptics?

A decade or so ago, any suggestion that technology could be a major driver of inequality, let alone unemployment, would generally have been met with contempt by your average economist. Anyone questioning the beneficence of technology would have been accused of succumbing to the ‘lump of labour‘ fallacy. Simplistically, the lump of labour fallacy refers to the belief that there exists a fixed pot of labour; accordingly, if a computer eats some of the pot, there is less left for everyone else.

As an example, here is Paul Krugman skewering the lump of labour fallacy back in 2003:

As the derisive name suggests (the lump of labor fallacy), it’s an idea economists view with contempt, yet the fallacy makes a comeback whenever the economy is sluggish.

And for decades, The Economist magazine, a generally intelligent supporter of free markets and free trade—by which I mean it has enough intellectual curiosity to explore counterarguments—froths at the mouth like a rabid Tea Party activist whenever the idea of a fixed supply of labour is raised.

In a very funny parody, Tom Walker of New York’s Monthly Review (who must have too much time on his hands) stitched together sentences containing the words “lump of labour” from more than  a decade’s worth of The Economist to create this article here. It perfectly captures the magazine’s angry but condescending tone whenever the issue is raised.

Walker was at the time writing in defence of shorter working hours in the face of rising unemployment, a somewhat tangental topic to where we are going with the this post (although I will touch on it in my next), but the point I think he was trying to make was simple: if you believe there is any limit on the amount of work available, The Economist thinks you are an idiot.

But then a strange thing happened. Some mainstream economists started to venture the opinion that technology was making the labour market act weird. They hadn’t quite got to the stage of taking the lump of labour seriously, but they were now prepared to admit that technological progress was a two-edged sword—at least for some workers.

As with most intellectual shifts, the new thinking has been rather messy, occasionally self-contradictory and, of course, hotly disputed. But out of it, we can find some seminal academic papers that deepen our understanding of what is going on. I will highlight one to begin with: the 2006 paper “The Polarization of the U.S. Labor Market,” by David Autor, Lawrence Katz and Melissa Kearney,.

Autor et al had noticed that the U.S. labour market was changing shape under the influence of the awkward acronym SBTC (aka skills-biased technical change). Within the skills-based distribution of jobs, employment was growing at the top end, it was growing at the bottom end, but it was hollowing out in the middle. Furthermore, back at the top end, wages were both rising but also diverging; in other words, inequality among the wealthy, so beautifully spoofed here by The Onion, was actually true. In contrast, no such divergence in fortunes was seen at the bottom.

Accordingly, the new trend the paper tracked was not one that was ‘lifting-all-boats’ technology-led economic growth. Rather, the boats in the Autor et al paper are being thrown all over the place—with some capsizing.

Now, typical of its type, the paper contains an empirical bit looking at the labour-market data, and then a model which tries to make sense of what is going on. In the model, jobs sit in a grid of attributes: work is cognitive or manual, but it is also routine or non-routine. Of course, such a model removes the grey scale of real  life, but that is not important for our basic understanding.

Autor and his co-authors then go on, somewhat confusingly, to simplify the workforce even further into three categories rather than four: 1) abstract, which are the cognitive, non-routine jobs; 2) routine, which are both routine cognitive and routine manual jobs; and finally 3) manual, which means manual non-routine jobs. An earlier paper, in which Autor was again an author, has a useful table showing what is going on in the grid:

Job Polarization Autor jpeg

Moving further into their model, workers are divided into those with tertiary education and those only educated up to high school. The latter can’t perform abstract tasks but can switch between routine and manual tasks. Finally, technology is seen as having two impacts: it mostly substitutes for routine tasks, but it mostly complements for abstract tasks—that is makes the abstract workers more productive.

The word compliment is key, since the complimentarity between technology and routine cognitive and manual labour has been the driver of the explosive growth in living standards since the industrial revolution. Ned Ludd was wrong to smash up two stocking frames in 1779 because his labour, with the course of time, could always be paired with new technology that required a routine cognitive or routine manual human compliment.

As Gregory Clark’s book “A Farewell to Arms” demonstrates, this was a win-win situation for the working class. As a result, workers were more ‘pulled’ out of the countryside and into the cities by attractive relative wages than they were pushed out by evil property owners enclosing their land. And while Marx and Engels may dispute the cause of the migration, they applauded the result; from the Communist Manifesto:

The bourgeoisie has subjected the country to the rule of the towns. It has created enormous cities, has greatly increased the urban population as compared with the rural, and has thus rescued a considerable part of the population from the idiocy of rural life.

At this point, I must stress that Autor has taken every opportunity to distance himself from lump of labour advocates since coming out with the polarisation thesis. From a 201o paper (here):

This ‘lump of labor fallacy’—positing that there is a fixed amount of labor to be done so that increased labor productivity reduces employment—is intuitively appealing and demonstrably false. Technological improvements create new goods and services, shifting workers from older to new activities. Higher productivity raises incomes, increasing demand for labor throughout the economy. Hence, in the long run technological progress affects the composition of jobs not the number of jobs…..

…..It is not fallacious, however, to posit that technological advance creates winners and losers.

And in an op-ed piece in the 24 August 2013 New York Times:

Computerization has therefore fostered a polarization of employment, with job growth concentrated in both the highest- and lowest-paid occupations, while jobs in the middle have declined. Surprisingly, overall employment rates have largely been unaffected in states and cities undergoing this rapid polarization. Rather, as employment in routine jobs has ebbed, employment has risen both in high-wage managerial, professional and technical occupations and in low-wage, in-person service occupations.

Hmmm. It is true that jobs have risen in the high-end cognitive occupations, but the rise in low-wage manual occupation job growth has been minimal, and far too small to absorb the displaced middle.We can see these numbers in a 2013 note from the Federal Reserve Bank of New York by Albanesi et al. Indeed, the job polarisation highlighted by Autor is impacting on the aggregate labour market beyond just relative wages. First, both cognitive routine and manual routine jobs have been in structural decline:

Breakdown of Employment Shares jpeg

And the routine jobs are the first to go in recessions and the last to come back:

Changes in Unemployment jpeg

And from my previous posts, this chart of labour participation shows the net effect of all these moving parts. In a modern state like the U.S., the unemployed hide where they can, seeking refuge, for example, in disability claims, so the labour participation rate goes down.

FRED Civilian Labor Force Participation Rate

Autor’s faith in the inability of technology to decrease jobs is thus stymied by the data—at least over the last decade. In his original 2006 article, Autor’s model predicted that the increased productivity of non-routine cognitive jobs would lead to income effects (greater wealth for the cognitive elite) that would in turn create higher demand for non-routine manual jobs.

Nonetheless, this is an empirical observation from old data not a truth that comes out of the model. What Autor admits is that most cognitive routine and manual routine workers can’t price their labour at a sufficiently low enough rate to compete with computers. Accordingly, they have to find refuge in work that is not in direct competition with computers (or technology broadly defined).

Looking at the Albanesi charts, however, the size of the non-routine manual job category is far smaller than the routine cognitive and manual job ones. So we have a huge problem of absorption. Nonetheless, to a classical economist, a price exists at which the market will clear. But the dirty little secret of the lump of labour skeptics is that the market may clear at a price that doesn’t provide a liveable wage (as per the Boxer and Napoleon example in Part 2).

Further, under the Autor model, income effects associated with the ever-prospering non-routine cognitive elite could compensate for the cut-throat competition within the non-routine manual sector. As the geeks’ wages rise, the opportunity cost of doing their own washing rather than cranking out computer code grows ever steeper. In the language of economists, we have income elasticity of demand effects (richer cognitive elite) for non-routine manual labour coupled with price elasticity emend effects (lower manual labour wages making non-routine manual workers more attractive to hire).

I would call this the ‘Downton Abbey economy’: A return to an Edwardian-style wealthy elite employing an army of non-cognitives. But how many workers would a modern-day Lord Grantham need to employ to run Downton Abbey in the requisite style? I would guess fewer than a fifth given the fact that technology has eliminated most of the routine jobs that all the scullery maids and man servants used to perform. Yet Autor remains resolutely upbeat. In the New York Times op-ed piece he says this.

The outlook for workers who haven’t finished college is uncertain, but not devoid of hope. There will be job opportunities in middle-skill jobs, but not in the traditional blue-collar production and white-collar office jobs of the past. Rather, we expect to see growing employment among the ranks of the “new artisans”: licensed practical nurses and medical assistants; teachers, tutors and learning guides at all educational levels; kitchen designers, construction supervisors and skilled tradespeople of every variety; expert repair and support technicians; and the many people who offer personal training and assistance, like physical therapists, personal trainers, coaches and guides. These workers will adeptly combine technical skills with interpersonal interaction, flexibility and adaptability to offer services that are uniquely human.

Nonetheless, in other statements by Autor, one can sense some ‘wobble’. In an MIT Technology Review article called “How Technology Is Destroying Jobs” by David Rotman, Autor comes out with this:

 “There was a great sag in employment beginning in 2000. Something did change,” he says. “But no one knows the cause.”

So something is going on with total employment, even if he doesn’t admit it is a lump of labour problem for non-cognitive workers in the face of advancing technology.

In the same article, Lawrence Katz, Autor’s co-author in the original 2006 polarisation paper, goes even further. While reiterating the fact that the historical record shows no record of a jobs decrease over an extended period of time following technological change, Katz confesses that this time could possibly be different:

Katz doesn’t dismiss the notion that there is something different about today’s digital technologies—something that could affect an even broader range of work. The question, he says, is whether economic history will serve as a useful guide. Will the job disruptions caused by technology be temporary as the workforce adapts, or will we see a science-fiction scenario in which automated processes and robots with superhuman skills take over a broad swath of human tasks? Though Katz expects the historical pattern to hold, it is “genuinely a question,” he says. “If technology disrupts enough, who knows what will happen?”

So lump of labour advocates are no longer ignored even if they still don’t get much respect. And if automated processes and robots do “take over a broad swath of human tasks” and radically downsize the job market, what is to be done? I will work through the implications of a lump of labour victory in my next two posts.

7 responses to “Hiding from the Computers Part 4: Time to Get Skeptical on Lump of Labour Skeptics?

  1. The divergence between prospects for cognitive and manual labor may widen further with continued adoption of automation and various levels of artificial intelligence. But this will happen only so long as energy and other essential resources remain available to support the complex industrial civilization that uses complex and intelligent machines. While that divergence continues we will see more and more unemployment, especially since the economies of the world will not be growing rapidly (if at all). Social disruptions may become very intense, bordering on revolution.

    But once natural resources, especially energy, become too scarce to support the complex supply chains that our economy relies on, demand for routine manual labor will start rapidly growing again. I suspect that within a very few decades the vast majority of work will be routine labor in country farm fields and village workshops.

    • Joe. I have rather written these pieces with a sort of “other things being equal” approach. So I have put climate change and resource depletion to one side. Of course, these other two risks are layered on top.

      The energy needs of the more dystopian end of the automation story is a very interesting question. I guess if the abstract, non-routine cognitive end of the job spectrum keeps shrinking and the remaining rump are left in poverty, then energy needs will fall so offsetting fossil fuel depletion. It is not an appertizing combination.

      If, somehow, you get a technology-led abundance cornucopia then energy demand will rocket, but peak fossil fuel will put a very quick cap on that unless we get some breakthrough technology. The most optimistic outcome is that technology can actually support a more local, sustainable economic way of life. I want to look at that as one scenario in my next post.

  2. I know that it is interesting, even fun, to debate the factors at play in the modern capitalist economy. I read Paul Krugman every day just because he is so damn brilliant and able to skewer his intellectual opponents so cleverly.

    But it all seems like petty gamesmanship to me when I know that the physical underpinnings of our economy are on their last legs. What I really would like to see is a reasonable analysis of the methods we can use to collectively mitigate the worst effects of what I see as an inevitable economic disintegration. When are we going to see some of our smart mainstream economists tackle the problems bound to arise during the coming degrowth era? Sometimes it seems to me that the subject of “angels on pins” is more serious than current discussions on many economists’ blogs.

    I will be delighted to see your analysis of the future prospects for technology as our economy becomes less complex and more local. I humbly ask – please don’t discuss the wonders of 3D printing as the answer to local manufacturing resilience. As someone who has used advanced technology to live off the grid almost all of my adult life, I do appreciate what it can do at the farmstead level, but I don’t see my solar modules lasting more than a few decades. Lately I have been shopping for a good anvil.

    • Joe: For once, I am less pessimistic than someone. I would hazard a guess (but am very open to correction), that your position is somewhere along the spectrum between James Kunstler’s ‘collapse’ and John Michael Greer’s ‘long descent’.

      I am at the Greer end. But I have a nuanced view of his supposition that we all have to get used to LESS (less energy, less stuff and less stimulation). I believe his idea is that as we progress along the descent, we will have to substitute intermediate and appropriate technology for complex technology—and this will require a decline in consumption.

      The thinking here is that complex technology always means ‘more’, not ‘less’. However, the internet, for example, provides more entertainment for less energy and less stuff. A modern condensing boiler, a produce of global supply chains and CAD, provides more heat output for a given input but uses less stuff in the form of steel.

      Price tells us a lot of what is going on here and basically the price of a boiler relative to median incomes has collapsed over the last 40 years; and the modern boiler is in a different league in terms of resource usage than its 1970s relatives.

      Greer wrote a great post a couple of years ago called ‘The Tarpaper Shack Principle” that echoes your comment in terms of its treatment of solar energy.

      http://thearchdruidreport.blogspot.co.uk/2011/01/tarpaper-shack-principle.html

      Basically, solar panels won’t be available in 30 years time or whenever according to him. I am not so sure about that claim. Nonetheless, all of this needs a lot more thinking on my part, as, to tell the truth, I am not sure how the resource-depletion-in-the-face-of-technological-advance question will unfold. I am certainly not a growth fetishist, and think we have a severe resource depletion and climate change problem. I also think our institutions are woefully ill-equipped to cope with these challenges and the challenges that technological change is posing for our society. But I think advanced complex technology may be part of a better way forward, not just an obstacle.

      • Hi,

        My personal take on this is that it really is a matter of political will.

        We know, for example, from a basic-physics point of view that breeder reactors based on Thorium and/or Uranium can provide energy on a ‘Everyone is an American’ scale for any realistic timescale. More to the point, unlike Fusion reactors these reactors are basically just a question of applied engineering; throw enough resources at them and they’ll work.

        We also know that given this amount of energy, any other resource constraint can be engineered around. IF you have enough primary energy you can synthesize fuel, fertilizer, fresh water, whatever..

        These points would be based on the proviso that the world population stabilizes, but that does seem to be happening.

        I honestly think that one of the greatest problems in this is not the underlying physics of the problem. It is the fact that several decades of propaganda have pushed the viewpoint that the only legitimate way to solve any problem is through markets. If a government actually proposed to start such a scheme – of developing and building a fleet of breeder reactors with the explicit aim of transitioning to a zero-CO2, high-energy use economy over a period of decades – you can imagine the howls of protest..

        But it does have to be emphasized, again and again, the extent to which energy shortages – and by extension all resource shortages within reason – are a political choice, not a dictat of physics.

        (Returning to the Lump of Labour actual subject.. Extend education. Shorten working weeks. Earlier retirement.. how hard can it be..?)

      • I think a lot of what you say is true to the extent the markets are lousy at investing in long-term projects purely due to the tyranny of discounting. This is also why we don’t do anything about climate change. When Nicholas Stern came out with his Stern Report on the Economics of Climate Change much of the debate centred on the discount rate he chose (a low one), which made investment in mitigation a sensible choice. A higher one doesn’t from a purely economic or financial perspective. The market rate works fine if your natural resource endowment remains the same across generations. If it doesn’t, then adults currently making investment decisions today, naturally overly discount the importance of the welfare of their grandchildren two generations into the future. With a non-depleting resource endowment (including energy, a viable atmosphere or whatever), this doesn’t matter because technology-led productivity growth will make the grandchildren richer anyway than their grandparents anyway. Unfortunately, we don’t make the investments in thorium today (following the internal logic of the market), so endangering the welfare of the kids and grandkids into the future. Bar some manna from heaven technological breakthrough, the state is the only entity that can tackle this problem. As regards your lump of labour observations, I will come back to that in my next post 🙂

  3. Aloha Justin: I am definitely toward the Kunstler end of the spectrum, perhaps even more pessimistic, though still thoroughly rational, I think. My ongoing preparations for the future are based on the question “What will I do to provide my family with livable circumstances if and when I have no money and nobody else does either?” Many would wonder why I even ask the question since my wife and I are retired now with plenty of money in our conservative 401Ks and no debt. By conventional standards we are sitting pretty and should be out playing golf or traveling to exotic ports of call.

    But I just don’t see how our economic structure can tolerate even a gentle decent a la Greer’s catabolic collapse. At first the downslope will be like a conventional recession, with everyone grumbling and voting in a different political party. But when growth never returns and more and more people are out of work or in increasingly dire financial circumstances, when debts are being defaulted on, when neither equities or bonds provide anything except capital losses, then I think there will be a massive, worldwide loss of confidence. I really think there is a real prospect that all financial instruments could become worthless virtually overnight; the 2008 banking crisis writ even larger. What will everyone do in the face of total market failure?

    I would like to think that our governments are prepared for such a prospect, but so far I have seen absolutely no evidence of serious discussion, much less concrete planning. By now there should be warehouses full of ration tickets and ongoing training exercises by the military and police forces devoted to seeing that fuel gets to farms and food gets to cities. I know this kind of talk makes me look, well, eccentric, but I can’t help it. I have been watching the limits to growth unfold before my eyes for the last 40 years. Even so, I still hope to live to see the denouement.

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