Technology, Jobs and Salaries

Something is going on in the world of economists.

Some are beginning to question their deeply entrenched assumptions about prosperity.

Some even doubt whether improved technology might sometimes make things worse rather than better for people who work for a living. Such questions are stimulated by graphs like this one:

December 12, 2012
Copyright 2012 The New York Times Company

Yesterday economists Erik Brynjolfsson and Andrew McAfee addressed the problem in a New York Times article. While both productivity of the economy and employment surged in the 1990's, they report, "as shown by the accompanying graph, which was first drawn by the economist Jared Bernstein, productivity growth and employment growth started to become decoupled from each other at the end of that decade." Bernstein himself calls the gap between the trend lines “the jaws of the snake.” They show no signs of closing.

Brynjolfsson and McAfee attribute the decoupling to technology, particularly robots and computers. Their article presents a pretty glum picture for the future of jobs except for those who "tell computers what to do."

Economist Paul Krugman, on the other hand, suspects the problem is not only robots and other technological advances, but that "robber barons" have succeeded in changing the rules to the benefit of capital over labor.  Noah Smith looks for answers in the more remote past (early 1970's), using graphs posted by Paul Krugman to ask the question "what happened in the early 70's?" Smith's conjecture is that the big thing that happened might have been the oil shock or maybe the end of fixed exchange rates under the Bretton Woods system.

Others round up the usual suspects of "offshoring" of jobs to developing countries, globalization, disappearance of strong unions, and alleged educational failures.

Arin Dube and Ethan Kaplan take a different look at it in a paper published last March:

"During the 1990s and 2000s, most economists viewed the growth in the upper-tail inequality as largely representing the same phenomenon as the growth in wage inequality elsewhere—primarily a change in the demand for skills through technological change, with some role for policy ...  Missing from all this was a discussion about how upper-tail earnings inequality could be better understood as an increase in the power of those with control over financial and physical capital. The exceptions were mostly outside of mainstream economics (e.g., Duménil and Lévy 2004)." They point to three pieces of evidence:  "a broad decline in the labor share of income from around 66 percent in 1970 to 60 percent in 2007." But that figure includes compensation going to top executives. Exclude their compensation, and it would show an even greater drop in labor's share. Most of the growth of executive income has been capital-based, e.g. stock options, but appears in the statistics as labor income.

But by far the biggest factor in upper-level income- whether capital or wage-based was the financial sector. The exorbitant level of compensation was based on financial sector profits. Even if that sector drove the overall economy into the ground.

The financial sector, by the way, creates few jobs. 

It's also good to remember Jim Hightower's observation that it isn't about jobs - "even slaves had jobs"- it's about wages and salaries.

What we need is a fair share of the nation's productivity going to the people who actually do the work rather than the handful who do the deals. But increasingly the dealmakers have the power and influence to change the rules in their own favor. And to intimidate or purchase the press and media outlets.