Structural Shifts

The issue of a future in which there are large parts of the economy that are underemployed, unemployed, or unemployable is a serious issue. And the data already suggests this:

(source) Notice how after the last recession in 2001 the number shifted upwards. The boom year of 2006 have an additional 5% long-term unemployed than the boom years of 1998. If you go back even further in that graph, to the 1960s, you see an even larger structural shifts upwards. Here's University of Chicago Economist Kevin Murphy thinking through this issue.

It's difficult to look at, for example, the very low unemployment rates we saw in the early 2000s and say that represented an economy in which everyone was working. Unemployment rates were at roughly the same level that they were in the late 1960s, but if you look at prime-age males, the fraction actually working who were, say, 30 to 40 years old was quite a bit lower in 2001 because there was a big increase in the number who were out of the labor force in that age category...It was primarily low-skilled workers who had withdrawn from the labor market...the opportunities in the labor market for low-skilled workers had deteriorated quite a bit with the rise in demand for skill and fall in demand for low-skilled workers...What that meant was, from a pure labor market perspective, the unemployment rate really wasn't indicative of what the economy was like. Unemployment in an economic sense wasn't as low as unemployment in a measured sense.

The blogosphere is taking note: Add Kevin Drum and Reihan Salam to people who are also concerned about the growing rate of the perpetually unemployed in our economy. The unskilled are slowly disappearing from the labor force, and it isn't clear why or how this is happening. Is it the result of the computerization of the economy, as Gregory Clark suggests? Is it the result of the criminalization of a large part of the poor through specific projections of state power, particularly the War on Drugs and Broken Windows? Is it a more general trend towards higher skills as well as forms of (disability) insurance as Kevin Murphy argues?

What is actually going on here, and if it will get worse before it (ever) gets better, should be a focus of research for those looking at our labor markets.

Historical Markets

Maybe this will all just be fine. The increased presences of computers and robots in creating automation and decreasing the need for labor will increase the need for new types of labor. In particular, the labor necessary for the creation, maintenance, and deployment of said machines. But this work is highly skilled, and there is good reason to believe that it will employ fewer people post machines than before.

Transformation of the skill level of that much labor is going to have large destabilizing effects. The last time we had such a transition of the skilling of labor we'd have to look at the Industrial Revolution in Europe. There we had a transformation from an artisan class into a deskilled, more productive class. This, from an economists point-of-view (but certainly not everyone's), was a huge win for unskilled labor. This new change in the skilling of labor is not what is happening now. Now the economy is taking the labor of an unskilled class and replacing it with machines. In order for someone to take advantage of the new employment opportunities opening up it will requires a peculiar new type of skilling - the ability to create and maintain the new efficiency machines.

It isn't clear what happens here. We could assume that markets will hand-wave these problems away, that wages and incentives and laws will find everyone optimal work, or we can learn from History that these radical changes have massive changes in our lives and begin to prepare accordingly. I'm rooting that we go the second route.

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