12.22.2014 2

Weak job growth because of weak growth, not robots

gdp and jobs

By Robert Romano

The Senate Budget Committee Republicans tweeted out an interesting piece from the New York Times’ Claire Cain Miller, which in part notes a dramatic drop in labor force participation in the U.S. economy.

It quoted a key portion of the piece: “More than 16 percent of men between the ages of 25 and 54 are not working, up from 5 percent in the late 1960s,” and “30 percent of women are not working, up from 25 percent in the late 1990s.”

Normally, out of context, one might simply assume the story was about the jobless recovery that has followed the 2008 financial crisis. In terms of growth, jobs, and everything else, this is the worst post-recession recovery since World War II.

And yet context is critical. The story Senate Republicans quoted has little to do with the post-financial crisis or the Obama economy if you read it. It’s actually about how robots may ultimately take all of our jobs, with the headline, “As robots grow smarter, American workers struggle to keep up.”

No, this is not science fiction. Technological automation has long been a worrying future prospect ever since the Industrial Revolution’s Luddite movement. Why?

At its core, the economy depends on people producing something of value, and being compensated for their value via income. Their income, in turn, is used to purchase goods and services, to save and invest, buy a home, and to provide for one’s family.

It all works because there is an incentive to work. But are we reaching the point technologically where there is less of a need to work? And what would that mean for the future?

It is certainly true that two factors, automation and globalization, have meant that jobs once performed by the low skill labor pool have long since been mechanized and/or outsourced.

Technology definitely put most people off of farms. Now, far fewer farmers produce more output than ever due to machines.

So, off people went to factories. But eventually, China and others have simply figured out how to do it exponentially cheaper with de facto slave labor. Here, robots have in fact taken over U.S. manufacturing floors.

Yet, on the other hand, if innovation and automation were supposed to kill jobs, they certainly have not as of yet.

Consider the 25-54 aged population since 1948 has increased 109 percent to roughly 124 million, according to data compiled by the Bureau of Labor Statistics. The number of jobs has more than kept pace, increasing 159 percent to 95.8 million. In 1948, the employment-population ratio for that age group was 62.6 percent, and today it’s 76.9 percent.

So, despite all of the new automation and conveniences we enjoy today, there are way many more jobs per capita today than there was during the postwar boom — primarily due to women entering the labor force en masse since then.

However, that comes with the caveat that the employment-population ratio for 25 to 54 year olds peaked in April 2000 at 81.9 percent just as the dotcom bubble was popping. Once things had settled down, that rate was down to about 79 percent.

So, one could point to about 3.6 million displaced from the workforce. But not due to automation or outsourcing. The real drop in jobs came after the financial crisis, and for reasons directly attributable to the recession. For example, construction (2.3 million) and financial services (700,000) were predictably two of the hardest hit industries in the recession.

But, even then they’ve recovered half of their losses — about 1.5 million between the two. Millions more jobs were lost elsewhere, too, but have more or less since been recovered — with the proviso that again, 3.6 million should have jobs right now, but do not.

Yet, technology played no role in the contraction of construction and financial services or even in the recession itself — that was simply overproduction in the housing sector and overspeculation in mortgage markets.

Still, in the current low growth environment, one should expect fewer jobs to be created.

Robots or no robots, the way to create jobs is through robust economic growth. And on that count, we should be more concerned about growth trending toward zero percent — along with other indicators like credit growth, interest rates, inflation, etc.

Or we may wake up one day to the horror of what’s really happening — only when it is too late. We’ll become a super welfare state long before floating robots cater to our every need.

See Lawrence Summers who issues a huge challenge to free market advocates in the New York Times piece: “The answer is surely not to try to stop technical change, but the answer is not to just suppose that everything’s going to be O.K. because the magic of the market will assure that’s true.”

Here, Summers is supposing that the lack of job growth is due to automation. Perhaps one day in the distant or not so distant future that might prove to be true, but we’re not there yet.

Right now the real problem is we’re not growing at the rate we once did.

Robert Romano is the senior editor of Americans for Limited Government.

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