Arnold Kling  

Jobs are not a scarce resource

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Jeremy Rifkin says,

[An economist] would say we are going to create new types of jobs: analysts, consultants, programmers, engineers, educators and technicians, right? That was Robert Reich's idea when he was secretary of labor under Bill Clinton. The problem with that premise is that no business I work with believes that these kinds of jobs will absorb the workforce of the world. We will create all sorts of new jobs, we'll create new skills and we'll create new technologies. But these new high-tech specialists and professional jobs are not mass labor, they're boutique. You're never going to see mass workers in software companies, nanotech companies and biotech companies.

This is what my co-blogger calls make-work bias, the belief that jobs will be scarce unless the government helps to make them. Rifkin and other non-economists fear that higher productivity will reduce employment.

The basic economic analysis of productivity growth goes like this:

1. As long as human wants are unlimited, there is no constraint on the demand for labor to satisfy those wants. As long as markets are permitted to operate, with workers and firms free to choose wages and other contract terms, productivity growth will not cause unemployment.

2. Productivity growth will make people richer, and as people get richer they tend to prefer leisure. They may choose shorter work weeks. They do not need government regulation to make such a choice.

3. If "mass labor" disappears, that does not mean long unemployment lines. It means that people will continue the shift toward services. See Manufacturing a Crisis.

One of the most important developments in the twentieth century was the substitution away from housework. We spend a lot less time cooking and cleaning than we did a century ago, thanks to vacuum cleaners, dishwashers, permanent-press clothing, etc. However, if we were to adopt Rifkin's view of the world and treat jobs as scarce resources that have to be rationed (by regulating the work week, for example), then housework could make a comeback. As people earn less in the market, they will be forced to substitute their labor for capital at home.

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CATEGORIES: Growth: Consequences

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The author at Capital Freedom in a related article titled Creating Jobs and Creating Wealth writes:
    First, the government's job is neither to create jobs nor to create wealth. It is not qualified to do either; jobs and wealth are not created through force. [Tracked on August 6, 2005 11:27 AM]
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Robert writes:

The basic economic analysis of productivity growth goes like this:

How much of this holds if human wants are limited, or more realistically perhaps, if at sufficiently high incomes, the relative utility of saving versus consumption is such that the derivative of consumption with respect to income approaches zero?

Lord writes:

What isn't spent is saved and invested, driving down returns, but increasing the value of rents.

We are probably already seeing the re-emergence of 'housework' as the labor participation rate falls. It really doesn't make much sense for both of a couple to work with high tax rates and flat to falling returns to labor.

Jobs may not be a scarce resource but well paying ones always are.

Productivity growth does not, in and of itself, create higher paying jobs. It makes some richer, but not necessarily those producing it. We didn't see the 40 hour week without unions pushing it. The overall trend was to continue to reduce wages, costs, and eventually prices, but it frequently took recessions or depressions to do so. As jobs are lost in higher productivity growth areas, more are created in lower productivity growth areas such as services. We can produce fewer high paying jobs at the cost of unemployment like Europe or more lower paying ones like the third world. Neither is a very attractive alternative.

Mr. Econotarian writes:

The labor force participation rate in the US is down from the heights of the "dot-com boom" late 1990's, but are still historically high (mainly because women entered the formal workforce in the 1970's and 1980's.) and is higher than most European nations.

In addition, the opportunity to take early Social Security is also a force reducing the labor force participation.

I don't know what you mean by "The overall trend was to continue to reduce wages," during what period of US history do we see significant total compensation reduction?

James Erlandson writes:

Lets think of some "high-tech specialists and professional jobs" that have been created since we quit plowing with horses and oxen. Jobs that are boutique and "not mass labor" ...
o Teachers
o Librarians
o Engineers
o Salesmen
o Accountants
o Physicians
o Lawyers
o Musicians
o Actors (stage, screen, TV, video)

You're never going to see mass workers in software companies, nanotech companies and biotech companies.

Some boutique companies with small numbers of employees (2004, from Hoovers):
Merck (drugs, biotech) -- 63,000 employees;
Microsoft (software) -- 57,000 employees;
Amgen (biotech) -- 14,400 employees;
SAP (software) -- 32,802 employees;

There was a time when 80% of Americans were employed in agriculture. Through increased productivity, today less than 2% of the population produces food and fiber for the whole population. Fortunately, the people that no longer labor in the fields have found jobs elsewhere. Similarly, those that used to shovel coal and shoe horses and deliver telegrams are now otherwise employed.

The confusion seems to be between costs and benefits. Jobs are a cost, not a benefit.

Econblogger writes:

The diversity of possible jobs are enormous. Heck I didn't even know there was such a thing as "medical transcription" until all that outsourcing came about. Non-economists like Rifkin are still stuck in the factory line mentality, when the bulk of employment in most of the developed and middle-income developing world has shifted to services. Lack of imagination about the magnitudes in question are one big reason behind layperson prejudices.

Matt writes:

The productivity difference between service jobs and information jobs is really huge. Maybe I'm wrong but consider three type of workers, one an assembly line worker who puts together widgets, a service worker who sells widgets at the store, and a software engineer who write the widget assembly program for a robot who will replace the worker. The store clerk, can only sell so many widgets to so many people who happen live in the area near her store. This is a typical low productivity job, and is paid accordingly. The factory worker helps produce widgets for an entire area of the country, we will say this is a higher productivity job, and is paid accordingly. The software engineer helps make all the widgets in the world, this is a higher productiviy job and is paid accordingly.

What is happing is we need less and less people in the middle, semi-skilled jobs are disappearing. One point of software design is to de-skill jobs, and we are very good at it. Society may be getting richer as a whole, but people care more about relative wealth than abosolute wealth, and are not happy about the change.

One can argue that people shouldn't care about relative wealth, and I might agree, but unfortunatly that seems to run counter to human-nature. If so this aspect of technological change has a real negitive externality. That shouldn't be glibly ignored by economists. What if anything should be done about this, that is a different discussion. Another question since many people do care about relative wealth would your view change if you considered the case of wealthy people who were happy that they are on the top, and would be less happy if the curve was flatter.

ionides writes:

Why I don't believe that the derivative of consumption with respect to income will approach zero:

Maslow postulated that higher needs emerge as basic needs are satisfied. I think in this sense, demand is never sated, but shifts towards output that satisfies progressively higher needs. Higher needs revolve around self-realization. This entails the development of creative and intellectual faculties. The implication for economic activity is increased demand for services which keep people at a higher level of functioning, such as therapies of various kinds, instruction, spiritual disciplines, entertainment, art and education. In a world where machines do the "work", we will turn to other people for experiences which edify, inspire and instruct. People will serve each other in that sense. It will be a service economy.

Tracy W writes:

Why oh why do people say that services jobs inherently show low productivity growth?

E.g. music has seen a productivity increase comparable to that of transport (from feet to horses to trains to the Space shuttle) or lighting. 200 years ago if you wanted to listen to music you had to find a musician then and there to play it to you, now you can listen to Elvis Presley, even though he's dead, for a true marginal cost of around a few cents (ignoring legal issues).

Ditto for acting - instead of having to head out to a theatre you can own Shakespeare's plays on DVD.

Painting - from new paint technologies allowing artists to work outside, to copying techniques and cheaper printing allowing throw-away brochures to be done in full colour.

Health services have also seen drastic improvements in productivity, if you count keeping people alive for longer as a productivity improvement.

Banking services have seen increases in productivity, e.g. internet banking.

Communications more generally has seen a drastic increase in productivity - 8 years ago I was arranging a job in the US and that meant a week-long gap between sending a letter and getting a reply.

Regulations - governments manage to churn out a far greater number of regulations nowadays than in the past.

Law enforcement - tools such as DNA identification, photography (before photos if the police were hunting someone they had to circulate written descriptions, you can imagine how effective that was), metal detectors, etc.

Of course not all services show productivity gains - the massive gap is education, but I think education's lack of gains has a lot to do with a refusal to consistently test students to discover what teaching methods are effective, not with something inherent to the teaching process.

Tracy W writes:

Labour that requires skill but not a uni degree and is not going to disappear soon (barring some completely unexpected technical breakthrough):

Personal care, e.g. assistance for the disabled, or the elderly.

Personal services e.g. hair dresser, interior decorating, pet grooming, manicurist, personal trainer.

Trades, e.g. plumber, electrician, mechanic, art hanger (yes, there is a guy in Wellington, pop 300 000, who makes his living hanging artwork).

Sales people.

Traders (sharemarket, utility markets, carbon markets, etc.).

Graphic design.

Boutique food production, e.g. bakers, chefs.

Ted writes:

I have always thought Jeremy Rifkin a fool.
Nothing in this thread have convinced me

Robert Schwartz writes:

Mandating a reduced work week has worked so well at reducing unemployment in France.

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