There could be trouble ahead

By R.A. | LONDON

THIS week's print edition features a cover package (leader here, accompanying briefing here) on how automation may affect labour markets over the next few decades. I certainly encourage you to read the pieces, but I will summarise one of the arguments here. The pieces generally accept the contention of scholars like Erik Brynjolfsson and Andrew McAfee, that exponential progress in computing power has reached a critical point, and machine capabilities are suddenly growing very rapidly. That, in turn, is likely to facilitate a wave of disruptive change around rich economies as entrepreneurs develop much more productive ways to do everything from moving goods around cities, to diagnosing and treating common diseases, to educating workers.

We reckon that a decent parallel for this transformation is the experience of industrialisation, which wholly remade the structure of rich economies. Industrialisation led to sweeping changes in labour demand and large sectoral shifts, and it took a very long time for the benefits of industrialisation to begin to accrue to workers in a meaningful way. Real wage growth was imperceptible for the first 60 years of the industrial era, and it was about a century before the big improvements in living standards that we associated with the modern era began to emerge.

What's very important to recognise is that those benefits did not magically arrive of their own accord. It is an article of faith among many economists that technology doesn't lead to widespread unemployment but does make society better off. Historical experience bears that out, but economists can be guilty of forgetting the caveats: it took a long time for society to adjust and an awful lot of intense political fighting to deliver the social reforms needed to make industrialisation work for most people. There were really two game-changing state interventions that saved industrial society. The first was public sanitation, which we don't much discuss in this week's newspaper. The second was the introduction of broad public education. Industrialisation created demand for relatively unskilled workers and for relatively high-skill managers and engineers. Broad-based gains were possible in large part because public education helped shift labour supply toward high-skill, better paying work.

Technology (and offshoring and outsourcing made possible by technology) are leading to a polarisation of work similar to that observed in the 18th and 19th century. That can help explain wage stagnation for those outside the top of the income spectrum across the past decade or so. But here we run into a problem. To quote the briefing:

Adaptation to past waves of progress rested on political and policy responses. The most obvious are the massive improvements in educational attainment brought on first by the institution of universal secondary education and then by the rise of university attendance. Policies aimed at similar gains would now seem to be in order. But as [economist Tyler] Cowen has pointed out, the gains of the 19th and 20th centuries will be hard to duplicate.

Boosting the skills and earning power of the children of 19th-century farmers and labourers took little more than offering schools where they could learn to read, write and do algebra. Pushing a large proportion of college graduates to complete graduate work successfully will be harder and more expensive. Perhaps cheap and innovative online education will indeed make new attainment possible. But as Mr Cowen notes, such programmes may tend to deliver big gains only for the most conscientious students.

In the 19th century, secondary education could provide the typical worker with a ticket to skill-demanding, good-paying work. I'm not sure there is an educational innovation available that could provide today's typical worker with a similar boost. Or rather, I'm pretty sure there isn't.

Of course, ever greater educational attainment may not be the only route to employment at growing wages. The briefing notes that labour demand may rise for occupations that involve hands-on care, or more of an intuitive or emotive skill set. It references new research by Carl Benedikt Frey and Michael Osborne, in which the authors assess the computerisability of a broad range of occupations. Among those at least risk are jobs that require quite a lot of academic training. But there are also positions in creative occupations, in various sorts of counselling and therapy, in social work, and so on. Now, those sorts of occupations often do require substantial education and training, though often much less than a PhD. What is typically more important, however, is a quite different skill set, consisting of things like conscientiousness, emotional awareness, a capacity for empathy, and so on. And those are traits that don't necessarily come naturally to many workers and which can't easily be taught.

If the rich world can't rely nearly as heavily on education to facilitate adjustment—an adjustment that was, in the 19th century, pretty hairy even with the boost from education—then much more pressure will be placed on the social safety net and other social institutions. Given the intensity of the debates that are already occurring surrounding things like the burden of income taxation, the availability of unemployment and disability benefits, the generosity of social security, and so on, it probably won't take much of an acceleration in labour-market change to turn things pretty ugly.

Our leader argues that politicians should therefore try to get ahead of the curve, by pushing through reforms now. I'm not particularly optimistic about that. These sorts of purely distributional matters will only be settled after long, bitter political struggle. A powerful wave of innovation creates the opportunity for everyone to benefit handsomely. But history suggests that if and when that broad-based prosperity arrives, it will come on the heels of a long negotiation between political institutions, cultural norms, and unpleasant economic realities.