Posts Tagged ‘technology’

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Young Americans are caught between two contradictory messages. On one hand, they’re told to go to college, to maintain pace with new technologies and job requirements. On the other hand, they’re told to “get out”—because, for most, a college education is simply unaffordable.

The American Dream, for them, looks more and more like “the sunken place.”

The Institute for Higher Education Policy [ht: mfa] is the latest group to document the unaffordability of a college education. While students from the highest income quintile (from families earning around $160 thousand or more) can afford most of the more than 2,000 colleges studied, low- and moderate-income students (bringing in around $69 thousand or less) can only afford to attend a tiny percentage of those colleges.

The Institute bases its conclusion on an “affordability benchmark” (the so-called Rule of 10, the idea that 10-year savings plus part-time earnings should cover the entire cost of a four-year degree) compared to the net price of a college education (equal to the cost of attendance minus grant aid). They then illustrate their findings with ten student profiles: five dependent students representing a different income quintile, and possessing attributes based on national averages for students in their quintile (Sonja, Hakim, Ava, Sergio, and Maria), and five independent students characterizing the diverse array of personal and family circumstances among independent students (Anthony, Traval, Aneesa, Jon Sook, and Mohammed).

As readers can see from the figure at the top of the post, while the student from the highest income bracket could afford to attend 90 percent of colleges in the sample, the low- and moderate-income students with fewer financial resources could only afford 1 to 5 percent of colleges.

Colleges were most dramatically unaffordable for students near the bottom of the income distribution, including all five of the independent students. Out of more than 2,000 colleges, nearly half (48 percent) were affordable for only the wealthiest student (with a family income over $160,000) and more than one-third (35 percent) were affordable only for that student and the next wealthiest (with a family income over $100,000).

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Not only do working-class students face financial barriers in attempting to enroll in most colleges, which they can only afford by burying themselves and their families under mountains of debt. They’re also far less likely to complete their students, often because working long hours to finance their education gets in the way of their studies (not to mention all the other activities traditionally associated with being in college).

As the authors of the report conclude,

This inability for low-earners to afford an education or improve their station erodes belief in a nation founded on the rejection of entrenched social stratification.

The only question for the nation is, will this educational horror film have a happy ending?

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Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

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And, as it turns out, both of us have invoked Arthur Lewis’s “dual economy” model to make sense of that growing gap. However, we present very different interpretations of the Lewis model and how it might help to shed light on what is wrong in the U.S. economy—with, of course, radically different policy implications.

It is ironic that both Temin and I have turned to the Lewis model, which was originally intended to make sense of “dual economies” in the Third World, in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force—and where much of agriculture, like the manufacturing and service sectors, is organized along capitalist lines. But Lewis, like Adam Smith before him, did worry about the parasitical role of the landlord class and the way it might serve, via increasing rents, to drag down the rest of the economy—much as today we refer to finance and the above-normal profits captured by oligopolies.

So, our returning to Lewis may not be so far-fetched. But there the similarity ends.

Temin (in a 2015 paper, before his current book was published) divided the economy into two sectors: a high-wage finance, technology, and electronics sector, which includes about thirty percent of the population, and a low-wage sector, which contains the other seventy percent. In his view, the only link between the two sectors is education, which “provides a possible path that the children of low-wage workers can take to move into the FTE sector.”

The reinterpretation of the Lewis model I presented back in 2014 is quite different:

What I have in mind is redefining the subsistence wage as the federally mandated minimum wage, which regulates compensation to workers in the so-called service sector (especially retail and food services). That low wage-rate serves a couple of different functions: it’s a condition of high profitability in the service sector while keeping service-sector prices low, thereby cheapening both the value of labor power (for all workers who rely on the consumption of those goods and services) and making it possible for those at the top of the distribution of income to engage in conspicuous consumption (in the restaurants where they dine as well as in their homes). In turn, the higher average wage-rate of nonsupervisory workers is regulated in part by the minimum wage and in part by the Reserve Army of unemployed and underemployed workers. The threat to currently employed workers is that they might find themselves unemployed, underemployed, or working at a minimum-wage job.

In addition, the profits captured from both groups of workers are distributed to a wide variety of other activities, not just capital accumulation as presumed by Lewis. These include high CEO salaries, stock buybacks, idle cash, and financial-sector profits (with a declining share going to taxes). And, if the remaining portion that does flow into capital accumulation takes the form of labor-saving investments, we can have an economic recovery based on private investment and production with high unemployment, stagnant wages, and rising corporate profits.

For Temin, the goal of economic policy is to reduce the barriers (conditioned and created by an increasingly segregated educational system) so that low-wage workers can adopt to the forces of technological change and globalization, which can eventually “reunify the American economy.”

My view is radically different: the “normal” operation of the contemporary version of the dual economy is precisely what is keeping workers’ wages low and profits high across the U.S. economy. The problem does not stem from the high educational barrier between the two sectors, as Temin would have it, but from the control exercised by the small group that appropriates and distributes the surplus within both sectors.

And the only way to solve that problem is by eliminating the barriers that prevent workers as a class—both black and white, in finance, technology, and electronics as well as retail and food services, regardless of educational level—from participating in the appropriation and distribution of the surplus they create.

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It’s obvious to anyone who looks at the numbers that the wage share of national income is historically low. And it’s been falling for decades now, since 1970.

Before that, during the short Golden Age of U.S. capitalism, the presumption was that the share of national income going to labor was and would remain relatively stable, hovering around 50 percent. But then it started to fall, and now (as of 2015) stands at 43 percent.

That’s a precipitous drop for a supposedly stable share of the total amount produced by workers, especially as productivity rose dramatically during that same period.

The question is, what has caused that decline in the labor share?

The latest story proffered by mainstream economists (such as David Autor and his coauthors) has to do with “superstar” firms:

From manufacturing to retailing, giant companies have managed to gobble up a larger and larger share of the market.

While such concentration has resulted in enormous profits for investors and owners of behemoths like Facebook, Google and Amazon, this type of “winner take most” competition may not be so good for workers as a whole. Over the last 30 years, their share of the total income kitty has been eroding. And the industries where concentration is the greatest is where labor’s share has dropped the most. . .

Think about the retail sector, where mom-and-pop stores once crowded the landscape. Now it is dominated by a handful of giants like Walmart, Target and Costco.

It is true, industry concentration has increased dramatically in recent decades (as I explain here). And the wage share has declined (as illustrated in the chart above).

Here’s the problem: exactly the opposite argument is the one that prevailed in the United States for the earlier period. Economists at the time argued that American workers earned a relatively high share of national income because they worked in concentrated industries, such as cars and steel. Thus, their collectively bargained wages included a portion of the “monopoly rents” captured by the firms within those industries.

Now that the wage share has clearly fallen, and shows no signs of returning to its previous levels, economists have changed their story. In their view, market concentration leads to a lower, not higher, wage share.

Why has there been such an about-face in economists’ story about the causes of the declining wage share?

What all the existing stories share is that they avoid identifying anything that has been done to workers as a class. Whether the story is about technological change, globalization, or now superstar firms, the idea is that there are larger forces that unwittingly have created winners and losers—and the losers, if they want, need to acquire the education and skills to join the winners. But don’t touch the basic elements of the economic system that has created such disparate and divergent outcomes.

As it turns out, the presumed rule of a stable wage share turns out to have been an illusion, an exceptional period of relatively short duration during which workers’ wages did in fact rise along with productivity. That wasn’t the case before, and it hasn’t been true since.

The actual rule, as it turns out, is that the wage share falls, as the rate of exploitation increases. That’s how capitalism works, at least much of the time—through periods of faster and slower technological change, higher or lower levels of globalization, more or less concentrated industries.

Sure, under a particular set of postwar conditions in the United States, for two and a half decades or so, the wage share remained relatively stable (and not without pitched battles between capital and labor, as Richard McIntyre and Michael Hillard have shown). But that ended decades ago, and since then workers have been forced to have the freedom to sell their ability to work under conditions that, even as productivity continued to grow, the wage share itself declined.

Mainstream economists have finally recognized the fact that workers’ share of national income has been failing. But they continue to formulate stories that deflect attention from the real problem, the relative immiseration of workers that has them falling further and further behind.

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Millions of workers have been displaced by robots. Or, if they have managed to keep their jobs, they’re being deskilled and transformed into appendages of automated machines. We also know that millions more workers and their jobs are threatened by much-anticipated future waves of robotics and other forms of automation.

But mainstream economists don’t want us to touch those robots. Just ask Larry Summers.

Summers is particularly incensed by Bill Gates’s suggestion that we begin taxing robots. So, he trots out all the usual arguments, hoping that at least one of them will stick. It’s hard to distinguish between robots and other forms of automation. Robots and other forms of automation produce better goods and services. And, of course, automation enhances productivity and leads to more wealth. So, we shouldn’t do anything to shrink the size of the economic pie.

This last point has long been standard in international trade theory. Indeed, it is common to point out that opening a country up to international trade is just like giving it access to a technology for transforming one good into another. The argument, then, is that since one surely would not regard such a technical change as bad, neither is trade, and so protectionism is bad. Mr Gates’ robot tax risks essentially being protectionism against progress.

Progress, indeed.

What mainstream economists like Summers fail to understand is that not touching the robots—or, for that matter, international trade—means keeping things just as they are. It means keeping the decisions about jobs, just like the patterns of international trade, in the hands of a small group of employers. They’re the ones who, under current circumstances, appropriate the surplus and decide where and how jobs will be created—and, of course, where they will be destroyed. Which, as I explained last year, is exactly how international trade takes place.

And because employers, now and as Summers would like to see the world, are the ones who are allowed to retain a monopoly over jobs and trade, they also decide how the economic pie is distributed and redistributed. Tinkering around the edges—with the usual liberal shibboleths about the need for “education and retraining”—doesn’t fundamentally alter the fact that workers remain subject to decisions about technology and trade in which they have no say. Workers are thus forced to have the freedom to adjust, with more or less government assistance, to decisions taken by their employers.

And to sit back and admire, but not touch, the growth in productivity.*

 

*And that’s pretty much what Brad DeLong also recommends in making, for the umpteenth time, the argument that today, the world’s population is, on average, many times richer than it was during the long preceding age—because both average wealth and consumer choice have increased. Delong, like Summers, doesn’t want us to touch the “innovations that have fundamentally transformed human civilization.”

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Apparently, the latest attempt to redefine the role of economists is to encourage them to be plumbers.

Maybe it’s just my age but, when I read plumbers, I immediately think of the covert Special Investigations Unit in the Nixon White House—the operation that began with attempting to stop the leak of classified information (such as the Pentagon Papers) and then branched into illegal activities while working for the Committee to Re-elect the President (including the Watergate break-in).

I don’t think that’s what MIT economist Esther Duflo (pdf) had in mind when, in her Ely Lecture to the American Economic Association meeting last month, she suggested that economists seriously engage with plumbing, “in the interest of both society and our discipline.”

As economists increasingly help governments design new policies and regulations, they take on an added responsibility to engage with the details of policy making and, in doing so, to adopt the mindset of a plumber. Plumbers try to predict as well as possible what may work in the real world, mindful that tinkering and adjusting will be necessary since our models gives us very little theoretical guidance on what (and how) details will matter.

I’ll admit, I have a lot of respect for plumbers (especially when they’re able to fix the mess I’ve made trying to repair an existing fixture or install a new one). And I do think anyone involved in designing new policies and regulations should learn more about how they are actually implemented.

But economists, especially mainstream economists (of the sort Duflo is speaking for and to), are the last people I’d call in to fix the policy plumbing. Me, I’d pay them a large sum of money to learn about how policy formulation and implementation actually works. And then I’d pay them even more not to get anywhere near the process.

I’d much prefer that others—from the people actually affected by the policies to representatives from other academic disciplines and areas (such as anthropology, labor studies, peace studies, and so on)—be the ones who actually engage with the details of policy-making.

A good example of why I would want mainstream economists to be kept as far as possible away from the process of policy and implementation is a recent piece by Laura Tyson and Susan Lund.*

Their view is that capitalist globalization has had “disruptive effects on millions of advanced-economy workers” (and, we should add, on millions of workers—peasants, wage-laborers, and others—in economies that are not so advanced) and has aggravated income inequality within countries. So far so good.

But then they assert, without evidence, that the main culprit is not how globalization has been carried out, but technological change, which “automates routine manual and cognitive tasks, while increasing demand (and wages) for highly skilled workers.”

And because they take technological change as a given (rather than a strategy on the part of employers to boost profits), they recommend that workers (who, they presume, have no say in the development and implementation of new technologies) are the ones who need to adapt.

advanced economies must help workers acquire the skills needed to fill high-quality jobs in the digital economy. Lifelong learning cannot just be a slogan; it must become a reality. Mid-career retraining must be made available not only to those who have lost their jobs to foreign competition, but also to those facing disruption from the continuing march of automation. Training programs should be able to impart new skills in a matter of months, not years, and they should be complemented by programs that support workers’ incomes during retraining, and that help them relocate for more productive work.

Now, it’s true, Tyson and Lund don’t spend any time on the plumbing of creating and implementing lifelong learning programs. But that’s not the problem. Even if they were good economic plumbers, we’d still end up with a situation in which employers set the agenda and workers are forced to have the freedom to scramble to try to keep up.

That’s the plumbing Tyson and Lund leave out of their analysis. It’s what keeps the extra value flowing from workers to their employers. And, if workers are no longer useful for creating that extra value, they’re simply flushed down the drain.

If and when mainstream economists are willing to talk about those parts of the economic system, I’ll be the first to invite them to join the plumbers’ union.

But only, until they prove they can analyze and fix the problem, as plumber apprentices.

 

*This is not to pick on Tyson and Lund. I could have chosen any one of an almost infinite number of essays on economic policy by mainstream economists I’ve read over the years. Theirs just happens to be the latest I’ve run across.

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According to the Wall Street Journal, “never before have big employers tried so hard to hand over chunks of their business to contractors.”

What’s happening is large employers—like Virgin America and Wal-Mart—are choosing from a number of different options when it comes to their workers. One is to introduce robots and other forms of job-killing automation. Another is to outsource jobs to subsidiaries in other countries. The third and latest option is to eliminate jobs within their enterprises and, instead, shift them to outside contractors.

The shift is radically altering what it means to be a company and a worker. More flexibility for companies to shrink the size of their employee base, pay and benefits means less job security for workers. Rising from the mailroom to a corner office is harder now that outsourced jobs are no longer part of the workforce from which star performers are promoted.

For companies, the biggest allure of replacing employees with contract workers is more control over costs. Contractors help businesses keep their full-time, in-house staffing lean and flexible enough to adapt to new ideas or changes in demand.

For workers, the changes often lead to lower pay and make it surprisingly hard to answer the simple question “Where do you work?”

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Actually, robots do kill people.

A 21 year old external contractor was installing the robot together with a colleague when he was struck in the chest by the robot and pressed against a metal plate. He later died of his injuries, reports Chris Bryant, the FT’s Frankfurt correspondent.

While we certainly need to be aware of industrial accidents associated with robots, what we really need to be more concerned about is the relationship between the use of robotics and the metaphorical killing of workers via the elimination of their jobs.

Richard Baldwin [ht: ja], president of the Centre for Economic Policy Research and Editor-in-Chief of Vox (VoxEU.org, which he founded in June 2007), appears to agree:

Technological advances could now mean white-collar, office-based workers and professionals are at risk of losing their jobs

But, he argues, those who expect Brexit or the kinds of protectionist policies advocated by President Trump to bring back manufacturing jobs are sadly mistaken.

I think he’s right. Blaming international trade and immigration for the precarious plight of the working-class within advanced nations is wrongheaded.* Moreover, as Baldwin explains elsewhere, “We shouldn’t try and protect jobs; we should protect workers.”

However, the mistake Baldwin and other technological optimists make is to treat industrial robots (and their contemporary extensions, such as telepresence and telerobotics) in a purely instrumental fashion, as both inevitable and technically neutral. Just like the ubiquitous NRA bumper sticker: “Guns Don’t Kill People, People Kill People.”

As Bruno Latour (pdf) has explained, the NRA “cannot maintain that the gun is so neutral an object that is has no part in the act of killing.”

You are different with a gun in hand; the gun is different with you holding it. You are another subject because you hold the gun; the gun is another object because it has entered into a relationship with you. The gun is no longer the gun-in-the-armory or the gun-in-the-drawer or the gun-in-the-pocket, but the gun-in-your-hand, aimed at someone who is screaming. What is true of the subject, of the gunman, is as true of the object, of the gun that is held. A good citizen becomes a criminal, a bad guy becomes a worse guy; a silent gun becomes a fired gun, a new gun becomes a used gun, a sporting gun becomes a weapon.

And much the same is true of robotics. Employers are different when they have access to robots. They are another subject because they can reconfigure production by purchasing and installing robots; and robots are different objects when they enter into a relationship with employers, who stand opposed to their workers.

So, as it turns out, “it is neither people nor guns that kill” people. And, by the same token, it is neither employers nor robots that kill workers and their jobs. Responsibility for the action must be shared between the two—the employers who utilize robotics to increase productivity and raise profits, and the robots that are engineered, produced, and then sold for particular purposes, like transforming jobs and replacing workers.

So, yes, we shouldn’t try and protect jobs. Instead, we should protect workers. But the only way to protect workers is to create institutions for workers to be able to protect themselves. Leaving the European Union and electing Trump won’t do that. They are merely empty promises. Nor, as Baldwin presumes, will leaving robots in the hands of employers and expecting government programs to pick up the pieces.

It is still the case that most people are forced to have the freedom to attempt to sell their ability to work to a small group of employers, who have the option of using robots to replace them—across the globe—if and when they deem it profitable.

What that means is: robots and their employers do kill workers. Because of profits.

 

*And, as the United Nations Conference on Trade and Development (pdf) warns, “the increased use of robots in developed countries risks eroding the traditional labour cost advantage of developing countries.” That’s another reason to be cautious when it comes to facile predictions that the combination of globalization and robotics will be an unqualified advantage to workers in the Global South.