Monday, March 30, 2015

Don't Worry About the Robots, The Fed Might Take Your Job

It is rare that a week goes by when we don't hear a story warning us that robots are going to be taking our jobs. (For example, here , here, here .) This is bizarre even as measured by a standard of economic reporting that allowed an $8 trillion housing bubble to grow largely unnoticed.

The basic point is a simple one: there is no real evidence that robots are displacing workers on any substantial scale. The other part of the story that makes the robot discussion so annoying is that the Federal Reserve Board is actively debating policy that has the explicit purpose of taking away people's jobs and almost no one seems to care.

Starting with the robot part of the story, we do have a measure of the rate at which robots and other technologies are displacing workers. It's called "productivity growth." This measures the rate of increase in output for each hour of workers' labor. If robots were displacing workers on a large scale then we should be seeing very rapid productivity growth since it would mean that we are able to produce the same amount of output with many fewer workers.

In fact the data show the opposite. Productivity growth has actually been very slow in this recovery. Since the recovery began in the summer of 2009 productivity growth has averaged 1.2 percent a year. In the last two years productivity growth has been less than 1.0 percent annually.

By comparison, productivity growth averaged 3.0 percent annually from 1995 to 2005. In the post-war Golden Age from 1947 to 1973 productivity growth also averaged almost 3.0 percent annually. Given the recent rates of productivity growth, it is hard to imagine that we will have to worry about productivity growing too rapidly any time soon.

Furthermore, we used to think that productivity growth was a good thing. In the Golden Age years of rapid productivity growth the unemployment rate averaged less than 5.0 percent. Unemployment averaged less than 4.0 percent in the four years at the end of the 1960s.

Workers shared in the benefits of rapid productivity growth with rapid wage increases. Higher wages meant increased consumption, which created demand for the greater levels of output made possible by productivity gains. Workers also took some of the gains in the form of more leisure, as workers got more and longer vacations.

At this point, the data indicate that we should be more concerned about slow productivity growth than fast productivity growth. But even if productivity growth were to speed up, this should allow for higher wages and an improved standard of living for workers, not the sorts of things we ordinarily fear.

The robots may not be likely to take our jobs, but there is a real risk that the Federal Reserve Board will. There is a regular drum beat in the business press about the need for the Fed to start raising interest rates. In fact the Fed itself is telling us to expect higher rates, the question is how much higher and how fast we get there.

The ostensible rationale for a rate hike is that we face a danger of the economy growing too rapidly and pushing the unemployment rate down too low. Lower rates of unemployment increase the bargaining power of workers, especially those at the bottom of the wage ladder. More bargaining power would lead to more rapid wage growth, which in turn could lead to higher rates of inflation. So the Fed would effectively be preventing workers from getting jobs in order to ensure that wages don't rise more rapidly.

In short, the Fed is quite explicitly threatening workers' jobs with its rate hikes. Unfortunately, due to the state of economic reporting, there are probably few people in the country who recognize this fact. The media has not been telling people that the Fed might take away their job, or at least has not put the issue in a way that most people would understand that this is the point of a Fed policy of raising interest rates.

This failure by the media is especially unfortunate since the Fed's interest rate is a policy decision that can be easily controlled: the Fed has the option to set a higher or lower interest rate. By contrast, it's not clear what we would do about robots, if it turned out to be the case that robots were actually leading to mass unemployment.

So next time you hear someone blabbing about how robots are going to take away our jobs tell them to can the science fiction and get back to the real world. The immediate threat to jobs is the folks are the Federal Reserve Board who want to raise interest rates. And as far as we know, none of them are robots.

from The Huffington Post | The Full Feed


No comments:

Post a Comment