A Blog by Jonathan Low

 

Feb 6, 2019

How Tech Is Splitting the US Workforce In Two

Automation is beginning to bite, but in ways more subtle than the fevered predictions of wholesale unemployment at first suggested. That more gentle slope does not in any way reduce its impact - or inevitability. 

The Luddites weren't wrong, they were just 200 years ahead of their time. JL


Eduardo Porter reports in the New York Times:

Over the last 40 years, jobs have fallen in every single industry that introduced technologies to enhance productivity. Research has concluded robots are reducing demand for workers and weighing down wages, which have been rising more slowly than productivity. There is a small island of educated professionals making good wages at corporations which reap hundreds of thousands of dollars in profit per employee. A sea of less educated workers are stuck at businesses like hotels, restaurants and nursing homes that generate much smaller profits per employee and stay viable by keeping wages low.
It’s hard to miss the dogged technological ambition pervading this sprawling desert metropolis.
There’s Intel’s $7 billion, seven-nanometer chip plant going up in Chandler. In Scottsdale, Axon, the maker of the Taser, is hungrily snatching talent from Silicon Valley as it embraces automation to keep up with growing demand. Start-ups in fields as varied as autonomous drones and blockchain are flocking to the area, drawn in large part by light regulation and tax incentives. Arizona State University is furiously churning out engineers.
And yet for all its success in drawing and nurturing firms on the technological frontier, Phoenix cannot escape the uncomfortable pattern taking shape across the American economy: Despite all its shiny new high-tech businesses, the vast majority of new jobs are in workaday service industries, like health care, hospitality, retail and building services, where pay is mediocre.
The forecast of an America where robots do all the work while humans live off some yet-to-be-invented welfare program may be a Silicon Valley pipe dream. But automation is changing the nature of work, flushing workers without a college degree out of productive industries, like manufacturing and high-tech services, and into tasks with meager wages and no prospect for advancement.

Automation is splitting the American labor force into two worlds. There is a small island of highly educated professionals making good wages at corporations like Intel or Boeing, which reap hundreds of thousands of dollars in profit per employee. That island sits in the middle of a sea of less educated workers who are stuck at businesses like hotels, restaurants and nursing homes that generate much smaller profits per employee and stay viable primarily by keeping wages low.
Even economists are reassessing their belief that technological progress lifts all boats, and are beginning to worry about the new configuration of work.
Recent research has concluded that robots are reducing the demand for workers and weighing down wages, which have been rising more slowly than the productivity of workers. Some economists have concluded that the use of robots explains the decline in the share of national income going into workers’ paychecks over the last three decades.
Because it pushes workers to the less productive parts of the economy, automation also helps explain one of the economy’s thorniest paradoxes: Despite the spread of information technology, robots and artificial intelligence breakthroughs, overall productivity growth remains sluggish.
“The view that we should not worry about any of these things and follow technology to wherever it will go is insane,” said Daron Acemoglu, an economist at the Massachusetts Institute of Technology.

Semiconductor companies like Intel or NXP are among the most successful in the Phoenix area. From 2010 to 2017, the productivity of workers in such firms — a measure of the dollar value of their production — grew by about 2.1 percent per year, according to an analysis by Mark Muro and Jacob Whiton of the Brookings Institution. Pay is great: $2,790 a week, on average, according to government statistics.
But the industry doesn’t generate that many jobs. In 2017, the semiconductor and related devices industry employed 16,600 people in the Phoenix area, about 10,000 fewer than three decades ago.
“We automate the pieces that can be automated,” said Paul Hart, a senior vice president running the radio-frequency power business at NXP’s plant in Chandler. “The work force grows but we need A.I. and automation to increase the throughput.”
Axon, which makes the Taser as well as body cameras used by police forces, is also automating whatever it can. Today, robots make four times as many Taser cartridges as 80 workers once did less than 10 years ago, said Bill Denzer, Axon’s vice president for manufacturing. Workers’ jobs were saved because the company brought other manufacturing work back from Mexico.
The same is true across the high-tech landscape. Aircraft manufacturing employed 4,234 people in 2017, compared to 4,028 in 2010. Computer systems design services employed 11,000 people in 2017, up from 7,000 in 2010.
Most of the growth in the Phoenix-area job market since 1990 has come in low-productivity industries, like health care. Productivity is the dollar value of the output per worker in each industry. The job sectors in the charts below represent about two-thirds of all Phoenix-area jobs.
Productivity and job growth in the Phoenix metropolitan area
SELECTED
LOW-PRODUCTIVITY
JOBS
SHARE OF
ALL JOBS
1990
2017
AVERAGE
WEEKLY
2017 WAGE
CHANGE
IN WAGES
1990-2017
0%
5%
10%
Accommodation and food services
$420
+28
%
Administrative and waste services
750
+44
Educational services
832
+24
Retail trade
647
+8
Health care and social assistance
1,024
+12
SELECTED
HIGH-PRODUCTIVITY
JOBS
0%
5%
10%
Manufacturing
$1,422
+34
%
Finance and insurance
1,432
+47
Wholesale trade
1,504
+52
Information
1,420
+44
Real estate and rental and leasing
1,043
+51
2017 PRODUCTIVITY
IN THOUSANDS
$0
$100
$200
$300
+10
PCT-POINT
CHANGE
IN SHARE
OF JOBS
1990 - 2017
Health care
and social
assistance
+5
Administrative
and waste services
Accommodation
and food
services
Finance and
insurance
Educational
services
INCREASED
SHARE
DECREASED
SHARE
Information
Real estate
and rental
and leasing
Retail trade
Wholesale
trade
–5
Manufacturing
–10
LESS PRODUCTIVE
MORE PRODUCTIVE
By The New York Times | Sources: Bureau of Labor Statistics; Brookings (productivity)
To find the bulk of jobs in Phoenix, you have to look on the other side of the economy: where productivity is low. Building services, like janitors and gardeners, employed nearly 35,000 people in the area in 2017, and health care and social services accounted for 254,000 workers. Restaurants and other eateries employed 136,000 workers, 24,000 more than at the trough of the recession in 2010. They made less than $450 a week.
The biggest single employer in town is Banner Health, which has about 50,000 workers throughout a vast network that includes hospitals, outpatient clinics and home health aides. Though it employs high-paid doctors, it relies on an army of lower paid orderlies and technicians. A nursing assistant in Phoenix makes $31,000 a year, on average. A home health aide makes $24,000. While Banner invests heavily in technology, the machines do not generally reduce demand for workers. “There are not huge opportunities to increase productivity, but technology has a significant impact on quality,” said Banner’s chief operating officer, Becky Kuhn.
The 58 most productive industries in Phoenix — where productivity ranges from $210,000 to $30 million per worker, according to Mr. Muro’s and Mr. Whiton’s analysis — employed only 162,000 people in 2017, 14,000 more than in 2010. Employment in the 58 industries with the lowest productivity, where it tops out at $65,000 per worker, grew 10 times as much over the period, to 673,000.
The same is true across the national economy. Jobs grow in health care, social assistance, accommodation, food services, building administration and waste services. Not only are some of the tasks tough to automate, employers have little financial incentive to replace low-wage workers with machines.
On the other end of the spectrum, the employment footprint of highly productive industries, like finance, manufacturing, information services and wholesale trade, has shrunk over the last 30 years.
Economists have a hard time getting their heads around this. Steeped in the belief that technology inevitably leads to better jobs and higher pay, they long resisted the notion that the Luddites of the 19th century, who famously thrashed the weaving machines that were taking their jobs, might have had a point.
“In the standard economic canon, the proposition that you can increase productivity and harm labor is bunkum,” Mr. Acemoglu said.
By reducing prices and improving quality, technology was expected to raise demand, which would require more jobs. What’s more, economists thought, more productive workers would have higher incomes. This would create demand for new, unheard-of things that somebody would have to make.
To prove their case, economists pointed confidently to one of the greatest technological leaps of the last few hundred years, when the rural economy gave way to the industrial era.

In 1900, agriculture employed 12 million Americans. By 2014, tractors, combines and other equipment had flushed 10 million people out of the sector. But as farm labor declined, the industrial economy added jobs even faster. What happened? As the new farm machines boosted food production and made produce cheaper, demand for agricultural products grew. And farmers used their higher incomes to purchase newfangled industrial goods.
The new industries were highly productive and also subject to furious technological advancement. Weavers lost their jobs to automated looms; secretaries lost their jobs to Microsoft Windows. But each new spin of the technological wheel, from plastic toys to televisions to computers, yielded higher incomes for workers and more sophisticated products and services for them to buy.
Something different is going on in our current technological revolution. In a new study, David Autor of the Massachusetts Institute of Technology and Anna Salomons of Utrecht University found that over the last 40 years, jobs have fallen in every single industry that introduced technologies to enhance productivity.
The only reason employment didn’t fall across the entire economy is that other industries, with less productivity growth, picked up the slack. “The challenge is not the quantity of jobs,” they wrote. “The challenge is the quality of jobs available to low- and medium-skill workers.”


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