The Fires of Productivity

So one of the biggest things on my mind is the ferocious improvements in productivity in many sectors of the economy. Technological change is destroying jobs at a ferocious rate. Of course, that has happened since the Luddites rioted against new textile looms in the early 19th century, and probably before that, deep into the middle ages.

But the process is happening faster than ever, and perhaps faster than slower social customs and people can adapt to. One theme at the Jackson Hole Federal Reserve conference last year was whether the economy was becoming hollowed out by a decline in middle-skilled jobs such as basic accountancy, sales, and office work. Low-income face-to-face service jobs are still needed, like the store where I bought my sandwich for lunch. And there is demand for high-skilled people- employment for people with a college degree is just 4.4% in the most recent BLS release, compared to the headline unemployment rate of 9.2%.

But routine accountancy can be automated or outsourced. Turbotax can replace the routine tax advisor, Travel agents are mostly a memory. People like Thomas Friedman argue that if your job can be automated, before long it will.

Step back and look at the longer-term shifts which have revolutionized what people do. We feed ourselves in the US with less than 1% of the workforce employed in agriculture. People flooded off the farms and into the factories a century ago

Increasingly, we only need a tiny proportion of the workforce to manufacture goods as well. The head of GE, Jeffrey Immelt, was talking the other day about one of his factories in the Carolinas which makes jet engines. It was a cathedral of productivity, employing only 300 or so people. http://www.ft.com/intl/cms/s/0/1d467a7c-b883-11e0-8206-00144feabdc0.html#axzz1TQNwbp4Y

American companies are increasingly competitive with Chinese manufacturers again, as wages rise in China and productivity remains around 10% of comparable US levels. They need far fewer people. Manufacturing is going the way of agriculture.

Many services are now beginning to see the same thing. Retail is adapting to the internet - Borders closed down just last week.

The next big thing usually employs more people than ever before. Technological advance always destroys jobs, but usually creates better, newer ones in expanding sectors. ATM machines put bank clerks out of work in the 1980s. Cellphones creates tens of thousands of new jobs in the 1990s and 2000s. It is hard to know where such job will come in advance.

But the big growth companies right now, like Facebook and Twitter, employ hundreds of people. It is not like Henry Ford building the River Rouge plant and employing tens of thousands. And If improved technology actually cut medical administration costs, for example, an an entire sector of the US economy could quickly shed millions of jobs.

Maybe we are starting to see a more profound change in the nature of work and the nature of added value.