海角大神

Confusion about job creation is obscuring America's productivity crisis

Illogical thinking about jobs 鈥 and the misguided policies that stem from it 鈥 stand in the way of focusing on America's most pressing economic problem: our slowest-ever growth in productivity. 

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Kacper Pempel/Reuters
Robots work on a new Volkswagen Crafter production line at the newly opened Volkswagen factory in Wrzesnia near Poznan, Poland, in September.

There is perhaps no other topic in economics that is more prone to illogical thinking than job creation. It is a wellspring of hysterical nonsense.

Let鈥檚 start with the canard that technology and automation kill jobs. Notwithstanding the fact that US productivity growth rates are at an all-time low, a growing chorus blames technology for killing our jobs. Writing in聽The New Yorker,听NYU professor Gary Marcus聽alleges聽that, 鈥渁s machines continue to get smarter, cheaper, and more effective, .鈥 So don鈥檛 bother polishing up that resume; here鈥檚 a link to the unemployment office.

Liberal economist Robert Reich聽argues聽that robots will 鈥 that are already dwindling. They will in short supplant the middle class.鈥 And MIT professors Erik Brynjolfsson and Andrew McAfee聽write聽that workers are 鈥, a fact reflected in today鈥檚 employment statistics.鈥

Meanwhile, another group of Chicken Littles sound a different alarm 鈥 not that technology is creating a job shortage, but instead that, as business writer Aimee Picchi聽warns, 鈥淭he US is facing in the next two decades.鈥 It is a vision of demography as destiny, best summarized in a titled 鈥淔rom Not Enough Jobs to Not Enough Workers: What Retiring Baby Boomers and the Coming Labor Shortage Mean for Your Company.鈥

So let鈥檚 cut through the confusion by getting back to the basics: Economy-wide labor shortages are not possible. End of story. Demand for workers comes from one thing 鈥 demand for goods and services. If we buy less, then companies produce less and therefore employ fewer workers. When baby boomers start retiring in droves, final demand will decline as incomes go down in retirement, thereby reducing the need for workers. So no labor shortage.

The Conference Board also argues that slow growth in productivity will mean that companies are going to need relatively more workers. But this argument is as illogical as the retirement argument. To understand why, it鈥檚 important to first understand that productivity growth 鈥 regardless of whether it is slow or fast 鈥 has no effect on overall employment. Yes, if an organization such as an auto manufacturer raises productivity, then it doesn鈥檛 need as many workers to produce the same number of cars.

But in a dynamic economy where governments don鈥檛 pay people not to work, those workers who lose jobs in auto manufacturing will move as quickly as they can into new jobs producing something else. What else, you ask? Well, the higher productivity also lets companies either cut prices or raise wages 鈥 and when that extra money is spent, it creates demand for new workers in other industries.

On the flip side, if overall productivity slows, then companies need not worry about a labor shortage, because with slower productivity there is slower growth in demand (because prices don鈥檛 go down as fast, and wages don鈥檛 go up as fast), so there is also less demand for more workers. In other words, if the auto industry can鈥檛 raise productivity, then the price of cars won鈥檛 go down, and car buyers will have relatively less money to spend on other things.

An endless series of聽,听,听, and聽聽all breathlessly ask, 鈥渨here will the next jobs come from?鈥 But it鈥檚 time to stop the hand wringing, because the answer is simple. They will come from the same sources that have always created them in the past: a combination of innovation on the supply side and changes in consumer demand. That employment in tortilla manufacturing went up 13 percent in the last decade had nothing to do with producers鈥 ability to make better tortillas through innovation; it had everything to do with the demand side of the equation 鈥 the聽population of Hispanic Americans has grown, as has the number of other people with a taste for Mexican food.

Conversely, that employment has grown more than 160 percent in Internet publishing and web search portals has had nothing to do with demand for content and everything to do with technology-based changes on the supply side (e.g., faster computers and more broadband Internet access). To be sure, we can鈥檛 easily predict where the jobs will come from聽in 10 years. They will depend on things such as whether Americans decide they want to keep buying $3 cups of coffee and whether virtual reality becomes so compelling that we all own VR goggles, which would employ more people at Starbucks and Oculus, respectively.聽

But all this confusion around jobs leads to very serious policy mistakes. The most serious one is avoiding the need to focus on boosting productivity. What elected official wants to support policies that are designed to increase productivity if productivity kills jobs? None in their right mind. The result is that, as former TD Bank economist Don Drummond聽argues, 鈥済overnments react to the public鈥檚 misunderstanding, even fear of productivity, by . Just as Lord Voldemort must be referred to as 鈥楬e-Who-Must-Not-Be-Named鈥 or the 鈥楧ark Lord鈥 so must 鈥榩roductivity鈥 be globally replaced by 鈥榠nnovation鈥 or 鈥榗ompetitiveness.鈥欌 And because of this phenomenon, pro-productivity policies such as expanding tax incentives for investing in automation equipment, or increasing funding for robotics research, are ignored.

The second problem is that jobs confusion leads policymakers to take measures that actually lower productivity and output under the false belief that jobs are scarce. Take France, for example. Amid worries of high unemployment, the French government in 2000 mandated a 35-hour work week. What could the politicians possibly have been thinking? They reasoned that if France had 24 million jobs, but 27 million workers, then why not mandate that the 24 million workers work 13 percent less? Surely, the unemployed workers would be hired to fill in the gap 鈥 and then聽voila!聽Unfortunately, basic economics foiled the plan, because when people work 13 percent less, they produce 13 percent less, and since their wages are related to their output they consume 13 percent less, too. So their reduced consumption leads to fewer jobs in other areas of the economy. This explains why the unemployment rate in France is actually higher in 2016 than it was in 2000.聽

Another ill-conceived idea that policymakers around the world have latched onto is that they should give unemployed workers extended periods of income support since there are not enough jobs to go around. But the reason there are not enough jobs is that governments are paying people not to work, and that money by definition comes from higher taxes on people who are already employed. Those people then consume less, thereby completely offsetting the added consumption the government is creating by supporting unemployed workers. And worse, long periods of unemployment insurance payments encourage people not to work. If they instead were retrained so they could rejoin the labor market, their increased consumption from being employed would create additional jobs, leading to a positive cycle of more jobs and less unemployment.

A third nonsensical policy idea is that we should favor small businesses, since according to urban myth they create the lion鈥檚 share of new jobs. In truth, they don鈥檛, but even sophisticated business leaders are susceptible to such thinking. is a recent聽USA Today聽op-ed聽by financial heavyweights Lloyd Blankfein, Michael Bloomberg, Warren Buffett, and Michael Porter, who argue that to speed job creation governments should lower taxes and regulatory burdens for small businesses even further than they already have relative to the obligations of large firms. But such a small business agenda would do nothing to create jobs, since any jobs created would come at the expense of other businesses, large and small. It would however reduce productivity and wages economy-wide, since US small business are less productive, on average, while paying significantly lower wages and providing fewer employee benefits than large firms.

So please, let鈥檚 put an end to the nonsense and stop the overwrought handwringing about jobs. Instead, let鈥檚 focus on what really matters: spurring technological innovation and putting the pedal to the metal for productivity growth.

Robert D. Atkinson () is the founder and president of the聽, a think tank focusing on the intersection of technological innovation and public policy.

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