The past three economic recoveries have been “jobless” ones. Job growth has lagged far behind GDP growth. In “Jobless recoveries and the disappearance of routine occupations,” economists Henry Siu and Nir Jaimovich point out that since the end of the Great Recession in June 2009, U.S. real GDP per capita has grown by 3.6% but per capita employment has fallen by 1.8%.
Popular explanations include lack of demand and policy uncertainty. But Siu and Jaimovich offer another explanations.
They argue that jobless recoveries “can be traced to a lack of recovery in a subset of occupations; those that focus on “routine” or repetitive tasks that are increasingly being performed by machines.”
Now it is hardly news that robots and computers have had a big impact on employment over the past 30 years, from machinsts to bank tellers:
All of the per capita employment growth of the past 30 years has either been in ‘non-routine’ occupations located at the high-end of the wage distribution, such as software engineers and economists, or in low-paying jobs, such as service occupations like restaurant waiters and janitors.
But the striking finding by Siu and Jaimovich, which can bee seen in the above chart, is the link between this phenomenon and the business cycle:
Following each of the 1991, 2001, and 2009 recessions, per capita employment in routine occupations fell and never recovered. This lack of recovery in routine employment accounts for the jobless recoveries experienced in the aggregate.
And what if routine jobs bounced back as they did in previous recoveries? “Had employment in routine occupations recovered as it did prior to job polarisation, the US economy would not have experienced jobless recoveries,” the economists conclude. It would seem that during downturn, companies turn to technology to replace labour and maintain productivity. Here is what the current recovery would look like under that scenario:
This reminds me of a chat I had last year with Erik Brynjolfsson, co-author of Race Against the Machine:
Me: The book suggests the pace of technological change is accelerating, yes? If machines can learn and evolve faster than men, how will we ever catch up and “race with the machines?” Is better education, for instance, a solution or just a mitigating force?
Brynjolfsson: Education is a mitigating force for sure, and to the extent it helps people adapt faster, perhaps more than just mitigating. We don’t need to win a race against machines. As the book argues in ch 4, the right approach is to race using machines. That means entrepreneurs need to keep inventing new ways combine technology and people to create new industries and innovations. There’s never been a better time to be a a talented entrepreneur and they will be needed even more in coming years as the economy undergoes faster creative destruction.
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