Talk politics.

The sad but true story of wages in America:

Recent debates about whether public- or private-sector workers earn more have obscured a larger truth: all workers have suffered from decades of stagnating wages despite large gains in productivity. The current public discussion illogically pits state and local government employees against private workers, when both groups have failed to sufficiently benefit from the economic fruits of their labors. This paper examines trends in the compensation of public (state and local government) and private-sector employees relative to the growth of productivity over the past two decades.

This paper finds: U.S. productivity grew by 62.5% from 1989 to 2010, far more than real hourly wages for both private-sector and state/local government workers, which grew 12% in the same period. Real hourly compensation grew a bit more (20.5% for state/local workers and 17.9% for private-sector workers) but still lagged far behind productivity growth.

The authors don't offer an explanation for this, but there are lots of ideas floating around. The one I think has the biggest impact is that fewer people are necessary for economic growth or productivity gains. Take manufacturing, for example: it's common for people to complain that the U.S. doesn't make things anymore, but that's simply not true. We just eliminated a bunch of manufacturing jobs and replaced them with a few engineers cleverly designing factories. The cheap stuff that requires cheap labor (for now) is generally what went overseas.

At this point I expect someone to bring up Economics in One Lesson by Henry Hazlitt, claiming that automation always creates jobs because he says so. His section on machinery ignores the role of corporations, assumes that nobody hoards cash (corporations have $2 trillion in cash right now), assumes that investment or spending of profits will result in jobs, and assumes that these jobs are as good as the ones replaced. It also implies that automation did not result in job loss in one particular industry without addressing the true causes of his century-old scenario: did wages rise because of the industrial revolution? Did the price of cotton drop because of agriculture in the U.S.? Was one guy buying millions of cotton shirts? We have no idea, because he provided no other information than two pairs of numbers. It's not a rigorous study of anything, so don't bother bringing it up.

Back to our story. The elimination of relatively repetitive jobs, and subsequent concentration of profits, seems a natural consequence of capitalism. Our economic system does not promise anyone jobs, it simply says that people who risk their capital reap the profits - and income gains have been going to the people who have capital. It seems increasingly clear that there is not much correlation anymore - after all, our economy is growing, productivity has grown immensely, and profits are at record highs. If profits/productivity and employment went together, there would be more jobs. This is not to say that we should get rid of capitalism, just that we should be totally honest about how employment fits into it.

But here's the interesting part: what happens when non-repetitive jobs become automated? IBM's Watson has other potential applications than embarrassing humans: it could diagnose patients quickly and minimize error - there goes a bunch of our doctors (and probably more of our nurses). What if we all had wireless electricity? There goes a bunch of our electricians. And so on, and so forth. Then our economy focuses even more on design and occasional maintenance of the generally self-sufficient things: the engineering, the research (until those become automated or unnecessary), and the ideas themselves. Also, interestingly, art and literature cannot be automated, so perhaps we will see more of a focus on that sometime. In the very long-term, we might even get to a point where nobody has to worry about money, because everything is cheap or free.

But that's probably far enough in the future that we need to worry about how to address this potential issue. I think we need to focus more on all that design stuff I just mentioned. There is also a shortage of plumbers and electricians in some places; people have this bizarre idea that the American dream is your kid going to college and getting a job in a cubicle, instead of good (and important!) blue-collar work. I also think that if we really want to increase employment, we might have to implement policies that reduce profits - if you accept my premise that the two do not necessarily go hand in hand. Higher wages, preventing offshoring, higher taxes for infrastructure investment, things like that.