Labor’s Declining Share in the Computer Age

It’s very hard for me to look at this graph of labor’s share of value added in the US economy and not see evidence of the computer age.

Ever since the PC was introduced and started changing companies and the world of work in the early 1980s, labor has experienced a pretty steadily decreasing share of total US value added. Workers, in short, are taking home less and less of the overall economic pie.

This trend exists despite the fact that CEO and other executive pay is included in labor’s share, and has been increasing handsomely. I think this graph would be declining much more quickly in recent years if it only included the pay of rank-and-file workers.

As computers have become more powerful and plentiful, they’ve been adopted instead of people in more and more settings. This cuts total payroll costs, and can also decrease the bargaining power of the remaining workers. Both of these factors tend to make the line in the graph above head south.

I can’t see what’s going to make this graph change direction, especially since labor’s share tends to fall during an economic expansion. Can you see anything that will realistically cause labor’s share to rise in the coming months and years?

Victory in the Battle of Britain

Even though we both live in New England, Erik and I participated in this year’s Silicon Valley Comes to Oxford event, which just wrapped up. We were asked for a pretty specific reason: each year’s SVCO includes a debate at the Oxford Union, and this year’s motion was “This house believes that the average worker is being left behind by advances in technology.”

Since this is one of the main messages of Race Against the Machine the SVCO organizers asked me and Erik if we’d like to be part of the side for the proposition, which is Union-ese for the team that’s in favor of the motion. I agreed immediately, even though I have no formal debate experience (I like to argue, but that’s not quite the same thing). The chance to cross swords in the venerable Oxford Union was simply to great an opportunity to pass up.

And I started to feel pretty good about our chances when I learned that Valley legend Reid Hoffman would be on our team. Reid is a former Marshall Scholar at Oxford, a member of the winning side at last year’s debate, and an all-around wicked smart guy (our fourth was NEA VC Patrick Chung). Facing off against us would be a formidable team consisting of Cisco CTO Padmasree Warrior (there can be no better name for a debater), Kim Polese of Java fame, VantagePoint Capital Partners VC Kal Patel, and Marvell Technology VP of Marketing, member of the winning side in 2010, and all-around raconteur Tom Hayes.

I don’t know which side had the stronger hand going in to the debate. We could take advantage of the general economic unease of current times, and the sense that a lot of people are getting left behind. The side for the opposition had going for it the fact that SVCO is an overwhelmingly pro-technology crowd, and the wording of the proposition sounded pretty anti-tech.

In an Oxford Union debate the two sides alternate, with each person speaking for ten minutes. Reid explained to us that the first two speakers should set out their side’s arguments and supporting evidence, and so try to set the terms of the debate as favorably as possible. The latter two speakers should spend more of their time rebutting what the other side says. Because Erik and I wrote the book and were therefore most familiar with the facts and figures, we decided that we’d go first, and that Reid would bat cleanup.

The Side for the Proposition

I won’t try to summarize the whole event; it passed in a blur and I have way too few concrete memories. The only thing I can do with any confidence is reproduce my statement, since I wrote it down (in a huge rush before we left for the pre-debate dinner on Sunday night). Here it is, lightly edited to make myself sound more erudite than I was in the Union that night:

Madame President, honored guests and members, thank you for inviting us here tonight.

Our hosts at Oxford welcomed us last night with a wonderful cocktail party at the Divinity School. In the middle of it Kal Patel of the honorable opposition walked up to me and Erik and engaged in the most blatant opposition research and intelligence gathering that I’ve ever seen. After some quick chit-chat he asked, “So, have either of you actually been to India? How about China?”

Like Kal, I’ve been to both. Apparently unlike Kal, I’ve also familiarized myself with the relevant statistics for both. And those statistics directly support the proposition. Despite their recent explosive growth, industrialization, and urbanization both countries are still primarily rural, so the average worker is a farmer with a plow, not a programmer with a laptop.

And both countries have, like America, become steadily and significantly more unequal in recent years, with an elite joining the modern era of technology and trade and reaping huge benefits, and leaving the average worker behind. This elite is large in absolute numbers, but still relatively small. The Indian high tech sector, for example, employs 2.5 million people, which is fantastic. But that’s just 0.2% of the county’s population.

In his remarks Tom aimed a couple barbs at me, which is all part of the fun of an Oxford Union debate. In fact, it reflects well on him, because when he attaches himself to the long list of people who have slandered me, it marks the only time all night he’s with insightful company.

More broadly, we have been characterized as Luddites or pessimists. These charges are ridiculous on their face. The side for the proposition consists of two high tech venture capitalists, a former Silicon Valley CEO, and two scholars who have spent their careers quantifying and communicating the business benefits of technology. We are all huge technology optimists: we agree with the physicist Freeman Dyson that “Technology is a gift of God. After the gift of life it is perhaps the greatest of God’s gifts. It is the mother of civilizations, of arts and of sciences.”

But we’re not over-optimists, as the members of the honorable opposition are. If they’d like to understand the difference, I suggest they take some time while on this trip to visit the Voltaire Foundation, which is housed here at Oxford. There they can read all about Candide, who gains enough wisdom to move past his naive philosophy of “all is for the best in the best of all possible worlds” to the more mature view that “We must tend our gardens.” In other words, I invite the honorable opposition to get some Enlightenment.

We will need to tend the gardens of our societies with even greater care in the future, because when it comes to the impact of technology on the labor force, we ain’t seen nothing yet. In just the past couple years we’ve seen cars that drive themselves, phones that can understand what we’re saying and talk back even in multiple languages, and computers that can beat the best human quiz show players. These innovations, which are truly the stuff of science fiction, have already left the lab, and they’re starting to enter the mainstream economy. As they do, they’ll encounter the 350 thousand call center employees in the Phillipines, the 3.5 million Americans who drive trucks, and countless other workers around the world. These encounters will be disruptive.

The response here from the honorable opposition is something like  “there have been plenty of technological disruptions before, and people always found new and better jobs. So the same will happen again.” This makes the honorable opposition less enlightened not only than Voltaire but also than John Maynard Keynes, who said “When the facts change, I change my mind.” Or to say it another way, the honorable opposition is not even reaching the level of thought demonstrated by Cambridge men such as Keynes.

So here are the changed facts: In America the unemployment rate is, depending on how you count, between 9 and 16%, the average length of unemployment, at about 40 weeks, is twice as high as it’s ever been and not getting better. Median household income has actually declined over the past 14 years. And around the world, companies in even the lowest wage countries are embracing cutting edge technologies with great enthusiasm. For example, the huge Asian electronics manufacturer Foxconn has announced plans to buy over a million robots in the coming years. The androids are coming, and they work even cheaper than the Chinese. It’s time to change our minds.

In particular, it’s time to change our minds about the role of the high tech sector. That sector is bringing many wonderful things to the world, but it’s not bringing a lot of jobs, simply because of its great productivity. Apple, Amazon, Facebook, and Google together employ fewer than 150,000 people, which is less than the number of people entering the American workforce every month. And the newest companies are even more productive. Dropbox is a red-hot cloud-based storage company based in San Francisco. It’s on track to do $240 million in business this year, and has over 40 million users. It employs about 70 people.

It’s also time to change our minds and broaden our definition of ‘social entrepreneurship.’ When we hear that term at present, we think of sustainability, or clean or green tech, or improving the lots and lives of people in the developing world. All of these are worthwhile and wonderful things to do. Here’s another one: create jobs for average workers. Because there aren’t enough of them right now. The greatest scarcity in our economies now is a scarcity not of resources or even of good new ideas, but of opportunity — of chances to let people realize the American Dream, and the English Dream, the Indian and Chinese and Mexican dream.

If you think I’m exaggerating, I invite you to read the new book by Jim Clifton, who’s the CEO of Gallup. His organization polled people around the globe, and came to a striking conclusion. He writes:

“The primary will of the world is no longer about peace or freedom or even democracy; it is not about having a family, and it is neither about God nor about owning a home or land. The will of the world is first and foremost to have a good job. Everything else comes after that.” Clifton tallies up a worldwide gap of over 1 billion jobs, and that gap is growing, not shrinking, as we head deeper into the digital era.

I’d like to close with two quotes, one from my side of the ocean, and one from this one. The first is from Franklin Delano Roosevelt, who said in 1934 —  the last time things were this bad — “No country, however rich, can afford the waste of its human resources. Demoralization caused by vast unemployment is our greatest extravagance. Morally, it is the greatest menace to our social order.”

The poet and Oxford man W. H. Auden agreed, writing that

“…no one exists alone;
Hunger allows no choice
To the citizen or the police;
We must love one another or die.”

Thank you very much.

The motion passed by a vote of 173-105. Which felt really, really good.

 

Sunday: The Battle of Britain

I’m off tonight to London and then Oxford, where Erik and I have kindly been invited to participate in Silicon Valley Comes to Oxford, an annual event that’s part of Silicon Valley Comes to the UK. I’m looking forward to many things, including catching up with maven Sherry Coutu, former student Adam Nash, dissertation chairDavid Upton, Dean Peter Tufano, and lots of other folk I haven’t seen in too long. We’ll also get to tour theBodleian Library and see a lot of the kinds of old British things that make Americans swoon. I’ll try to not say “Gee, Whiz!” or otherwise show my innate hick-ness too often or too obviously.

The Bodleian

The highlight of the trip, though, will certainly be participating in a debate at the Oxford Union. The motion we’ll be debating is

This House believes that the average worker is being left behind by advances in technology

It’s inspired directly by Race Against the Machine, and in fact is an almost verbatim quote from the book. So Erik and I will be on the proposing team, along with Patrick Chung and the legendary Reid Hoffman (recently called “Tech’s Go-To Guy“).

I’d feel sorry for the opposing team if it were also not composed of heavy hitters: Kim PolesePadmasree Warrior(how’s that for a debater’s last name?), Tom Hayes, and Kal Patel.

But come to think of it, I feel sorry for them anyway. The theory and evidence are just so clearly on our side that they’re in big trouble. They’ll have to resort to every possible trick and technique —  pandering to the audience, resorting to ad hominem attacks, twisting our words, pointing out that Erik and I come from Cambridge, and so on — in order to even have any hope.

Which means, of course, that the evening will be a massive amount of fun, after which we’ll all go upstairs in the Union and toast each other while waiting for the results to come in.

I’ll post my debate wrap-up / victory lap after it’s over. I don’t think the it’ll be streamed live, but it will be filmed and made available later; I’ll let you know where and when.

Wish us luck!

My Scariest Graph

Everyone has their own candidate for ‘scariest graph of recent economic news.’ Here’s mine.

It comes from the excellent recent McKinsey Global Institute report “An economy that works: Job creation and America’s future.” The MGI team had the clever idea to plot how quickly jobs came back as the economy rebounded after each post-war recession. To be more precise, for each recession-and-recovery cycle they graphed how many months it took for the total # of jobs to get back to its pre-recession peak after GDP had come back to its pre-recession peak. There’s always a lag – jobs come back more slowly than GPD does —  but MGI wanted to see if that lag had been growing or shrinking over the years.

It’s been growing. A lot. Here’s the graph:

The cycles from 1948 to 1981 are remarkably consistent — it takes about half a year for employment to come back. And then things started to change; the employment recovery following the 1990 recession took almost twice as long as any previous one, and the 2001 time lag was over twice as long again. Given the depth and severity of the Great Recession and the achingly slow pace of job creation since its end, everyone expects the 2008 column on this graph to be by far the tallest one. In fact, there’s a lot of concern that we might not even get back to pre-recession employment levels before the next recession hits.

I don’t think it’s any coincidence that the lags get longer and longer as we head ever-deeper into the digital era. Recessions force companies to take a hard look at themselves and learn what they can do without. As computers get more and more powerful and capable businesses find that they can do without as many people. They then find that even when growth resumes they don’t need to resume hiring at anything like the pre-recession pace, since each worker they have is so much more productive and capable thanks to technology. So I don’t know how long the column for the 2008 recession is going to be on the above graphs, but something tells me it’s going to loom over the other ones like a skyscraper over a residential neighborhood.

What’s your scariest graph? And which ones, if any, contain good news? Leave a comment, please, and let us know.

Among the Techonomists: The To-and-Fro-a in Arizona

I’m headed today to Techonomy, which bills itself as “not a tech conference. It’s a conference about how tech is changing everything else.” I attended last year, and can vouch that that’s pretty accurate. Organizers David Kirkpatrick, Simone Ross, and Michael Federle have put together another great lineup that includes both thinkers and doers. I’ll use my technology platforms to broadcast my highlights and commentary.

I know I’ll have a lot to say about two Techonomy sessions. The first is a debate between my co-author Erik Brynjolfsson and Tyler Cowen. The title is “Can Technology Be Society’s Economic Engine,” which is not quite right. I’m sure that Tyler and Erik agree (as does everyone else at the conference) that tech can be a prime economic engine. The more pointed question is is technology serving that role at present? In his 2010 ebook The Great Stagnation Cowen argued that it’s not. In our 2011 ebook Race Against the Machine we argue that it is —  that technological innovation is going great guns at present — and that our labor force woes are due primarily to tech progress, not stagnation.

I’ll be in Erik’s corner for the debate, playing Burgess Meredith to his Sylvester StalloneErick Schonfeld of TechCrunch will be the moderator / referee. It’ll be great geek fun, and it’ll be streamed, so you don’t have to be at Techonomy to watch it live. Tune in here to watch the intellectual “to-and-fro-a in Arizona” (best I can do on a tight deadline and not much sleep) Monday at 10:20 EST on Monday, November 14.

The second event (unfortunately not livesteamed) will be a breakfast discussion of Race Against… led by me and Erik on Tuesday. I’ll report back here on what we talk about.

 

In Person and On TV Tomorrow

I’m giving a talk about Race Against the Machine tomorrow (Monday, November 7) at IBM’s offices in Cambridge, MA from 3:30 to 5 as part of their Center for Social Software’s fall speaker series. It’s free to attend and open to the public; RSVP here. Location is 1 Rogers St. in Cambridge, MA.

Erik, meanwhile, is hopping on the shuttle to NYC to become a TV celebrity. He’ll be on Morning Joe tomorrow morning. I don’t know exactly when, so I’ll get up and watch from the start. You should, too…  ;)

UPDATE: Visit the our Media Page for a video clip from Morning Joe.

We Suddenly Need a Debate Coach…

Erik and I have just been invited to debate the ideas in Race Against the Machine later this month at the Oxford Union as part of the event Silicon Valley Comes to Oxford 2011.

We’re still working on the exact wording of the resolution, but it will have to with economic growth, employment, innovation, and/or technology. The debate will take place the evening of Sunday, November 20, at the Union.

This feels a bit like being thrown in the deep end of the pool, and makes me wish I’d been a debate geek in high school (as opposed to the other kind(s) of geek I was).

The Robots are Coming

HBR editor-at-large Julia Kirby has a new post up summarizing what she saw at the recent RoboBusiness conference. I’m sorry I missed the event – it sounds fascinating. Kirby describes humanoid-but-legless robots for manufacturing, minimally active robots to work with autistic kids, and other android advances.

For me the money lines from Kirby’s post were

I heard about other applications — the use of robots to inspect sewers for damage, to automate warehouse operations, to harvest crops in fields. The list goes on. In response to one would-be entrepreneur’s question, “How do you come up with a good idea to turn into a business?” a panel of CEOs had no end of answers.

Charles Grinnell, who leads Harvest Automation, said simply: look at places where there is still a lot of manual labor.

Off Point: Correction and Clarification

As I blogged here yesterday, Erik and I were on WBUR’s On Point with Tom Ashbrook yesterday. As I listened to the audio, I heard myself say something really dumb: that since the unemployment rate was less than 10%, this meant that over 9o% of working-age Americans had jobs.

Of course, this is not the case at all. The main unemployment rate – the U1 – is 9.1%. But the broader U6 unemployment rate stood at 16.5% in September 2011. As Portal Seven explains

The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts “marginally attached workers and those working part-time for economic reasons.” Note that some of these part-time workers counted as employed by U-3 could be working as little as an hour a week. And the “marginally attached workers” include those who have gotten discouraged and stopped looking, but still want to work. The age considered for this calculation is 16 years and over

So fewer than 85% of working age Americans who want jobs have them. My bad for stating otherwise.

I also want to make a clarification. I said to Tom that, largely because of technological progress, the average American worker today has a standard of living that in many ways is superior to that of the Rockefellers. I still believe that’s true, but I brought it up not to tell people to quit whining, but only to highlight the great gifts of technology.

And I learned today that according to new census data, 6.7% of Americans – 1 in 15 – now live in extreme poverty, which is defined as 50% or less of the official poverty level. To make this concrete, extreme poverty is annual income of $5,570 or less for an individual, or $11,157 for a family of four. The more than 20 million Americans in this category are not living better than the Rockefellers. They’re in a dire place, and I never want to suggest otherwise.

Technological Plateau or Promise?

Have we reached a technological plateau or is innovation still going strong? David Wessel of the WSJ discusses the pros and cons of the argument and ties it to our current economic woes in this five minute video.