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I will soon be posting a podcast I did with Erik Brynjolfsson, director of MIT’s Center for Digital Business at the Sloan School of Management and co-author, along with Andrew McAfee, of Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy.
The above chart comes from McAfee’s blog. Here is what it means:
What’s going on? Why have the things that workers care about – jobs and wages – become decoupled from the the other things that economy-watchers care about? So far, explanations for this unhappy phenomenon include tax and policy changes, and the effects of globalization and offshoring. These are clearly powerful forces, but there’s one other one: technological progress.
I’ve been talking a lot about this latter force here and elsewhere, and it’s the subject of Race Against the Machine, a short e-book Erik Brynjolfsson and I wrote that came out a bit more than a year ago (we’re working on a full-length sequel now).
Our argument, in brief, is that digital technologies have been able to do routine work for a while now. This allows them to substitute for less-skilled and -educated workers, and puts a lot of downward pressure on the median wage. As computers and robots get more and more powerful while simultaneously getting cheaper and more widespread this phenomenon spreads, to the point where economically rational employers prefer buying more technology over hiring more workers. In other words, they prefer capital over labor. This preference affects both wages and job volumes. And the situation will only accelerate as robots and computers learn to do more and more, and to take over jobs that we currently think of not as ‘routine,’ but as requiring a lot of skill and/or education. …
The national discourse needs to acknowledge the Great Decoupling, and also acknowledge that it’s not going to be reversed by a couple quick policy fixes or even, I believe, by deeper changes to our educational and entrepreneurial systems. I believe it’s a simple fact of the technological era we’ve been creating.
I want us to continue this work of creation — as I’ve said before, unplugging the computers would be about as bad an idea as ripping up all the roads and closing all the schools — but as we do so we need to rise to the grand challenge of dealing effectively with the Great Decoupling.
Now I have some issues with the median income numbers. I also think the last decade reflects, to some degree, mean reversion after the 1990s. But I think the general point of the Great Decoupling is likely correct and should be a main focus on U.S. public policy. It will certainly be a main focus on this blog in 2013.
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