Saturday, June 3, 2017

Cost disease or employment disease?

In his speech announcing that he's pulling the US out of the Paris climate agreement, Donald Trump once again displayed his preoccupation with coal mining.  That reminded me that I had once looked up figures on coal mining since 1900.  It took several different sources, which had to be spliced together, so it's useful (at least to me) to have it in one place:

The number of coal miners (the red line) has been declining pretty steadily since 1920.  But the number of tons mined has increased.   That means that the average miner is getting more coal--that is, productivity is increasing.

There are two distinct periods of productivity growth--averaging about 1.7% a year until 1950 and 3.9% since then.  So even though coal demand has grown by an average of 1.3% a year since 1950, employment has fallen to less than 1/6 of what it was in 1950.

The economist William Baumol, who died a few weeks ago, wrote about the consequences of different rates of productivity growth for different products.  There are some services for which productivity can't grow by much--for example, anything that requires one-on-one interaction, like getting a haircut or talking to a therapist.  Those services will get relatively more expensive--not less affordable in an absolute sense, but more expensive in terms of how many tons of coal (for example) you need to pass up in order to obtain them. This is usually discussed in terms of cost--people sometimes call it the "cost disease" of the low-productivity-growth sector.  But you could also call it the "employment disease" for the fast-growth sectors--the number of workers will decline unless you manage to keep selling more and more.  This point of view is more relevant to politics--coal miners vote (sometimes), but tons of coal don't.  

I've discussed the idea that politics might shift from a rich/poor to an open/closed alignment.   I think that the "employment disease" provides another reasons that this isn't likely to happen.  To protect jobs in the fast-growth sector, you have to restrict the rate of productivity growth, and reducing economic growth will reduce the chance of re-election.  An additional point is that it will produce a split between employers and workers in that sector, as employers push for productivity growth.  But what if the poles were reversed, so that the issue was protecting employment in the slow-growth sector?  David Brooks proposed something like this (he said he was drawing on Tyler Cowan):

"On the one hand, there is the globalized tradable sector — companies that have to compete with everybody everywhere. These companies, with the sword of foreign competition hanging over them, have become relentlessly dynamic and very (sometimes brutally) efficient.
      On the other hand, there is a large sector of the economy that does not face this global competition — health care, education and government. Leaders in this economy try to improve productivity and use new technologies, but they are not compelled by do-or-die pressure, and their pace of change is slower.
In politics, we are beginning to see conflicts between those who live in Economy I and those who live in Economy II. Republicans often live in and love the efficient globalized sector and believe it should be a model for the entire society. ....  Democrats are more likely to live in and respect the values of the second sector."

I think that the problem with this analysis is that Brooks assumes that differences in productivity growth between industries all come down to competition.  But as Baumol recognized, most of the difference is from the nature of what they do.  So there's not much need to protect employment in the "second sector," and you can't make that the basis of a strong political appeal.

People sometimes say that change is coming--maybe artificial intelligence will put me out of work in a few years unless the opponents of "creative destruction" succeed in stopping it.  One answer to that is historical:  education faced an enormous technological disruption before most other parts of the economy did, and it didn't lead to a decline in employment.  As Edward Gibbon said in the late 18th century:  "It has indeed been observed, nor is the observation absurd, that except in experimental sciences . . . the many valuable treatises that have been published on every subject of learning may now supersede the ancient mode of oral instruction. . . . But there still remains a material difference between a book and a professor:  the hour of the lecture enforces attendance; attention is fixed by the presence, the voice, and the occasional questions of the professor; and the more diligent will compare the instructions which they have heard in the school, with the volumes which they peruse in their chamber."  The more general implication is that if productivity growth takes place in these services, it will be mostly in the form of letting the worker give better service, rather than serving more people.  For example, there's been substantial growth in the ability of health care professionals to do things they couldn't do before, but not in the ability to do things faster.  

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