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Objective: Discuss the impact of automation on the income distribution. The index for this section is:
If we invest 25%of the GNP to expand the production of goods and services, the total output will grow. Everyone is potentially better off. The problem is maintaining an income distribution which promotes political stability. Empirically, the political stability of industrial democracies is based on two factors. First, most groups in society must have rising real incomes; and second, the society has considerable social mobility. When real incomes are rising the majority will support the pro business party. Japan is a classic example of the workforce supporting the business party. With social mobility, the ambitious from poor parents will concentrate on achieving personal success rather than revolution. The issue remains: Will real incomes keep rising for most people?
Consider first the industrial revolution in England, which began in the later part of the 18th century. Prior to the innovation of textile mills, merchants brought textile work to cottages. Cottages specialized in one function such as spinning or weaving. The merchant organized transportation from one function to another. Production was part time artisan work which complimented agriculture, for example winter work. Initially, the industrial revolution applied water and then steam power to the production process. To gain economies of scale, the new industrialists had to organize large numbers of machines in one plant. This required bringing the worker to the industrial town.
Life in textile towns was the basis for Marx's observations on capitalism that conditions in factories and factory towns were terrible by the standards of the middle class. Certainly, textile workers were worse off than the textile artisans that they displaced, but this is not the correct comparison. Textile workers may have actually been better than the standards of the unemployed agricultural worker or the urban resident in a poor house. In 19th century Great Britain, real wages did gradually rise contrary to Marx's theories. The rise of the factory and factory town created new social issues such as child labor and worker safety. The factory town created the need for city government to provide services such as clean water and education. While the wealthy can avoid the slums, they can not avoid a germ. England was politically stable because real wages rose and the worker obtained the vote so that any changes in the political economy could be made through the ballot box and not revolution.
In the United States until the end of the 19th century, workers had the option of going West and becoming farmers on new agricultural land. Consequently, labor costs in the US were higher than in Great Britain thus inhibiting the growth of industrialization. The issue of industrialization was a policy issue in Washington's administration. Jefferson and most agrarians opposed while Hamilton was in favor. Industrialization in the US was a gradual process starting around 1800. Employment trends in the US
a. Agriculture
|
__Date__ |
__% total emp |
|---|---|
|
1820 |
70 |
|
1900 |
40 |
|
1995 |
2 |
b. Nonagriculture
|
__Date__ |
__% mfg__ |
% services |
|---|---|---|
|
1920 |
55 |
45 |
|
1980 |
28 |
72 |
In this table mfg includes mining and construction and services includes government, services, finance, insurance, real estate, wholesale &retail trade, and transportation. Currently within the mfg firm approximately 1/3 the employees are not direct labor.
In the US the male worker always had the vote. (In eastern states some restrictions on male suffrage existed until the 1820s.) As a consequence of growing industrialization, the income distribution from 1860 to 1900 became much more highly skewed. From 1900 to about 1970, the income distribution was approximately stable. Nevertheless, for most workers real wages increased continually since 1790 and in the 19th and 20th centuries services expanded to create new jobs. Consequently, the US has always been a model of political stability in spite of the civil war.
During the past twenty years the income distribution has become more skewed. Part of the problem is the restructuring of the US economy faced with intense international competition. As was pointed out in the Chapter on manufacturing automation the US economy developed many weaknesses after WWII. Also, investment since 1970 was directed at reducing energy usage because of OPEC and improving the environment. Nevertheless, the expansion of the economy in the past twenty five years was sufficient to absorb the baby boom and a greater percent of women and minorities in the labor force. While the economic expansion created a large number of jobs, economic performance was far from perfect because real wages for most workers decreased over this period. Today, US wages are no longer high compared with other developed countries.
Nevertheless, family consumption actually increased during the past 20 years due to the increase in two income families and fewer children. While in the short run the decline in the baby boom may actually lead to a shortage of new workers, the question remains will advancing automation mean a decline in living standards and decreasing political stability?
Since the mid 80s US corporations have become much more efficient through reorganization during which they have shed millions of employees. Now in the current expansion corporate profits, and productivity have greatly increased while wages are stagnating. This differs from previous upturns when workers obtained rising real wages with rising real productivity. Since the 70s, employees and entrepreneurs with higher education have had increasing incomes; whereas, those with only a high school education have had stagnating wages.
To return to increasing real wages the US must solve many difficult social problems such as primary and secondary education, the deficit, medical costs, and a low rate of manufacturing innovation. If the US returns to a high rate of productivity advance, then the problem of automation and the income distribution will to some extent take care of itself. For example, if productivity advances 6%managers can simultaneously reduce the workweek 3%and increase wages 3%without increasing unit labor costs. Thus with a continuous rate of productivity advance, wages increase and the workweek decreases. More workers are employed for fewer hours.
However, a major problem with this scenario is the increasing cost of fringe benefits. Today, managers prefer to use overtime rather than hire new workers because the new workers must be paid fringe benefits. Also, managers prefer part time workers to full time workers because part timers do not get fringe benefits. To promote a smooth transfer to a shorter workweek, I personally believe the cost of all fringe benefits should be transferred to the individual.
Productivity Paradox
The productivity paradox is the empirical observation that with all the investment in information technology the growth of productivity has been slow since 1973. A chart of business productivity in output/hour is shown below:
The data shows a downward trend since the 60s that may have been reversed since 1995. There are several explanations for this paradox:
Paul David, "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox," American Economic Review: Papers and Proceedings (May 1990) points out that it was decades after the introduction of the electric motor that business reorganized production using electric motors to increase productivity.
I am optimistic about increasing productivity in the future. The lag in rapid increase in productivity in my mind is due to first the need to convert all data to electronic form compatable with software throughout the firm and the advance of communication needed to use the data. The the past five years business has begun to radically reorganize their business processes through the internet to take advantage of computation and communication. These results have shown up in recent productivity figures.
The rapid increase in service productivity in my estimation will come with broadband communications so that sevices can be provided through the internet. In consulting, consultants visit the customer site during the week and are flown home on the weekends. At the site they get room, board, and a car. The overhead is about 40%. Only major corporations can afford such expense. Enst and Young has Ernie, a consulting service through the internet. This is just a prelude of what is to come through the internet drastically reducing costs and expanding consulting to all firms.
a. Short run: From the end of World War II until the 80s many manufacturing industries such as automobiles and steel were negligent in promoting manufacturing innovation. Consequently, manufacturing technology in these industries was inferior to the world state of the art determined by Japan. Since about 1985 there has been a massive restructuring of US manufacturing industries to advance innovation and regain their position as world leaders in technology. US industry is playing catchup to the Japanese. While we are ahead in programming, they are ahead in FMS, robots and quality control. These changes are causing profound changes in manufacturing. First, in these industries blue collar labor will gradually decrease with job destruction occurring at a much faster rate than job creation. New industries such as biological manufacturing products using bacteria are likely to be highly automated from the start. Therefore, the restructuring will displace large numbers of blue collar workers from manufacturing altogether.
In addition, the number of white collar workers in manufacturing will greatly decrease. Staff and middle management presently perform an information function. With integrated corporate data bases, much of this work can be done by assistants reporting directly to the top management group. Chrysler already has laid off numerous white collar workers. GM is considering laying off 10%of its white collar workforce. The move to electronics instead of paper in the corporation and the ability to analyze data through programs means that corporations can be more profitable with fewer white collar workers.
Long run: Once the restructuring is complete in the next few years, the pace of displacement of workers from manufacturing will definitely slow down. In order to discuss how fast workers will be displaced from manufacturing over the long run, we need to consider the automation frontier. Automation proceeds from the structured to the unstructured environment. It is a major advance to get machines to deal with contingencies, for example, what the robot does if it drops a part. A programing approach must consider every possible contingency. In trying to program robots to do even simple tasks like moving blocks, the number of contingencies is large. Genuine progress will be slow. One of the ways is to redesign the production process in a streamlined fashion with fewer random elements. For example, painting and welding by robots were accomplished not by giving robots sight, but by expending a great effort to have the auto exactly positioned for the task. An example of a market where automation will proceed slowly is housing and construction. When housing is automated, the type of house produced will probably be very different from today.
The displacement of employment by automation will probably be gradual. The speed of the automation frontier in displacing humans is a function of technological advance, investment, and the problem of adapting automation technology to similar industries. The knowledge of how to automate a particular operation will be acquired by trial and error on each new plant. A new advance does not suddenly sweep over all industry instantaneously. Automation requires major investments in new facilities which businessmen are generally cautious about until a new technology has been demonstrated a definite winner. Once an operation becomes demonstrably cheaper to do by automation, a period of ten to thirty years exists before all human labor will be displaced from that operation. Another factor which requires time is that while each industry is similar, they do have their own distinct features. Effort is required to adapt successful technology in one industry to a similar related industry. I believe the decrease in employment in manufacturing will proceed, like the decrease in employment in agriculture, gradually over time.
Currently, some 80%or so of jobs are in the services. Services included government, wholesale, retail, medicine, education, finance, insurance, real estate, professional services like law, and utilities. Most new jobs are created in the services. Currently, computer and communications advances are creating new services, such as information services, at a rapid rate. In the services, job creation from the expansion of new services is much greater than job displacement from automation. Therefore, the issue of rising real income depends both on how fast the services are automated and how well workers are trained.
a. Short Run: Services have been using increasing amounts of capital in the form of computers, software and communications equipment for some time. The automation of the services, like the automation of manufacturing, will proceed slowly though the continual reorganization of work to efficiently use increasing combinations of software residing in computer, communications and other equipment. Until there is a large expansion in the communication system, there will not be a drastic change in service employment. Employment will increase in the transition because of the growth of new services and the fact that firms will have to maintain dual electronic and paper systems. In the near future, there should be an increase in employment in the services. One area which employment could potentially expand is personal services, but I doubt if people will want to become servants and anyway, in time a home robot will become the perfect obsequious servant.
b. Long Run: The major impact of the electronics technology on the services will not occur until the paperwork process is replaced by electronics and the communication channel capacity expands markedly. Once this occurs in 20-30 years, workers, such as administrative assistants, who perform routine paperwork functions, such as filing and communicating paperwork, will be rapidly displaced. Workers in retail and wholesale trade will gradually decrease as markets shift to the social nervous system. Also, with the automation of information flows in government the number of government workers will gradually decrease.
Some interesting sites to surf for the change in the income distribution are:
Since the proposed modifications to government would take several decades to gain popular approval (if ever), the governmental design is proposed for the forecasted political economy of the mid 21st century.
We assume that the communication system will be a high capacity fiber optics system integrating all forms of communication. Through this communication system, individuals can access all of societies store of knowledge and entertainment.
Most individuals will have much greater freedom of location than today. As organizations become communication networks, information workers could live vast distances from the physical location of their organizations. As I assume the workweek will continue to decline to say 20 hours a week, even blue collar workers will have greater freedom of location. They could work a week of say 60 hours and then have two weeks off. They might commute great distances for the one week and board.
I assume the US will partially solve its social problems to return to rising real incomes, which promotes a politically stable society.
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norman@eco.utexas.edu