When Structural Change met Capital Dynamics

Last week, New York Times journalist Eduardo Porter posted an outstanding article on future chronic underemployment stemming from our advancing robot/AI future: Tech Leaps, Job Losses and Rising Inequality. Coincidentally, I just visited beautiful Cornell University last week to give a public Bovay lecture on exactly this topic, and so recent research gives me confidence to strongly endorse many of Porter’s theses. He points out that structural changes threaten prior automation-displacement dynamics, in that knowledge and skills opportunities are no longer increasing anywhere near apace with the erasure of formerly human labor categories. A particularly compelling witness to the new trends come to us by way of Nobel prizewinner Robert Solow, who once argued that growth effectively offsets shrinking labor categories due to innovation and productivity increases. Now, Dr. Solow says, is no longer quite to similar to then:

He cites “everyday reasons,” including the erosion of the minimum wage, the decimation of trade unions and anti-labor legislation.

But technology clearly plays a role. “We will know better in 10 or 15 years,” Professor Solow said. “But if I had to interpret the data now, I would guess that as the economy becomes more capital intensive, capital’s share of income will rise.”

As Piketty eloquently points out, capital inequality far surpasses labor income inequality (which is already terribly high in the U.S.!), and the extrapolation that I proposed at Cornell is as follows. Everything we know about our robot future suggests that robots are on the verge of becoming very efficient mining tools, extracting value from labor and refining the value into capital income. The result will be an accelerating shift in the balance of wealth from labor income to capital income- an inexorable march toward inequality, underemployment and ever-decreasing labor growth. These are very, very early days yet.



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