The Coming Automation Crisis
An automation crisis is barreling towards the US. But the coming automation crisis is not, strictly, a technological crisis. Rather, it is a crisis of governance in the most basic sense. A fairly recent report from the Mckinsey Global Institute makes this obvious — though they studiously avoid drawing attention to this alarming conclusion.
Overall, MGI anticipates tens of millions of workers will be displaced by automation over the next 10–15 years, depending on the speed of automation. At the high end of their estimates, 73 million US workers (a little less than half of workforce!) would be displaced. Most of those displaced would have to switch occupations entirely. Their middle-of-the-road projection is still dramatic: only quarter of the workforce displaced, and with half of those switching occupation entirely.
The MGI report has plenty of suggestions for policy responses, but the US has essentially no public or private sector apparatus up to the challenge of smoothing this transition. The American government spends the least (after Mexico, which spends literally nothing on unemployment insurance) of any OECD country on labor market interventions. That money is used for job training and placement, for hiring subsidies and hiring in the public sector, and for unemployment benefits. Of the little money that is spent, only a tenth of that goes to job training — less than half of what Canada spends, and less than a sixth of what Germany spends, and a tenth of the amount France spends. The only tools that that remain are conventional fiscal policy, monetary policy and educational policy.
Now a conventional fiscal policy approach, where the government hires people to do useful work — (and there’s surely not shortage of work that could be done!) is less targeted than labor market interventions, but its a feasible way to maintain smooth out automation by maintaining full employment. But there is no plan at the federal level to do this — and since the employment effects of automation won’t be distributed evenly, action at the federal level, where “winners” can compensate “losers” will be necessary.
Using monetary policy to maintain full employment is problematic for various practical and political reasons. Practically, monetary policy may not actually work to deal with technological unemployment — indeed, lower interest rates may accelerate automation. But even if that problem was surmountable, the political problem remains; central bankers tend to be more concerned with inflation than unemployment — witness the recent preemptive interest rate hikes by the US Fed. God forbid we should wait for robust wage growth before panicking about an inflationary spiral!
And if the Fed can’t or won’t address this? The for-profit sector in the United States is not up to dealing with this crisis. MGI highlights a few firms in its report who invest in employee development, but these anecdotes are misleading. Overall the share of workers receiving on-the-job or employer-sponsored training has declined sharply since 1996, and stagnated since 2004. You will note that this period includes part of the 1990s boom, and 2001–2007 boom. This is entirely rational behavior on the part of firms, since a worker who receives valuable training could find work elsewhere. And since firms generally show no loyalty to their employees, it would be sheer madness to expect workers to show loyalty to their employers,
This leaves only educational institutions and workers themselves. And educational institutions are not ready for this either. For people entering the labor force, the future looks bleak. Only about 36% of Americans age 25–29 have 4-year college degrees or more. For the majority of Americans associate degrees, high-school degrees, and the nebulous term “some college” are the highest level of educational attainment. For those Americans quality vocational programs, beginning in high school, are invaluable way to improve skills, raise wages, and stay employable. But MGI’s best guess, since US data are hard to come by, is that less than 6% of Americans in secondary schools are enrolled in a vocational program, which would give those with only a high-school degree a fair chance That’s a smaller share enrolled than Brazil(!), and a tenth(!) of the Swiss level of enrollment. As far as post-secondary education goes, federal and state governments have systematically pulled back support for public higher education for decades, exacerbating spiraling tuition costs and miring a generation of graduates in debt.
What about community colleges, where displaced middle- and low-skill workers will most likely go for retraining? Data here are hard to come by, for the same reasons that data on high schools are hard to come by, but the ability of community colleges to handle the crisis does not look good either. Tuition is not trivial, though it varies wildly across states — about $5,000 for in-state public schools. Student debt, graduation rates, and transfers to 4-year schools for community college graduates also looks terrible. About 10 million people are enrolled in community colleges in the US in any given year, with about 2.5 million full-time students. Remember we’re talking tens of millions of workers displaced by automation over the period, with half that number needing to switch occupations entirely, requiring extensive retraining. I doubt our current educational system even has the capacity to cope with so many students, let alone provide a good education to all of them.
The MGI report helpfully makes two forecasts; a trend-line forecast where things continue as they are going and a step-up forecast where the government takes active measures to reduce the impact of automation on employment. Without a “step-up” policy response from the US government, MGI estimates a net loss of around 9 million jobs. That’s 5% of the labor force out of work because there simply aren’t jobs for them — about the same change in unemployment we saw in the Great Recession. And many of those new jobs won’t be good jobs — they’ll be low-wage unskilled work.
Read all that and tell me you aren’t worried.
No problem described above cannot be addressed, even solved, by straightforward, conventional policy responses. Other countries — like Germany — will be able to weather the automation crisis under their current policies. This is what I mean when I say the automation crisis is a crisis of governance. Not government that cannot act, not government that does not know how to act, but government that for structural and ideological reasons — political reasons! — will not act.
This failure, this inability to act, not just on this issue but a whole host of others, is the American crisis today.