Wednesday, October 31, 2018

The Robots Are Coming And It Might Not Be A Case of Structural Unemployment

In my macroeconomics class, we talk about the types of unemployment. Here is one of them:

Structural-unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs. One example of this is when you are replaced by a machine.

See Short of Workers, Fast-Food Restaurants Turn to Robots: Flippy the burger chef doesn’t complain about the drudgery of grill work and never leaves the kitchen by Julie Jargon and Eric Morath of The WSJ. Also Manufacturers adopt robots that help human workers, not replace them. For now. by Alexia Elejalde-Ruiz of the Chicago Tribune. It discusses “cobots,” short for collaborative robots.

The WSJ article suggests that businesses are turning to robots due to labor shortages, not necessarily to replace workers. One place has "Flippy, a robot that turns the burgers and cleans the hot, greasy grill." The link has a video. Excerpts:

"The hospitality industry had 844,000 unfilled positions in April, a record high, according to the Labor Department. That accounts for about one out of every eight jobs available in America. Employment in food service and drinking places has increased by 1.6 million since May 2013 to 11.9 million in May 2018.

If businesses were just using machines to replace workers, you would see high unemployment in the industry, said Donald Grimes, a labor economist at the University of Michigan. “But you’re not seeing that at all.”

The 6% unemployment rate for restaurant workers is the lowest on record, according to the Labor Department. It tops the 3.8% overall unemployment rate, yet is extremely low for an industry with notoriously brisk turnover—a full percentage point below where it stood in 2000, the last time overall unemployment was as low as it is today.

The rise of machines in theory should lead restaurants to employ fewer people per establishment. So far that’s not happening, either. Nationwide, employment is up at individual quick-service restaurants, to 18.4 workers per establishment last year, from 17.4 before the recession began in late 2007.

Many restaurants are trying to do more, including staying open around the clock or delivering food. Some chains also need more employees to handle the increased demand that comes from automating tasks such as ordering."

"some Dunkin’ shops use digital refractometers to determine if coffee meets specifications.

Automation improves consistency, shaves time off tasks, and may help ease the incessant turnover that crimps productivity and staffing across the industry."

"A 2013 study by University of Oxford economists Carl Frey and Michael Osborne found that food service occupations, including cooks, hosts and servers, ranked in the top 20% of most automatable jobs among 700 occupations examined. Additional research from The Organization of Economic Co-operation and Development said food preparation faced the highest probability of automation among 88 industries."

"the labor pool is shrinking and wages are picking up, in part because of the shortages and also due to minimum-wage increases in many states."

"Automats, the waiterless establishments of the early 20th century that combined vending machines and a cafeteria, could be considered the first fast-food restaurants, said Magne Mogstad, a labor economist at the University of Chicago. They were shoved aside by fast-food restaurants that depended on humans to function.

“Automation,” he said, “may very well create demand for service with a personal touch.”

Panera Bread has created approximately 25,000 new jobs over the past two years including delivery drivers and new restaurant workers to handle the extra volume coming from digital ordering."

"McDonald’s Corp. is offering table service now too, thanks to self-order kiosks."

Related posts:

Robot Journalists-A Case Of Structural Unemployment?

Structural Unemployment In The News-Computers Can Now Tell Jokes 

WHAT do you get when you cross a fragrance with an actor?

Answer: a smell Gibson.

Robot jockeys in camel races

Are Computer Programs Replacing Journalists?

Automation Can Actually Create More Jobs

Friday, October 26, 2018

Joseph Schumpeter And Me

Jeffery S. McMullen of Indiana University published an article in the academic journal "Business Horizons." It is titled

"Are we confounding heroism and individualism? Entrepreneurs may not be lone rangers, but they are heroic nonetheless."

At the end of the post is a link to this article.

McMullen cites a paper I wrote in the 1990s and mentions my name in the same sentence as Joseph Schumpeter, an important economist from the 20th century.

Click here to read a short bio of him

A few years ago I wrote a post called "My Favorite Economist Is Joseph Schumpeter."  Here it is

""Why is this blog called The Dangerous Economist? Back in the early 1990s, I wrote a paper called "The Creative-Destroyers: Are Entrepreneurs Mythological Heroes?" It compares the entrepreneur in capitalism to the hero in mythology. I was never able to get it published in an academic journal. One referee even said the idea was dangerous. I doubt much harm would have befallen the U.S. economy had this paper been published. It is now online at

Creative Destroyers

A shorter version is at

Shorter Version

If you clicked on the link about why I chose this name for my blog and then these articles and read them you would have discovered some of the things that I list below and they would have pointed you to Schumpeter.

The process whereby innovations occur was called "Creative Destruction" by Schumpeter in his book Capitalism, Socialism, and Democracy. "Creative Destruction" was

"The opening of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation if I may use that biological term-that incessantly revolutionizes the economic structure from with in, incessantly destroying the old one, incessantly creating the new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in" (p. 83).

In his book The Hero with a Thousand Faces, Joseph Campbell described the action of the hero with

"The standard path of the mythological adventure of the hero is a magnification of the formula represented in the rites of passage: separation-initiation-return: which might be named the nuclear unit of the monomyth. A hero ventures forth from the world of common day into a region of supernatural wonder: fabulous forces are there encountered and a decisive victory is won: the hero comes back from this mysterious adventure with the power to bestow boons on his fellow man. "(p. 30)

Campbell (1968) also has a section called "The Cosmogonic Cycle" which "unrolls the great vision of the creation and destruction of the world which is vouchsafed as revelation to the successful hero" (p. 38). The connection to Schumpeter's theory of creative destruction is clear. A successful entrepreneur simultaneously destroys and creates a new world, or at least a new way of life. Henry Ford, for example, destroyed the horse and buggy age while creating the age of the automobile. But even more to the point is the fact that the hero finds that the world "suffers from a symbolical deficiency" (p. 37) and that "the hero appears on the scene in various forms according to the changing needs of the race" (p. 38). The changing needs and the deficiency may directly correspond to the changing market conditions or the changing desires for products. The entrepreneur IS the first person to perceive the need or opportunity for market profits.

Joseph Campbell's book inspired George Lucas to make the Star Wars movies."
Link to the article by Jeffery S. McMullen of Indiana University. March 2017 Business Horizons.

The full text of the article is at the link.

Here is the paragraph where he mentions my name.
"While such mythological heroism –— either super or mundane –— has long ruled the box office, it appears to be out of vogue in scholarly research on entrepreneurship. This is ironic, given that modern entrepreneurship theory is deeply rooted in such a narrative. Cyril Morong (1994), for example, demonstrates how the entrepreneur of Schumpeter’s theory maps onto the hero’s journey as described by Joseph Campbell. In his Theory of Economic Development, Joseph Schumpeter (1934) clearly taps into the ethos of existentialism, arguing that the entrepreneur is motivated by the joy of creating, the dream of founding a private kingdom, or the will to conquer. These motives give Schumpeter’s entrepreneur the courage necessary to bear uncertainty and impose his will –— much like a Nietzschean ├╝bermensch –— onto his social system by introducing innovative new combinations of resources. In doing so, the entrepreneur transforms the economy and, by extension, society. Thus, one of the most in fluential theories of entrepreneurship conceives of the entrepreneur as a mythological hero Are we confounding heroism and individualism? Entrepreneurs may not be lone rangers, but they are heroic nonetheless." 
Here are the last three paragraphs.

"Are entrepreneurs lone rangers? No, but that does not mean that entrepreneurship occurs without heroic individualism. Like entrepreneurship, true heroism is interdependent by its very nature. Even if an entrepreneur were somehow able to go it alone, his or her success would still depend on customers as well as other possible stakeholders (e.g., employees, investors, suppliers, distributors, etc.). Similarly, it is difficult to imagine how anyone could be heroic without a somewhat intimate knowledge of and concern for others’ welfare. Entrepreneurs must bear the costs of their actions before they receive the benefits, which only come if the costs the entrepreneurs incur ultimately benefit someone else.

Therefore, before we declare the heroic entrepreneur a myth, perhaps we should consider the term ‘myth’ as literally as Campbell has. Any innovative act exhibits an element of uncertainty and thus requires a corresponding degree of courage. Although this may only be a moment’s adrenaline rush, it is more likely an extended ride on an emotional rollercoaster that exhausts as well as elates. It is a hero’s journey of existential import and consequence. If this is true, then extraction of heroism from entrepreneurship is misguided, as it would do nothing to correct for scholars’ undersocialization of the entrepreneurial act. Instead, it would merely neglect the courage and sacrifice required from individuals like Elon Musk, who may not act alone, but nonetheless must act if entrepreneurship is to occur.

Ignoring this fact is not only likely to produce bad science but also may affect practice via bad policy. To the extent that policymakers erroneously believe heroism is unnecessary, they are likely to underestimate the costs entrepreneurs must incur not just to succeed, but also to try at all. Lack of sympathy about such sacrifices would likely shape institutional (dis)incentives. Thus, to deny that entrepreneurship is a heroic act is to neglect the need to reward its success and to forgive its potential failure. For these reasons, it may behoove scholars, policymakers, and practitioners alike to think twice before throwing out the baby of heroism with the bathwater of individualism."

Wednesday, October 17, 2018

Is There Economic And Political Meaning In "The Wizard of Oz?"

To get a handle on this, you can read Money and Politics in the Land of Oz By Quentin P. Taylor.  Below is an excerpt from the Taylor paper:

"Dorothy, the protagonist of the story, represents an individualized ideal of the American people. She is each of us at our best-kind but self-respecting, guileless but levelheaded, wholesome but plucky. She is akin to Everyman, or, in modern parlance, “the girl next door.” Dorothy lives in Kansas, where virtually everything-the treeless prairie, the sun-beaten grass, the paint-stripped house, even Aunt Em and Uncle Henry-is a dull, drab, lifeless gray. This grim depiction reflects the forlorn condition of Kansas in the late 1880s and early 1890s, when a combination of scorching droughts, severe winters, and an invasion of grasshoppers reduced the prairie to an uninhabitable wasteland. The result for farmers and all who depended on agriculture for their livelihood was devastating. Many ascribed their misfortune to the natural elements, called it quits, and moved on. Others blamed the hard times on bankers, the railroads, and various middlemen who seemed to profit at the farmers’ expense. Angry victims of the Kansas calamity also took aim at the politicians, who often appeared indifferent to their plight. Around these economic and political grievances, the Populist movement coalesced.

In the late 1880s and early 1890s, Populism spread rapidly throughout the Midwest and into the South, but Kansas was always the site of its most popular and radical elements. In 1890, Populist candidates began winning seats in state legislatures and Congress, and two years later Populists in Kansas gained control of the lower house of the state assembly, elected a Populist governor, and sent a Populist to the U.S. Senate. The twister that carries Dorothy to Oz symbolizes the Populist cyclone that swept across Kansas in the early 1890s. Baum was not the first to use the metaphor. Mary E. Lease, a fire-breathing Populist orator, was often referred to as the “Kansas Cyclone,” and the free-silver movement was often likened to a political whirlwind that had taken the nation by storm. Although Dorothy does not stand for Lease, Baum did give her (in the stage version) the last name “Gale”-a further pun on the cyclone metaphor.

The name of Dorothy’s canine companion, Toto, is also a pun, a play on teetotaler. Prohibitionists were among the Populists’ most faithful allies, and the Populist hope William Jennings Bryan was himself a “dry.” As Dorothy embarks on the Yellow Brick Road, Toto trots “soberly” behind her, just as the Prohibitionists soberly followed the Populists.

When Dorothy’s twister-tossed house comes to rest in Oz, it lands squarely on the wicked Witch of the East, killing her instantly. The startled girl emerges from the abode to find herself in a strange land of remarkable beauty, whose inhabitants, the diminutive Munchkins, rejoice at the death of the Witch. The Witch represents eastern financial-industrial interests and their gold-standard political allies, the main targets of Populist venom. Midwestern farmers often blamed their woes on the nefarious practices of Wall Street bankers and the captains of industry, whom they believed were engaged in a conspiracy to “enslave” the “little people,” just as the Witch of the East had enslaved the Munchkins. Populists viewed establishment politicians, including presidents, as helpless pawns or willing accomplices. Had not President Cleveland bowed to eastern bankers by repealing the Silver Purchase Act in 1893, thus further restricting much-needed credit? Had not McKinley (prompted by the wealthy industrialist Mark Hanna) made the gold standard the centerpiece of his campaign against Bryan and free silver?"
Now an excerpt from a book by Irivin B. Tucker:
"Gold is always a fascinating story: The Wonderful Wizard of Oz was first published in 1900 and this children's tale has been interpreted as an allegory for political and economic events of the 1890s. For example, the Yellow Brick Road represents the gold standard, Oz in the title is an abbreviation for ounce, Dorothy is the naive public, Emerald City symbolizes Washington, D.C., the Tin Woodman represents the industrial worker, the Scarecrow is the farmer, and the Cyclone is a metaphor for a political revolution. In the end, Dorothy discovers magical powers in her silver shoes (changed to ruby in the 1939 film) to find her way home and not the fallacy of the Yellow Brick Road. Although the author of the story, L. Frank Baum, never stated it was his intention, it can be argued that the issue of the story concerns the election of 1896. Democratic presidential nominee William Jennings Bryan (the Cowardly Lion) supported fixing the value of the dollar to both gold and silver (bimetallism), but Republican William McKinley (the Wicked Witch) advocated using only the gold standard. Since McKinley won, the United States remained on the Yellow Brick Road."
But not everyone agrees with this. Economist Bradley Hansen wrote an article titled The Fable of the Allegory: The Wizard of Oz in Economics in the Journal of Economic Education in 2002. Here is his conclusion:
"Rockoff noted that the empirical evidence that Baum wrote The Wonderful Wizard of Oz as an allegory was slim, but he compared an allegorical interpretation to a model and suggested that “economists should not have any difficulty accepting, at least provisionally, an elegant but controversial model” (Rockoff 1990, 757). He was right—we did not have any difficulty accepting it. Despite Rockoff’s warning, we appear to have accepted the story wholeheartedly rather than provisionally, simply because of its elegance. It is as difficult to prove that The Wonderful Wizard of Oz was not a monetary allegory as it is to prove that it was. In the end, we will never know for certain what Baum was thinking when he wrote the book. I suggest that the vast majority of the evidence weighs heavily against the allegorical interpretation. It should be remembered that no record exists that Baum ever acknowledged any political meanings in the story and that no one even suggested such an interpretation until the 1960s. There certainly does not seem to be sufficient evidence to overwhelm Baum’s explicit statement in the introduction of The Wonderful Wizard of Oz that his sole purpose was to entertain children and not to impress upon them some moral. The Wonderful Wizard of Oz is a great story. Telling students that the Populist movement was like The Wonderful Wizard of Oz does seem to catch their attention. It may be a useful pedagogical tool to illuminate the debate on bimetallism, but we should stop telling our students that it was written for that purpose."
I found a review of the book in the NY Times from 1900 and it does not mention anything about OZ having political or economic meaning. The book was also made into a musical a few years later and none of the reviews of the musical mention any political or economic meaning.

Wednesday, October 10, 2018

Youth Unemployment Hits 52-Year Low

Data suggest more opportunities are available to some groups that historically struggled to find jobs

See By Andrew Duehren of The WSJ.

I post something every month about the percentage of 25-54 year olds employed, since those are people in prime working years. That has been going up for the most part since November 2011. But things are getting better for even younger workers. That is good news, of course. But maybe even better that as they age this experience they are getting now will benefit them.

"Of Americans between 16 and 24 years old actively looking for work this summer, 9.2% were unemployed in July, the Labor Department said Thursday, a drop from the 9.6% youth unemployment rate in July 2017. It was the lowest midsummer joblessness rate for youth since July 1966."

"Low unemployment among young people shows that in a tight labor market more opportunities are opening to groups that historically have struggled to find jobs.

Similarly, the unemployment rate among older Americans who don’t have a high-school diploma fell to a record low this year. The jobless rate also fell sharply for those who completed high school but never attended college. Among racial groups, the unemployment rate for Latinos fell to 4.5% in July, the lowest rate on records back to the 1970s.

The jobless rate for black Americans touched a record low this year before rising in the past two months. For black youth, the jobless rate ticked up this summer to 16.5% from 16.2% in 2017, meaning this segment of the population hasn’t benefited as much as many others looking for work.

While millions of young people continue to enter the labor force in the summer months, the labor-force participation rate among young Americans—a measure of how many people are actively seeking employment—is still low by historical standards.

In July, the labor-force participation rate was 60.6% among young Americans, the same rate as last year and the highest since 2009. In 1989, the summer youth labor-force participation rate was 77.5%, and it has declined since.

Paul Harrington, an economist at Drexel University who studies the labor market for young people, said one reason for the decrease in the share of teenagers and young adults seeking summer work is the popularity of extracurricular activities and unpaid internships."