Technological Disruption in the Labor Market

By David J. Deming, Christopher Ong, and Lawrence H. Summers. From NPR's Planet Money. Summers was Secretary of the Treasury from 1999 to 2001, director of the National Economic Council from 2009 to 2010 and president of Harvard University from 2001 to 2006.

"Obviously, there is a big fear right now that artificial intelligence will kill a bunch of jobs. We don't know what's going to happen. But we can maybe learn from the past.

The three economists, one of whom is a former US Treasury Secretary (Larry Summers), go through history — all the way back to 1880 — and estimate how new technologies changed what people do for work. So, for example, how the invention of the automobile may have killed horse-and-buggy jobs and created jobs in factories manufacturing cars.

The economists find that one of the most disruptive periods for occupational change was between 1940 and 1970, "when agricultural employment was still disappearing, manual labor was shifting into production and away from railroads, and clerical and administrative work were growing rapidly."

One of their most interesting findings is that the least disruptive period was rather recently. "The years spanning 1990 to 2017 were the most stable period in the history of the US labor market, going back nearly 150 years." That's maybe surprising because that was an era when we saw the spread of the personal computer, the rise of the Internet, and the advent of the smartphone. The study suggests that, relative to earlier technological waves, these technologies didn't do as much to change what Americans do for a living.

However, since 2017, the economists find, we've started seeing an uptick in occupational change.

First, they find that high-paid employment has grown while low- and middle-paid employment has declined as a percentage of total workforce. Maybe good news?

Second, and related to the previous finding, the economists find that "employment growth has stalled in low-paid service jobs."

Third, they find a huge increase in people working in science, technology, engineering, and math-related jobs. "The share of employment in STEM jobs has increased by more than 50 percent since 2010, fueled by growth in software and computer-related occupations," they write.

Finally, they find that "retail sales employment has declined by 25 percent in the last decade, likely because of technological improvements in online retail." They hypothesize that maybe this has to do with the advent of artificial intelligence. "While large language models (LLMs) like ChatGPT are too new for us yet to see any direct impact on the labor market, companies have been using predictive AI to optimize business operations since at least the mid-2010s. Online retailers like Amazon use AI to personalize prices and product recommendations and to manage inventory more efficiently, outcompeting big-box retail." Of course, the pandemic had an effect here too.

Looking forward, the economists suggest that occupational change will likely continue at a relatively fast pace (compared to the 1990-2017 period) as Generative AI and other new technologies change the labor market. Link to paper"

Related posts:

 

Amazon’s New Robotic Warehouse Will Rely Heavily on Human Workers (2024)

 

Self-service kiosks at McDonald’s are not reducing employment (2024) 

 

Robots Have Been About to Take All the Jobs for 100 Years (2023) 

 

Are robot vehicles replacing workers in freight yards, warehouses and seaports or are they being used because it is hard to find workers? (2023)

Answering the Call of Automation: How the Labor Market Adjusted to the Mechanization of Telephone Operation (2022) 

Are Robots Going to Steal Our Jobs? Many technologists think so, but economists aren't so easily convinced (2017)

Meet the Army of Robots Coming to Fill In for Scarce Workers (2022)

Automation Can Actually Create More Jobs  (2016)

Warehouses Look to Robots to Fill Labor Gaps, Speed Deliveries  (2021)

Are Monkeys More Rational Than Humans?

See The Hard Science of Monkey Business by AMY DOCKSER MARCUS of The Wall Street Journal. It is about the research that Yale professor Laurie Santos and the economic experiments she does with primates (Capuchin monkeys). Excerpts:

"The primate lab is home to 10 "shockingly smart" brown Capuchin monkeys trained to trade tokens for food. It was a short leap for Dr. Santos and her team to decide to study how monkeys make decisions about money."

"In one experiment, they gave each monkey a wallet filled with 12 flat aluminum tokens, monkey money that the animals could trade for food. Right away, the scientists saw the similarities to human behavior. When researchers slashed the price on certain foods, the monkeys sought out the best deal. They also typically spent all their cash at once and didn't bother to save.

Then researchers decided to test a more complex economic theory which shows that people do not judge price in a vacuum. Sitting with the team at the coffee shop, Dr. Santos could see how the concept worked in her own life. Many days, she feels guilty about spending $2.20 on a cup of coffee. But when she looks up at the chalk board listing drink prices, the Nutella Latte goes for $3.85 and the Ginger Snap is $4.15. "My $2 cup doesn't seem as expensive anymore," she said.

Monkeys make similar assessments. In one experiment, a researcher showed a monkey two pieces of apple but handed over one in exchange for a token. A second researcher showed one piece of apple and gave the slice to the monkey for the token. The monkeys strongly preferred to trade with the second researcher. They did not like being offered two apple pieces and then only getting one."

"Researchers wondered whether monkeys, like humans, desire an expensive item more. For the same number of tokens, the monkeys could choose whether they got a tiny square of blue Jell-O or a big chunk of red Jell-O. Later, the monkeys were allowed to choose which kind they wanted. If the monkeys were like humans, they would have gone for the blue Jell-O, the more "expensive" choice. But the monkeys gorged happily on both.

The researchers are still gathering and analyzing the data. One possibility: Human taste preferences are based on many factors, whereas the monkeys' are not. Some might argue that human economic behavior is more advanced since it includes "culture and meta-awareness" in decision-making, said Dr. Santos. There's another, less flattering possibility too. "The monkeys," she said, "are more rational.""

See also Chimpanzees are rational maximizers in an ultimatum game by Keith Jensen, Josep Call & Michael Tomasello of The Max Planck Institute for Evolutionary Anthropology.

"Abstract

Traditional models of economic decision-making assume that people are self-interested rational maximizers. Empirical research has demonstrated, however, that people will take into account the interests of others and are sensitive to norms of cooperation and fairness. In one of the most robust tests of this finding, the ultimatum game, individuals will reject a proposed division of a monetary windfall, at a cost to themselves, if they perceive it as unfair. Here we show that in an ultimatum game, humans' closest living relatives, chimpanzees (Pan troglodytes), are rational maximizers and are not sensitive to fairness. These results support the hypothesis that other-regarding preferences and aversion to inequitable outcomes, which play key roles in human social organization, distinguish us from our closest living relatives."

Related posts:

Monkeys seem to be selfish and rational (2021) (Monkeys in Bali know the most valuable items to steal from tourists to get them to trade food to get the items back)

Are Chimps More Rational Than Humans? (2007)

It reminds me of research that was done at Texas A & M some years ago. They found that rats and pigeons act rationally. If they had to press a lever so many times to get a drop something to drink or a pellet of food, they "bought" less of either one if the scientists raised the number lever pushes it took to get one. This was like raising the price. More lever pushes to get either food or drink, the less they tried to get of it. So they followed the law of demand. This was reported in Steven Landsburg's book The Armchair Economist.

A case of ceteris paribus: does moderate drinking harm your health?

See The Dueling Science Behind How Alcohol Affects Your Health: Two reports are set to influence American guidelines for alcohol consumption by Brianna Abbott and Julie Wernau of The WSJ. Excerpts:

"The scientists’ findings [from the Interagency Coordinating Committee on the Prevention of Underage Drinking] released in January were stark: Men and women in the U.S. have a 1 in 1,000 risk of dying from alcohol use if they consume more than seven drinks a week. This risk increases to 1 in 100 if they consume more than nine drinks a week. 

Having one drink a day was linked with an increased risk of liver cirrhosis, esophageal cancer and oral cancer. It also was linked to a lower risk of strokes due to blood clots; but that benefit could vanish if people drink a lot in one sitting, even on rare occasions, the report said." 

"Yet the National Academies’ review, published in December, concluded that adults who drank moderately—up to two drinks a day for men and one drink for women—had a 16% lower risk of dying from any cause compared with never-drinkers, and a lower risk of cardiovascular death. It also found that moderate drinkers had a 10% higher risk of breast cancer. "

"Some other scientists took issue with the report itself, including the connection between moderate drinking and lower mortality. People who don’t drink sometimes have health problems that preclude them from it, researchers said. Moderate drinkers also might be moderate in other activities including diet, and some studies show that they have higher incomes. (people with higher incomes are generally healthier)

That can make moderate drinking look good, even when the health halo isn’t from the alcohol.

“I don’t believe the association is a real one,” said Dr. Michael Siegel, an alcohol and tobacco researcher at Tufts University School of Medicine, who wasn’t involved in either report. “It’s such a normal part of our culture that people who don’t drink, there’s something unique about them.” 

Alcohol research often relies on asking people about their drinking habits and recording their health outcomes, making direct causes sometimes difficult to tease out, researchers say. People also underestimate how much they drink."

"Genetics, smoking history and behaviors including exercise add or detract from personal risk, researchers said. Binge-drinking is worse than spreading it out."

Related posts:

Great Moments In Causation Vs. Correlation: Eat more chocolate, win more Nobels? (2012)

Banning Cell Phones While Driving And A Lesson In Ceteris Paribus (2010) 

Tough Professors Are Better For Students In The Long Run (2011)

Will Studying Economics Make You Rich? A Regression Discontinuity Analysis of the Returns to College Major (2023)

Studying Economics Increases Wages a Lot (2020)

Even This Year Is the Best Time Ever to Be Alive

By Nicholas Kristof of The NY Times. Excerpts:

"2024 appears to have been the year in which the smallest percentage of children died since the dawn of humanity.

For most of history, about half of newborns died as children. As recently as 1950, more than one-quarter did. In 2024, the best guess of United Nations statisticians is that an all-time low of 3.6 percent of children died before the age of 5, a bit lower than in 2023 (which set the previous record).

That is still far too many. But the risk of that worst thing happening has dropped by half over the last quarter-century. Just since 2000, more than 80 million children’s lives have been saved.

Likewise, consider extreme poverty, defined as having less than $2.15 per day, adjusted for inflation. Historically, most human beings lived in extreme poverty, but the share has been plummeting — and in 2024 reached a new low of about 8.5 percent of the world’s people."

"Every day over the past couple of years, roughly 30,000 people moved out of extreme poverty worldwide." 

"we’re approaching 90 percent literacy worldwide, and the number of literate people is rising by more than 12 million each year."

"Scientists have newly developed the first antipsychotic medication for schizophrenia in decades, and a vaccine against a form of breast cancer may enter Phase 2 trials this year. And with semaglutide medications, Americans are now becoming thinner, on average, each year rather than fatter, with far-reaching health consequences."

Related posts:

Why 2017 Was the Best Year in Human History (2018)

The World Is Getting Quietly, Relentlessly Better (2019)

The short history of global living conditions and why it matters that we know it (2018)

How Much Has Life Expectancy Improved?  (2018)

This Has Been the Best Year Ever (2019)

Some Good Economic News (2013)

Why 536 was ‘the worst year to be alive’ (2020) 

We are privileged to live in an age of medical miracles that increase human welfare (as the share of the world’s people living in extreme poverty has fallen) (2023)

A ChatGPT story: What if Jane Austen and Adam Smith met to discuss his book The Theory of Moral Sentiments?

Besides An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith wrote a book called The Theory of Moral Sentiments. These links allow you to read those entire books from The Library of Economics and Liberty.

Jane Austen is famous for writing novels like Pride and Prejudice.

After the short story I have a link to an earlier post about a book called Pride and Profit. This book is about possible ways Austen incorporated Smith's ideas in her books.

"A Meeting of Minds: Jane Austen and Adam Smith

"The year was 1815, and Jane Austen had just published Emma, her fourth novel. She was staying in London briefly, having been invited to a salon hosted by an eccentric patron of the arts who prided himself on gathering great minds under one roof. Among the distinguished guests was Adam Smith, the aging Scottish economist and philosopher, whose The Theory of Moral Sentiments had profoundly influenced many thinkers since its publication in 1759. [Smith actually died in 1790]

Austen, initially reluctant to attend, was intrigued when she learned Smith would be present. Though she had only recently encountered his work, she found his exploration of human sympathy and moral behavior fascinating, particularly in light of her own literary focus on social relationships and individual character.

The evening was lively, with clusters of conversation filling the room. When Austen was finally introduced to Smith, she curtsied respectfully, and he inclined his head in acknowledgment. His once-vibrant eyes had dimmed with age, but his mind remained sharp.

“Miss Austen,” he began, his Scottish brogue softened by years of academic discourse, “I understand you are the author of novels much admired for their keen observation of society.”

“Indeed, sir,” she replied with a smile. “Though I am but an amateur in such matters compared to a philosopher of your stature. Your Theory of Moral Sentiments has given me much to consider.”

Smith’s expression brightened. “Ah, I am heartened to hear it. And tell me, what insights have you drawn from my humble musings?”

Austen hesitated briefly before responding. “Your exploration of sympathy as the foundation of moral judgment struck me deeply. It seems to align with my own observations—that our capacity to imagine the feelings of others governs much of our conduct. Yet I wonder, do you believe that sympathy alone can sustain a just society? What of self-interest, which so often drives human action?”

Smith chuckled, a low, gravelly sound. “A fair question, Miss Austen, and one that has plagued many readers of my work. While sympathy is the cornerstone of moral virtue, self-interest, when tempered by societal norms and institutions, can lead to prosperity and stability. As I later argued in The Wealth of Nations, these forces are not at odds but complementary.”

Austen nodded thoughtfully. “Your argument reminds me of the tension between individual desires and societal expectations that I often depict in my novels. Take, for instance, Elizabeth Bennet from Pride and Prejudice. Her decisions are shaped by her moral compass, yet she must navigate the rigid social structures of her time. Would you say that such a character embodies the balance between sympathy and self-interest?”

Smith stroked his chin, visibly impressed. “An astute comparison, Miss Austen. Elizabeth’s refusal to marry for convenience, despite societal pressure, exemplifies a moral fortitude guided by sympathy for her own happiness and that of others. Yet her eventual union with Mr. Darcy demonstrates how mutual respect and self-interest can align to benefit all parties.”

Encouraged by his approval, Austen continued, “Your emphasis on the ‘impartial spectator’—the internal voice guiding our moral decisions—resonates with me. I strive to create characters whose inner struggles are as vivid as their external conflicts. Do you think such introspection is universal, or is it cultivated by one’s environment?”

Smith leaned back in his chair, his gaze distant. “It is both, I believe. The seeds of introspection are sown within us, but they are nurtured by education, culture, and experience. Your novels, with their sharp portrayals of character, surely contribute to this cultivation by holding a mirror to society.”

The conversation flowed on, touching on topics ranging from economic inequality to the role of literature in shaping moral understanding. As the evening waned, Austen felt a deep sense of gratitude for the exchange. Smith’s insights had enriched her perspective, and she suspected her novels had, in turn, offered him a glimpse of the world through her discerning eyes.

When they parted, Smith clasped her hand warmly. “Miss Austen, it has been a pleasure to converse with a mind as incisive as your own. I daresay the world of letters and the world of philosophy are not so far apart as one might think.”

“And I, sir, am honored to have learned from a philosopher whose works illuminate the complexities of human nature,” Austen replied with a curtsy.

As she walked into the crisp night air, Austen reflected on their discussion. The interplay between sympathy and self-interest, between societal expectations and personal integrity, would linger in her thoughts—and perhaps, she mused, find its way into her next novel."

Related post:

Pride and Profit: The Intersection of Jane Austen and Adam Smith

Here is an excerpt from that post which was from a review of the book Pride and Profit:

This fine book by the professors of economics Cecil E. Bohanon and Michelle Albert Vachris is a step forward because they present the full picture of the problem in the following sense: they go over all the novels by Austen and indicate what they call the “intersections” of her ideas and Smith’s in order to prove that she “embellishes, refines, and explains Adam Smith” (p. 4).

World economic growth is running 0.4 percentage points below the 2010-2019 average

That may not sound like alot. But it makes a big difference in the long-run as I explain below. First, see World Bank says the global is economy is growing steadily, but not fast enough to help ease poverty by By PAUL WISEMAN of The Associated Press. Excerpts:

"The global economy is growing steadily in the face of war, protectionist trade policies and high interest rates. It just isn’t growing fast enough to bring relief to the world’s poorest, the World Bank said Thursday in its latest assessment of the global economy.

The bank expects the world economy to expand 2.7% in 2025 and again in 2026. It’s a remarkably consistent performance – matching 2023 and 2024 – but also a lackluster one. Growth is running 0.4 percentage points below the 2010-2019 average. The slump reflects lingering damage from the “adverse shocks of recent years,’’ including COVID-19 and Russia’s invasion of Ukraine.

The bank’s latest Global Economics Prospects report, which comes out in January and June, did offer some good news. Global inflation, which was running over 8% two years ago, is expected to slow to an average of 2.7% in 2025 and 2026, close to many central bank targets."

"The World Bank noted that growth has been decelerating for years in the developing world – from a robust average of 5.9% a year in the 2000s to 5.1% in the 2010s to just 3.5% in the 2020s. Excluding China and India, those countries are lagging behind the world’s wealthy countries in per-capita economic growth."

That might not seem like a big deal, just 0.4% less than expected. In my macro courses we read a chapter in the book The Economics of Macro Issues. The chapter discussed how nations with common law systems, where property rights are better protected than in nations with civil law systems, have higher growth rates. I pointed out to my classes that even a small difference in growth rates ends up causing a very big difference in per capita incomes due to the annual compounding effect.

The table below shows how much per capita income would be at various rates after 100 and 200 years. Assume we start with a per capita income of $1,000. If we grow 2.0% per year, after 100 years it will be $7,245. At 2.1% per year, it would be $7,791 or about $700 more. That is how much that little .1% matters. The difference over 200 years is about $11,000. After 100 years at 2.5% per year, per capita income would be $11,814. That is $4,000 more than the 2.0% rate. Small differences in growth rates add up to big differences over time.

If a country has a $10,000 per capita GDP right now and grows 3.1% per year over the next 30 years, it will be at $24,990. If it only grows 2.7% it will be at $22,239 or $2,751 less. That amount means alot to people in low income countries.

Per Capita Income After 100 and 200 Years At Various Annual Growth Rates (Starting With $1,000)