2011 January 06 Thursday
The Rise Of Zero Marginal Product Workers

Tyler Cowen points to a Foreign Policy article he wrote with Jayme Lemke: 10 Percent Unemployment Forever? Why the good news about the economy doesn't necessarily mean that jobs are coming back anytime soon.

As time passes, it is harder to avoid the notion that a lot of those old jobs simply weren't adding much to the economy. Except for the height of the housing boom -- October 2007 through June 2008 -- real GDP is now higher than it has been in the entirety of U.S. history. The fact that the United States has pre-crisis levels of output with fewer workers raises doubts as to whether those additional workers were producing very much in the first place. If a business owner fires 10 people and a year later output is almost back to normal, it's pretty hard to make the argument that they were doing much in the first place.

They argue that during good times employers were reluctant to invest the effort to identify and lay off the least productive workers and that employers feared the morale effects of doing so. I'm skeptical about the latter explanation. Seems like other perverse internal incentives prevented the needed lay-offs. I've seen organizations that should have cut back even more than they ended up doing so that they could partially replace some workers with better new hires. The result would have been much higher productivity.

Automation and outsourcing have created a large subpopulation that is not worth the cost of hiring, training, insuring, and managing. The management cost is a really big one. A highly motivated talented worker requires far less management labor to keep them busy. If you've never managed people look for an opportunity to try it and see what I mean. Many of the simple highly repetitive tasks that require less management oversight (once you screw on one bolt just keep doing the same the next time a nut and bolt show up in front of you) have been automated and no longer are human jobs.

In essence, we have seen the rise of a large class of "zero marginal product workers," to coin a term. Their productivity may not be literally zero, but it is lower than the cost of training, employing, and insuring them. That is why labor is hurting but capital is doing fine; dumping these employees is tough for the workers themselves -- and arguably bad for society at large -- but it simply doesn't damage profits much. It's a cold, hard reality, and one that we will have to deal with, one way or another.

Note that labor market regulations that make it hard to screen and hard to fire people effectively raise the threshold for how productive you have to be to get a job. If employers could more easily try out lots of workers with lower skills and questionable motivation then disappointing results would be easier to deal with by firing the disappointments. But lighter labor market regulation would just delay the rise of zero marginal product workers.

In a recent article at the Singularity Hub Drew Halley reports on other economists who see automation as pushing up unemployment.

Are robots creating a jobless recovery? A recent forecast by the UCLA Anderson School of Business echoes a common refrain in economic circles: as the economy recovers, jobs might not. The report, released last week, expects that the nation’s GDP will continue to pick up steam next year, but that unemployment will likely remain above 9% for most of 2011. Among their reasons for slow job growth? Automation.

Robots, big server software, web interfaces, very cheap labor in south Asia, and other factors are cutting demand for marginal workers in America and other Western nations.

Edward Leamer, the director of the forecast, told the LA Times: “If you have nothing to offer the job market that cannot be supplied better and cheaper by Robots, Far-away Foreigners, Recent Immigrants or Microprocessors, expect it to be exceedingly difficult to find the job to which you aspire, and plan on doing low-wage service work at the end of a long and painful road of diminished aspirations, no matter what your diploma may suggest.” Not exactly a beacon of hope, Leamer.

American immigration policy ought to be radically changed to a highly skilled-based set of qualifications and illegal immigration should be stopped and reverse. That would slow the growth of the problem of unemployable people.

Share |      By Randall Parker at 2011 January 06 08:20 PM  Economics Labor


Comments
James Bowery said at January 7, 2011 12:54 AM:

And be sure to recruit from the most clannish nations those people of high intelligence as they will abolish the unvibrant pasty face hideously white race sooner than tens of millions of Mexicans.

A.Prole said at January 7, 2011 1:44 AM:

This is all mistaken.
Employment is crucially dependent on the concept of 'economic growth', more 'growth' means more employment, a stagnant economy means high unemployment.
As Keynes pointed ot all those years ago if you kill off demand you kill off supply.

bbartlog said at January 7, 2011 5:55 AM:

'Employment is crucially dependent on the concept of 'economic growth', more 'growth' means more employment'
The article and surrounding commentary make clear why this is not so. There is no fundamental reason why you can't have huge economic growth in the top two quintiles of society (consuming ever more products produced mostly by robots, paid for by stockholdings or elite work) while the rest of society suffers stagnation and gradual deterioration of employment and living standards.

mike said at January 7, 2011 1:00 PM:

Maybe we should take the Dune route and ban computers. Actually, that sounds like exactly the kind of thing our government would do.

Randall Parker said at January 7, 2011 8:38 PM:

A.Prole,

Why should zero growth mean high unemployment? Why wouldn't wages level off at a level where everyone worked?

Seriously, why should the absence of growth affect employment rates?

What's happening is that a smaller portion of the population is producing what used to take a larger number of people to produce. Economic growth without employment growth made possibly by rising productivity among those who work.

Abelard Lindsey said at January 7, 2011 11:14 PM:

American immigration policy ought to be radically changed to a highly skilled-based set of qualifications and illegal immigration should be stopped and reverse. That would slow the growth of the problem of unemployable people.

Of course. But this conflicts with the official ideology that diversity is our strength.

A.Prole said at January 8, 2011 1:24 AM:

The fact is Randall, just a few short years ago, before the sub-prime shit hit the fan, and there was a construction boom in the USA all of the duffers could find work if they looked and the mass import of duffers proceeded apace.
This has always happened throughout history during an 'economi boom'.When you get a booming economy you always get a shortage of workers - even duffers.

no i don't said at January 10, 2011 5:29 PM:

"American immigration policy ought to be radically changed to a highly skilled-based set of qualifications and illegal immigration should be stopped and reverse. That would slow the growth of the problem of unemployable people."

Hmmm, maybe, but I'm not sure highly skilled workers are the most "employable" people. Competition among the high-skilled is very tough. I'm not talking about income, but illegal immigrants are in fact very, very empoyable. It's called cheap labor, and many employers take advantage of that.

Rohan Swee said at January 11, 2011 8:45 AM:

So we end up with a paradox of progress - technological advances and greater mechanization, can and probably will become deleterious for larger and larger swathes of humanity. Since the Neolithic, technological advances have caused social disruptions and produced winners and losers. But we have always accepted that the long-term result is the utilitarian "greatest good for the greatest number", and panglossians will insist it's still working that way ("billions of Third Worlders lifted out of poverty"!) and will continue to do so. (Of course they also seem to think that the presence of "recent immigrants" is an Act of God, but nonetheless...)

But even so, the unspoken, unexamined premise of all this brow-furrowing about chronic structural unemployment is that "man is made for the economy, not the economy for man", and therefore nobody seems to be able to think beyond redistributive palliatives (which themselves have proved to have noxious consequences to both the receiving class and society at large.) Occasionally some honest, Aspergery soul, capable of thinking things through to their logical conclusions, will come right out and say that surplus workers should be euthanized, or at least sterilized and left to live out their unnecessary lives in minimal-amenity housing projects situated on unwanted land. It strikes nobody as absurd that, after centuries of praising our own social and economic systems as the best, because they alleviate man's hard lot better than any other, and provide better lives for everybody, we are now arguing that life is just going to have to get worse for everybody but the top half, or the top quartile, or quintile, or decile or whatever, in the name of that very same economic system.

Aside from noting the absurdities, I include myself in that "nobody". I don't know what the solution to all this is. Any attempts at socialist redistribution of "the gains of productivity" on a global scale, or even a large-nation scale, would predictably end up in more tyranny and material misery than the wettest wet dreams of the most rapacious and sociopathic comic-book capitalist pigman. And it's not as if the real winners in this system have any attention of redistributing anything but the assets of what's left of the First World middle class.

But "solutions" have a way of presenting themselves, and it seems likely that globalization and the pursuit of "efficiency" will break down, and break down with some very concrete manifestations of the question "efficiency and greater productivity to what end?. Because I don't think the members of the growing "not worth employing" class, many of them not at all accustomed to the favela existence, are going to obligingly lie down and die for the glory of greater economic efficiency. More and more of the extraneous labor supply will comprise reasonably intelligent, educated people, who, like their poorer brethren, are disinclined to regard themselves as fungible widgets for the sake of theory and the Global Good. At any rate, the next few decades will be interesting times.

Kralizec said at January 18, 2011 8:02 AM:

In this world, there are "nations," or at least named regions, in which upwards of 1,000,000,000 people are said to live on domestic product amounting to a third the domestic product of the United States. If some large portion of the mere 311,000,000 people in the United States cannot arrange somehow to make a living in present circumstances, it seems those circumstances are not the next step on some course of enduring historical progress, but ephemeral conditions that will collapse. I do not mean to suggest there is something fundamentally wrong with the Americans' free-market orientation as such. I am more inclined to think an essentially strong system has accumulated parasites and slavish burdens to such an extent that it verges on collapse despite its essential strengths.


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