Last week I wrote about the high level of unemployment and what we might to do fix it: Fixing Unemployment: Part 1. The post led to some great conversations (online and off) and I read several different economists' points of view. I'll attempt to summarize my learnings and offer a few more thoughts.
It seems that, at least in public debate, economists have take one of two positions:
- Unemployment is a result of a mismatch in aggregate demand and aggregate supply, thus we should provide economic stimulus to 'prime the pump'.
- Unemployment is of a structural nature and stimulus might not help.
Economists seem to be supporting one camp and denouncing the other; I feel like this is unproductive and intellectually dishonest.
It's pretty evident that the two theories are not mutually exclusive. One theme that's come up in conversation is that we're having short term issues with aggregate demand but that structural unemployment is real and represents a serious long term problem. If stimulus is the solution to increasing demand, can't we spend a huge chunk of it on retraining the unemployed?
One interesting theory is Patterns of Sustainable Specialization and Trade (PSST) by Kling. It's short and easily digestible. While some of his logic and examples are flawed / biased (he's clearly anti-stimulus), I do like the high level theory. It's worth the quick read and then checking out this critical analysis.
The author of that analysis sums up the the theory as:
[...] when technology shifts what jobs are profitable, it takes time for the people that make up the market to figure out the new stable equilibrium
Not an earth shattering idea but worth calling out explicitly in the same breath as this other hypothesis which I firmly believe: technology is accelerating at an increasing pace.
With accelerating technology, industry disruptions (creative destruction) will become increasingly frequent. Anything resembling a stable equilibrium will last for shorter and shorter periods, if occurring at all.
Kling suggests that entrepreneurs are needed to experiment with technology to build new companies to harness the growing pool of unemployed workers. If the big shifts are occurring rarely, it may be the case that older works retire (stop looking for a new job) and new workers come out of school trained with the new relevant skills. If the period between disruptions is shrinking, early retirement may not be an option.
I suspect that these three things are necessary for the economy to adapt to the accelerating pace of change:
- Tons of entrepreneurs willing to experiment with new technology to create new businesses and economic growth
- A labor force that is willing to retrain whenever their former jobs are rendered unprofitable by new technology
- Cheap and efficient educational tools and signals to retrain the workers
I think we're doing pretty well on the first point; entrepreneurship has become very popular in America (I credit The Social Network) and the costs to starting a company are incredibly low.
The second point is a bit trickier. People are reticent to switch careers and businesses are reluctant to hire those without industry or functional experience. I think this can be de-risked through successful execution on point three.
Technology is definitely at a place where point three can become a reality. High quality lessons can be taught online and scale with negligible marginal cost. The trickier part is the signal; the students need a way to show potential employers that they've gained the proper knowledge. Udacity, the online university, will start sending students to real world test centers if they want to get full credit for the course.
Another approach (which doesn't work for all skills) is to make everything portfolio focused. The design world has always relied heavily on portfolios for making hiring decisions; these days, potential engineering hires are evaluated based on their GitHub repositories. There's no reason why finance folk shouldn't be screened based on different financial models they've created.
If all three criteria become true, I think society will be in a much better place to handle the immense technology-driven disruption that lies in the near future. There will be massive layoffs, but the newly unemployed will be able to quickly retrain and rejoin the workforce in new jobs just created by entrepreneurs.
While this could work in the short- to mid-term, I don't think it can last.
Ultimately, I believe accelerating technology is going to increase productivity at a pace faster than we can create new jobs and demand. The solution then will be to rethink work and its role in society. This will be the subject of my next post.
Continued at Part 3