The Coming Automation Crisis

The coming automation crisis is not 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 of any OECD country on labor markets. 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 monetary policy and educational policy. 

Using monetary policy to maintain full employment is problematic for practical reasons and political reasons. The political problem is that 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!

Even if by some minor miracle the Fed changed course and pursued a policy of full employment at all costs, the for-profit sector in the United States is not up to dealing with this crisis. MGI highlights a few firms 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 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 American's associate degrees, high-school degrees, and the nebulous term "some college" are the highest level of educational attainment. For such people, quality high-school vocational programs are invaluable. 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, the federal state governments have systematically pulled back on 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. 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. Only the step-up forecast doesn't result in net job losses.

Read all that and tell me you aren't worried.

This is what I mean when I say the automation crisis is a crisis of governance. No problem described above cannot be addressed, even solved, by straightforward policy responses. 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 is the American Crisis today.