Forget Skynet, Hal, and every other dystopian tale of robot revolution -- the real machine menace isn't that we get overthrown, but rather replaced. At least some of us. That's the story Paul Krugman and Iza Kaminska of FT Alphaville have told about labor income collapsing to 60-year lows in the aftermath of the Great Recession. In other words, jobs are so scarce and pay so little, because machines are stealing them. That's great news for the people who own the robots, and horrible news for everybody else.
But not so fast. As my colleague Derek Thompson points out, our jobs crisis is one of too little demand, not too many robots. Technology has always obsoleted some jobs, but that doesn't exactly vindicate the Luddites. As long as there is sufficient demand, better machines free workers to do more productive things. It's the same logic for why free trade makes us better off. But in both cases, this happy story is based off a helluva caveat -- that there isn't a demand shortfall. That, unfortunately, is exactly what we have today, even three years removed from the end of the Great Recession.
But the Congressional Budget Office (CBO) thinks that will change over the next decade. The CBO expects that our economic Godot will finally show up -- the elusive catchup growth we've been waiting for will finally kick in, and bring with it not just more jobs, but more pay. (More on this in a bit). After recently hitting a 60-year low, the CBO projects labor's share of income will rebound to less horrific, but still pedestrian, levels by 2023, as you can see in the chart below from its latest outlook.
This is both overly optimistic and downright depressing. The CBO's growth forecast subscribes to what Evan Soltas calls the "Little Orphan Annie" theory of recoveries -- catchup growth is always just a year away, until it's another year away. Indeed, the CBO projects faster growth the next few years than the Fed does; in this disagreement, the smart money is on the side that controls monetary policy. But even with these fairly aggressive growth assumptions, the CBO doesn't expect labor income to even reach its long-term average. If robots aren't stealing your job, they're still stealing some of your paycheck.
It gets worse. The longer the economy stays in a slump, the less recovery-y the recovery will be. The CBO already thinks the combination of low investment, long-term unemployment, and continued employment in unproductive industries has lowered potential GDP in 2023 by 1.5 percent; this number will only go up if the CBO is wrong about catchup growth. In other words, the longer we wait to end our jobs crisis, the fewer jobs and less pay there will be.
Robots are a useful, if a bit reductive, frame for what's gone on in the economy the past three decades. Globalization, mechanization, and the decline of unions have all helped capital and hurt labor, but so has inadequate demand the past decade. Things will get better once the recovery picks up, but not quite so much better that happy days are here again.
I'm sorry, Dave, but the robots are going to keep eating your paycheck.
This article available online at: