Are Workers Too Productive?

We are at a dangerous point where commodity worker output can easily exceed the demand for labor

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We all know about Moore's LawGordon Moore's 1965 prediction that the number of components making up an integrated circuit would double every two years for at least ten years. Indeed, semiconductor industry output grew at approximately that exponential rate for the next 45 years, and semiconductor manufacturers flooded the market with transistors and memory bits.

There's mounting evidence that Moore's Law applies to commodity work -- labor that can be produced by many different individuals with a minimal amount of training. It's difficult to distinguish the output of one commodity worker from another, just as it is difficult to differentiate wheat grown on one farm from wheat grown on another. If Moore's Law applies to commodity work, commodity workers are in big trouble.

As economies in many advanced nations struggle to create jobs, I worry about whether Moore's Law is spilling over into the job creation process. I worry that computers, smart phones, and robots are making us so productive and enabling us to leverage inexpensive labor so effectively that we are in a steep uphill battle.

To understand why, you have to understand some of the subtler implications of Moore's Law. I have a lot of personal experience with those implications, because I worked at Intel, the world's largest semiconductor company, founded by Moore himself, Bob Noyce, and Andy Grove.

I ran the microprocessor division at Intel and used to listen to Bob Noyce lament that economists didn't know how to measure productivity in the semiconductor industry. They measured the dollar output per worker -- which grew at a snail's pace, because the price per transistor sold into the marketplace declined at such a rapid rate. Noyce maintained that the proper way to measure the industry's productivity was to measure output not in dollars but in transistors per employee. By that measure, our productivity was growing at 40 percent per year.

Semiconductor manufacturers continued to build new plants in order to introduce improved production technology. Our output grew so fast we flooded the market with transistors, and competition often forced producers to sell transistors at less than the cost of producing them.  During production gluts, we laid off workers. Not only did we close old plants: sometimes we mothballed new ones.

I suspect that just as the number of transistors in an integrated circuit continues to grow at an exponential rate, commodity workers using computers and the Internet are increasing their productivity at an exponential rate. To add to this challenge, it is very cheap to construct facilities for commodity workers such as overseas customer support personnel. In many cases all you need is a computer and an Internet connection.

If worker productivity is growing at an exponential rate and lots of new facilities are being built, we are at the point where commodity worker output can easily exceed the demand. If factory workers become more productive as a result of technological advances, fewer workers will be needed in each factory. When that occurs, the price for commodity work should decline, just as the price for transistors did. If this comes to pass, commodity workers will find themselves producing more and more units of output -- clothes, consumer electronics, washing machines, the handling of customer questions, etc. -- and being paid less and less for each one they produce.

Commodity workers are about to discover what Alice did in her discussion with the Red Queen in Through the Looking-Glass.

"Well, in our country," said Alice, still panting a little, "you'd generally get to somewhere else -- if you run very fast for a long time, as we've been doing."
"A slow sort of country!" said the Queen. "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"

While commodity workers driven by Moore's Law will be forced to run twice as fast to get ahead, those of us with unique skills benefit from their exhaustion. We have been able to buy inexpensive electronic devices and clothes made in developing countries. These inexpensive consumables have helped keep the lid on inflation.

Of course, those of us with unique skills should not be feeling too smug.  After all, a lot of what we do -- answering emails, cleaning up our inboxes, following large numbers of bloggers to stay informed, and maintaining our pages on social networks -- is commodity work as well.  These are all chores we have to do to stay relevant. The value of doing those commodity chores is dropping as well and so to maintain our current salary, we have to run faster as well.  Maybe we feel so hassled in our Moore's Law driven world because we, too, are facing the Red Queen's challenge.