by Spencer P Morrison, NEE
From The Siren of UBI:
Robots aren’t taking our jobs. Andrew Yang thinks automation will result in mass unemployment, and therefore we need a UBI to soften the blow. Both the economic logic and evidence suggests otherwise.
Begin with this logic: Employment is determined by the ratio between productivity and output. All other things being equal, higher productivity (getting more done each hour) means fewer jobs, while higher output (making more stuff) means more jobs. If both productivity and output increase at the same rate, then employment does not change. This remains true no matter how fast productivity increases—no matter how many robots we build.
Consider that between 1950 and 1979 America’s manufacturing productivity increased by over 3 percent per year, and yet employment increased. Why? Because output grew even faster.
By the 1990s, things had changed. Between 1989 and 2000 American manufacturing output grew by 3.7 percent on average, while productivity grew by 4.1 percent. Guess what? Employment declined. Since 2000, output growth nosedived: output grew only 0.4 percent per year, on average, while productivity increased at a rate of 3.7 percent.
As a result, America lost more than 4 million manufacturing jobs.
What did the media blame for America’s job loss? Automation. Yet the historical data refutes this claim unambiguously: automation does not cause job loss unless output growth lags behind. So the real question is: what is causing output growth to decline?
Answer: the trade deficit.
The fact is that much of America’s new output growth is occurring abroad, as opposed to domestically. Rather than build a new factory in Michigan, we build it in Mexico. Rather than open a call center in Philadelphia, we set it up in the Philippines. We consume more and more goods and services, but do not make them ourselves. As a result, output stops growing, but productivity does not. This gives the false illusion that, by increasing productivity, automation is causing job loss—but this is only the proximate cause.
The real culprit is, and has always been, offshoring.