The Hollowing Out of the U.S. Income Distribution Under the Pressure of Technology

What are we all going to do in the future as machines replace more and more of our jobs?

This has worried economists ever since the eighteenth-century French physiocrats tried to figure out how an economy could avoid mass unemployment if the agricultural share of the labor force ever fell below two-thirds. What would all those extra people do? Everybody knew that non-agricultural workers were not creators of net wealth but simply ways of transforming wealth--food and raw materials go into a non-agricultural sector and useful stuff comes out but, the physiocrats said, the non-agricultural workers transform value, they don't create value. Only the agriculturalists create value. And should the agricultural share of the labor force drop below fifty percent, there won't be enough useful ways to transform the agriculture-created value to employ everybody.

The physiocrats were, of course, wrong. We found lots of useful things that people could do not just to transform but to create value as the agricultural share of the labor force headed down to its current 2% or so share. But what happens next as hardware robots take over manufacturing, mining, and transportation and as software 'bots take over the routine paper shuffling?

Paul Krugman:

Autor! Autor!: A further note on brains and jobs: the story I told in my whimsical magazine piece bears a clear family resemblance to the influential analysis of Autor, Levy, and Murnane a few years later, which argued that the crucial difference in terms of possible replacement of humans by machines was one of routine versus non-routine, rather than white-collar versus blue-collar, and that computerization was if anything likely to increase demand for some “low-skill” occupations and reduce demand for some traditionally well-paying white-collar jobs. I’d note, by the way, that it increasingly looks as if “medical diagnosis” should be moved from the right column to the left.

And you can actually see this happening in the data.... In the 80s, the higher the skill required for an occupation, the bigger the employment gains. In the 90s, there was “hollowing out”, with the middle-skill occupations losing relative to both ends. And most recently, the hollowing seems to have spread further up the scale.

This is real, and it calls some of our favorite platitudes into question.

I don't see a problem with the number of jobs: I don't see any reason that technological unemployment should be any more in our future than it has been in our past.

What is of interest is the effect of all of this on the wage distribution. Here, however, I think the key thing to look at is not demand but supply: the supply of workers. White collar, blue collar, skilled, unskilled, whatever--the high salary occupations in the future will be those that manage to construct and maintain barriers to entry to entrench incumbents. For much of the past generation the principle barrier to entry has been the educational system: a combination of high cost, risk aversion on the part of the young, lack of knowledge on the part of the young, restricted numbers of places, and licensing requirements have meant that the supply of educated young workers has failed to keep up with the demand--and an extraordinarily booming college wage premium has been the result. But there have been other, secondary barriers to entry as well: there is only one Oprah Winfrey, and she is just the tip of the spear of the winner-take-all sector in which social network barriers to entry appear to loom large that now consumes such a large share of total income in our society.