Summary: We’re on course to repeat the mistakes of the first 2 industrial revolutions in the 3rd. The wonders of increased productivity benefit the 1%, while the middle class seeks easy but chimerical ways to preserve their way of life. Anything but the work and risk of collective political action. Today we examine the favorite recommended cure to automation: more education. It works as well as frogs climbing over each other to escape a pot. {1st of 2 posts today.}
More education is the most common response to the job losses and wage stagnation caused by automation. People, young and old, frantically train and retrain themselves for jobs in the ever-shrinking pool of jobs supporting a middle class lifestyle. Only lately has the futility of this become obvious, as experience shows its flaws.
Nick Bunker (Washington Center for Equitable Growth) gives a summary of the fallacies: “Is higher education the answer to reducing income inequality?” — The money paragraph, undercutting the key assumption of more education as a solution:
Intuitively, then, increasing the supply of educated workers should reduce inequality as it would increase wages among a broader supply of more educated workers. But that assumes the demand for educated workers will continue to rise. Problem is, recent research finds that the demand for skilled labor appears to be on the decline.
See this article for more about this, and links to research. It’s true even for advanced STEM degrees. That’s the bad news. Now for the worse news.
Education puts workers on a new kind of boom-bust cycle.
Americans seek more education as a lifeboat to save them from the rising tide of automation, hoping for a ticket to a middle class lifestyle. Our colleges gear up to meet the increased demand, producing a flood of newly credentialed people. American does this very well. We produced legions of aerospace engineers in the 1960’s and geotech & petroleum engineers in the 1970s. Unfortunately that doesn’t mean they’ll have jobs. Both these booms ended in busts. What do you call an aerospace engineer in 1974 or geotech engineer in 1990? “Waiter!”
What was an extraordinary boom-bust pattern has become common. Colleges supply degrees irrespective of the demand for people with those degrees, increasingly often in excess of demand.
Law was the first large profession affected by this new form of boom-bust cycle. The resulting bust has crushed demand for law degrees, imperiling the finances of lower-ranked schools — and reducing the profits of most schools, as they compete for students (with wider effects, as law schools are cash cows for universities). For details see this Newsweek article by a former Dean, apparently still oblivious to the glut of attorneys that is the core problem. Time will open his eyes, as bust in student-financed advanced degrees undermines universities finances (details here).
Others fields follow close behind law. For another example see “The Pharmacy School Bubble Is About to Burst.” The latter describes a problem that’s become increasingly common in many fields: “One of America’s most reliable professions is producing too many graduates and not enough jobs.”
There might even be an overall surplus of people with advanced degrees in non-professional fields. “Glut of postdoc researchers stirs quiet crisis in science”. “Adjunct professors get poverty-level wages. Should their pay quintuple?“, WaPo — “Inside the fight to dramatically hike pay for adjunct professors, who are now a majority in higher education.”
Effects of the glut
What happens when a glut hits a profession? There are not enough jobs for new entrants (who then cannot pay their student loans). Wages fall in that field, due to the surplus of labor supply over demand. Those are the first-order effects.
Americans are adaptive, causing second order effects. Under pressure professions seek new opportunities, often by entering adjacent fields — often ones requiring more education than their own. Here new technology helps, allowing them to do tasks previously allowed only for those with still more education. Yesterday’s post described this process with optometrists going for ophthalmologists’ business. That’s how the American Pharmacists Association plans to handle the surplus in their field:
How can we ensure both the long-term viability of the profession, particularly health-system pharmacists, while at the same time growing the demand for pharmacist services to accommodate the large volume of pharmacist graduates entering the workforce?
A movement is under way for pharmacists to become health care providers. This would allow health-system and community pharmacists to expand their service lines to help more patients. Although pharmacists cannot yet bill for many services, the current crop of pharmacist graduates is prepared to provide a wealth of important services that have been shown to positively affect patient-centered outcomes, reduce total health care expenditures, and prevent patient harm.
It’s a pattern we see today and will see more often in future. Tax calculation software pushes tax preparers to go after the business of Enrolled Agents, and Enrolled Agents to go after CPAs’ business. Falling dominoes, putting pressure on a widening range of workers. Including those so far protected from foreign competition, and so with good incomes.
Does education fill the “skills gap”?
Other than for a few fields experiencing extraordinary growth spurts, much research shows that there is no “skill gap”. This VOX article by Prof Peter Cappelli of Wharton reviews the evidence and finds it weak (for more evidence see this NBER report and these posts: part 1 and part 2). The best-known example is the shortage of STEM workers, a bogus crisis created to provide corporations with an ample (and hence cheap) supply of workers.
A major report by the US national academies explicitly stated that the goal was to suppress STEM wages. Update: this article gives more evidence that the “skills gap” results from corporations efforts to suppress wages.
Ill effects from more education.
Corporate executives love an excess supply of workers. They creatively exploit the shifting supply-demand balance not just by paying less but also by shifting risks and cost from them to workers. Increasingly workers pay for their own training, in time and money. More drastically, corporations move employers off the books as temps or independent contractors, so the cost of benefits, licensing, and downtime (layoffs) are borne by workers.
Conclusion
These dynamics so far affect only a small fraction of the work force. But automation of professionals’ work will make it more common. Not only is education not a solution — as it helps only a lucky few – but the rush to add skills might increase the destabilizing effect of automation — setting other dominoes falling.
Unless we act, automation will not only shift national income from workers to profits, but perhaps even lower it — since with less wage income, we must spend less. So new technology will gives us less leisure time, more stress, less security, and an inability to buy the goods and services our new machines can produce.
It need not be this way. The increased productivity from new technology can benefit everybody, if we work together to make it so.
Tomorrow’s conclusion to this series:
We’re running a race with the Red Queen, but there is a better solution.
Other posts in this series
- A graph showing the end of America as we know it. – The gap between growth in wages & GDP.
- At last economists see the robot revolution. Here’s why they worry.
- Automation hits the professions. Most remain delusionally confident, so far.
- Education, the glittering but fake solution.
- Automation is a race with the Red Queen. Let’s play a different game & win.
For More Information
“Are Recent College Graduates Finding Good Jobs?” by the New York Fed (2014): “…the percentage who are unemployed or “underemployed” — working in a job that typically does not require a bachelor’s degree — has risen, particularly since the 2001 recession. Moreover, the quality of the jobs held by the underemployed has declined, with today’s recent graduates increasingly accepting low-wage jobs or working part-time.”
I recommend these books about the new industrial revolution: Martin Ford’s Rise of the Robots: Technology and the Threat of a Jobless Future (2015)
See all posts about these topics: The 3rd Industrial Revolution has begun. and About inequality & social mobility. Here are some posts about our dysfunctional university system:
- Is a college education worth a million dollars?
- What should a student learn from college? Why go to college?
- College education in America, a broken business model.
- Student Debt: Onerous for the young, a drag on society, a big future problem.
- The education crisis spreads to the professions. Watch the universities crack.
In many European countries, the Pharmacy bubble already burst at least 10-15 years ago. Many young people consider that the field does not give them any valid career prospects: neither with drugstore chains where prescription filling via Internet requires few pharmacists and for less interesting work, nor in hospitals because of widespread budget cuts, nor in the pharmaceutical industry because research and production does not occupy that many people. In some universities, there is such a dearth of students in that field that courses had to be cut or faculties regrouped across institutions.
Another bubble being popped right now are biomedical sciences — contrarily to what the press affirms regarding everything “bio” (medicine, engineering, chemistry), there is such a glut of highly trained people that more than 40% of them do not find any job in their field. I read about a year ago a couple of articles on the topic and they painted a dire picture (essentially, there was massive excitement and rosy prospects in the late 1990s, which led to plenty of funding from NIH and corporations, which led to an education bubble, which is bursting 20 years later). I still have this more general reference, though:
http://www.slate.com/articles/business/moneybox/2014/07/employment_rates_for_stem_ph_d_s_it_s_a_stagnant_job_market_for_young_scientists.html
Looking forward to your third post.
Guest,
Thanks for the info about pharmacists in Europe, and even more so for the Slate article about STEM careers.
Anyway, given how things are going, education is so dismal that it cannot be a solution for the young generation: “U.S. millennials post ‘abysmal’ scores in tech skills test, lag behind foreign peers“.
Guest,
That depends on the purpose of education. So much of high school and college is teaching material of little relevance to students’ future lives — under dubious assumptions about learning to think, be creative, etc.
The process here and in other nations is sorting and awarding credentials. Perhaps in this, as in so many things, it is back to the future for us. You get into the college appropriate for your class. It hardly matters what you do there, as employers look only at the name on the degree.
These things are complex, resisting simple interpretation.
Fabius Maximus refers to “collective political action” as an effective solution to problems of worker displacement. I presume the intended result would be form of redistribution, aka ‘Socialism’, aka the thing that perhaps half of the people in the nation today think is the cause of the problems in the first place (according some polls, it might be more than half; http://reason.com/blog/2015/02/12/poll-americans-like-free-markets-more-t2).
Not saying Fabius’ idea is bad, just that we should understand the opposition would be steep.
For good examples of general sentiment, read some of the comments at the bottom of the following article from this morning:
http://news.yahoo.com/blogs/power-players-abc-news/bernie-sanders-wants-to-know–are-you-ready-for-president-bernie-130719986.html;_ylt=AwrTWf2DP_dU.mIAIEzQtDMD
Todd,
You are, of course, correct that the opposition would be steep. I’ve written scores of posts about that very point — from two perspectives.
First, about role increasing gullibility, apathy, and passivity — we believe what we’re told, have no curiosity to seek other views, and often resist alternative explanations which would induce cognitive dissonance between our self-image as bold citizens and the reality of sheep-like subjects. God forbid that we have to work, let alone risk “our lives, our fortunes, and our sacred honor.”
Second, about the growing power of the 1% as they gather the nation’s wealth and income, and so exert ever more influence over its institutions at all levels.
Taking this one step further — for several years people complained that I was not offering solutions comparable in magnitude to the challenges I described. So I wrote 50 posts discussing ways to inform America. These were mostly ignored. The most frequent comment when discussing these problems is an expression of surrender (“don’t disturb me while I bitch about life while surfing the net or watching TV”).
Todd,
Follow-up note: pointing to comments as an indicator of anything is imo invalid. As I know all too well from the 35,000+ comments here, they often display the fringes of people’s views. They’re utterly unreliable as a guide a people’s actual distribution of views.
Of course the opposition would be intense! (Allende and countless others come to mind). The point is that we are already in a one-sided class war anyway. Several more optimistic points:
1) The .001÷ is already fully mobilized. The rest of us are not, so there is a lot.of opportunity for opposition growth.
2) The rewards in the current system are increasingly decided on who you are rather than what you can do. This neo-feudalism will be harder and harder to sell.
3) We outnumber them by 10**5 including potentially a lot of clever underemployed people.
4) An increasing number of commodities will be “too cheap to meter” and could be de-commoditized.
5) Any society that uses most of its people will have a terrific advantage over one that throws away 99.999÷ of its people. Any “breakthrough” will have a tendency to spread.
SocialBill,
All great points, well expressed. The reminder about Allende strikes home, a reminder of the stakes — and that 1% will play hardball if necessary.
Excellent article once again by FM. Here’s a parallel article detailing the bankruptcy of the “let them eat education” solution: “Failed Theory Posed by Wall Street Dems Puts Hillary Clinton in a Bind.” As the article notes, “more education” is the same solution to declining middle-class wages Bill Clinton touted 25 years ago. It didn’t work then and won’t work now.
Increasing the supply of anything will decrease its price. You would imagine Ivy-League-educated economists would understand this, but apparently not. Clearly, more education merely creates degree inflation. That librarian job that required a high school diploma 80 years required a bachelors degree 40 years ago and now requires a masters degree. Soon it will require a PhD, then a PhD + postoc, then a PhD + postoc + MBA… On and on it goes, without end. During the Great Depression in the 1930s, the minimum requirement for the job of elevator operator was a four-year college degree. How long before the minimum requirement for the job of barista is a PhD plus 2 years of barista school at $30,000 per year with a credential certified by a National Barista Test taking 3 days and costing $7,000? What’s needed is not more education, but more jobs — and better-paying ones.
An intriguing list of policies that will and will not address stagnant wage growth and employment appears here, courtesy of economist Lawrence Mishel of the Economic Policy Institute.
The decline in wages or college grads has led to an explosive growth in professional licensing, as people with associate degrees desperately try to keep their wages from slipping too.
Thomas,
Thanks for the additional article; I’ll add it to the post.
Also, great point about the desperate attempts to protect the return on skills by licensing and certification requirements. The newspapers love articles by economists dismissing these as against the public interest — which they are — while ignoring the reason people seek these.
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