Today I stumbled upon an interesting piece on the productivity paradox. In the short article Ryan Avent, senior editor at the Economist, argues that the productivity slowdown in the US and technological progress at the same time are not necessarily a paradox.
“This is a critical point. People ask: if robots are stealing all the jobs then why is employment at record highs? But imagine what would happen if someone unveiled a robot tomorrow which could do the work of 30% of the workforce. Employment wouldn’t fall 30%, because while some of the displaced workers might give up on work and drop out of the labour force, most couldn’t: they need the money. They would seek out other work, glutting HR offices and employment centres and placing downward pressure on the wage companies need to offer to fill a job: until wages fall to such a low level that people do give up on work entirely, drop out of the labour force, and live on whatever family resources they have available, or until it becomes economical to hire people to do very low productivity work”
It does appear to be the fact that both phenomena are occurring in the US, as some quick google searches showed me: people are dropping out of the labour force and wage growth hasn’t been particularly impressive in recent years. It is however worth pointing out that the same is not necessarily the case in the EU or its major economies.
In any case, Avent’s main argument is that we should not necessarily be looking for the effects of technological progress in employment statistics, but in inequality statistics.
Another explanation for the pardox is suggested by Matthew Yglesias from Vox, who claims that technological progress hasn’t in fact impacted our work (and hence productivity) as much as our leisure.
“Data from the American Time Use Survey, for example, suggests that on average Americans spend about 23 percent of their waking hours watching television, reading, or gaming. With Netflix, HDTV, Kindles, iPads, and all the rest, these are certainly activities that look drastically different in 2015 than they did in 1995 and can easily create the impression that life has been revolutionized by digital technology.
… It becomes clearer and clearer over time that smartphones and the internet simply aren’t economic game changers on the same scale as air conditioning, jet planes, container ships, and televisions…”
The sector most affected by technological change is ITC in itself, as well as the media, which further reenforce the idea about the ever-present progress. Meanwhile, real humans still have to make the pizza we order via our smartphone.
“These days people are perhaps more likely to book a reservation or order a takeout meal with an app rather than a phone call, but the core work of serving and preparing food has seen very little progress.
At the higher end of the salary spectrum, we still don’t have robot doctors who can treat patients in lieu of costly and inconvenient human ones. Indeed, we can’t even get medical records digitized properly.”
The third, explanation has to do with the nature of output produced by technology companies. Much of it is unquantifiable and not captured by output statistics, as suggested by Google’s Hal Varian. This more conceptual argument is also worth considering, but – like Yglesias – I find this explanation least helpful.
Varian’s example is a free app, which allows people to track each other’s location to facilitate meeting, instead of looking for each other in crowded areas. As far as I understand, his argument is that much like housework the service provided by the app company is not reflected in output statistics. Even if the app was used by companies to – for example – locate goods or people in warehouses, the service provided by the app company would not be reflected anywhere.
However, following up on this peculiar example, one can also make the argument that if the app really was revolutionising the speed at which goods can be located, one would expect an increase in productivity, anyway, as more goods can be located in a short amount of time. And as discussed above, the opposite has been the case.