Author Topic: Study: Automation Caused More than Half America's Income Inequality Since 1980  (Read 363 times)

rcjordan

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littleman

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That is a lot, I suppose globalization is responsible for for the bulk of the rest of it.

ergophobe

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>> globalization

Maybe. I guess it depends on whether you are looking at root or proximate causes. I think there were many possible responses to globalization and automation that would not necessarily lead to inequality.

A couple examples.

1. Taxing capital gains at a lower rate than wages means that the wealthy can earn money at a lower cost than wage earners, even relatively high wage earners.

2. The mortgage tax deduction is fundamentally a wealth-growing subsidy for those who can afford houses, which is the main driver of wealth accumulation in post-war America. Similarly, redlining, racial discrimination in lending and so forth all contributed to wealth inequality. Though redlining was mostly pre-1980, the differential access to mortgages persists.

3. Inflation policy. Notice all the talk now about how the Fed worries that wage growth will drive inflation and how equity markets bounce back when either decreased wages or big layoffs are reported. There is a seesaw that balances inflation and unemployment and the Fed policy of targeting 2% inflation is effectively a wage-suppression policy in favor of propping up equity markets and making sure that those with savings (i.e. wealthy people) have their savings protected, even if it comes at the cost of wage earners keeping up with productivity gains.

There are other things that are not policy-driven or driven by automation or globalization too, at least not directly. One of the big drivers is "assortative sorting." It has become less and less common in the US for people of different educational attainment to marry, for example. So those with college degrees are much less likely than 50 years ago to marry people who stopped school after high school. There is also a lot of sorting by type of job. It was formerly quite common for a senior partner in a law firm (almost certainly male) to marry a woman who had no college degree. Now that person is most likely to marry another partner in a law firm.

So I frankly do not buy automation or globalization as root causes. It is our response to those factors that led to the massive increase in inequality.

We made other choices in other times. In 1944, the top bracket for income tax was 94% for those making over $200,000 per year. Inheritance was taxed more aggressively. People couldn't hide money in trusts or use IRAs to make tax-advantaged transfers to heirs. Those were significant brakes on inequality growth.

ergophobe

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The interesting part of their study to me is the contrast of 1950-1980 vs 1980-2016.

Their basic argument is this: those groups who saw the greatest "task displacement" saw the least wage growth or biggest wage declines, and task displacement was primarily driven by automation. Essentially, groups who saw the highest levels of automation, saw the biggest wage declines.

But when they look at this in 1950-1980, they find that was not true. There was no correlation between task displacement and wage decline (Figure 6, if you want to look at the PDF). Their explanation is because we did not have widespread automation before 1980. I didn't read it closely enough, but I think their argument is that task displacement prior to automation tended to affect workers more evenly, but automation meant that it became focused on routine tasks which disproportionately affected certain industries such as mining, car production, legal services.

Quote
The figure reveals considerable variation in industry labor share changes, with the largest declines taking place in mining, chemical products, petroleum, primary metals, motor vehicles, computers and electronics, computer services, and legal services. There is also a strong correlation between the light gray (blue) and the dark gray (orange) bars, indicating that industries with the largest labor share declines are those that have been at the forefront of automation technology adoption. Industries most affected by automation are consequently similar to those listed above and include motor vehicles, primary metals, computers and electronics, computer services, plastic and rubber products, and legal services.

As for other causes, including globalization ("import competiton" and "offshoring"), they say...

Quote
Table A-I also confirms that the inclusion of changes in total capital to value added ratio, sales concentration, markups, import competition, and unionization rates does not change the correlation between our proxies of automation and industry labor share changes.

Our reduced-form evidence is based on estimating this equation and reveals a number of striking new facts. Most notably, we documented that 50–70% of the changes in the U.S. wage structure between 1980 and 2016 are accounted for by the relative wage declines of worker groups specialized in routine tasks in industries experiencing rapid automation. We also verified that our task displacement variable captures the effects of automation technologies (and to a lesser degree offshoring) rather than changes in overall capital intensity, other types of technologies, markups, industry concentration, unionization, or Chinese import competition. These alternative economic trends do not appear to play a major role in the evolution of the U.S. wage structure between 1980 and 2016 and have negligible effects on our estimates.

I still think that in 1950 to 1980 we had different responses to task displacement and the change in wealth distribution it might have caused.

For example, if you look at their list of industries with high task displacement, they tend to be in industries we think of as having "high-paying manufacturing jobs" (and I'm folding mining into that).

But there was nothing inherent in the order of the universe stating that manufacturing or mining jobs would pay a solid middle-class wage. In the first century or so of factory work, in fact, they were decidedly low-wage jobs with horrible conditions as they are in many countries today. We decided as a society, through conflict, sometimes bloody (see Haymarket Affair) that we simply believed that people in those jobs should have a living wage.

Mining might be the extreme example, but those "good jobs" that West Virginians so desperately want to defend today, were once terrible jobs that became high wage through essentially open warfare - gunfights, murders, hired thugs and so forth. In the 1959 UMW strike,
Quote
A local union representative fired back, saying that miners weren’t “striking for a $2 wage, but for a $20 wage over the $4 a day they’re now getting,”

https://en.wikipedia.org/wiki/Coal_Wars
https://en.wikipedia.org/wiki/Harlan_County_War
https://en.wikipedia.org/wiki/1959_United_Mine_Workers_strike
https://en.wikipedia.org/wiki/Battle_of_Blair_Mountain
https://en.wikipedia.org/wiki/Roving_Picket_Movement

After enough conflict and struggle, we finally decided as a society that the miners were the good guys and that we were willing to pay more for energy to see them have a living wage. Now, it may be that we were willing to do so precisely because bigger trucks and more capable machinery was increasing productivity, so we didn't feel the pinch as the labor component of coal prices declined even as wages rose.

I don't know about that. But there is nothing inherent in the structure of the universe stating that a miner should make more than a meat packer or an airport courtesy shuttle driver or a rooms cleaner or Starbucks barista or a line cook or a dishwasher other than that collectively, after enough bloodshed, we decided miners should be paid more.

Anyway, all that to say that capital is always looking for ways to hold down wages, be it automation or industrialization or differential tax rates on capital gains vs wages. It doesn't happen because those things happen, it happens because we decide as a society that we will organize along these lines and value certain things over others.
« Last Edit: January 23, 2023, 04:51:53 PM by ergophobe »

ergophobe

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Notes from the field...

For the first time in many years, I had to call AT&T customer support because one of our landlines is not working. My memory of the last time was a frustrating, time-consuming, often circular process of phone menus that kept getting me back to the same spot until finally getting put on hold for 40 minutes until I got a human who transferred me to another place where I got put on hold for 40 minutes until I got another human who transferred me back to the original department who once again said they couldn't help, at which point I was pretty angry.

Today, I handled the whole thing quickly, civilly, efficiently with zero human interaction. The voice recognition system that took humans out of the loop has, in my experience, dramatically improved the quality of AT&T customer service.

I suspect those AT&T customer service jobs once paid someone a living wage.

rcjordan

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> customer service

The Amz customer service chatbot is pretty good, too.

FedEx's sucks.

ergophobe

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A Fed economist says the Fed is making inequality worse with its interest rate hikes

Fortune, via https://stocks.apple.com/A5FPc2qYoRK6SBRtmwQQQWw

“Using mortgage application data, Ringo found that for a one-percentage-point rise in mortgage rates owing to Fed policy, home purchase loans to low- and moderate-income households drop by 7.5% almost “immediately.”