Productivity and Employment (and Technology): In the Jaws of the Snake

Smart guy Jared Bernstein came to MIT yesterday and gave a talk to the seminar Erik Brynjolfsson and I are organizing on how technology is affecting the economy. Bernstein is a senior fellow at the Center on Budget Policies and Priorities, the former chief economist to Vice President Joe Biden, a sharp thinker, great speaker, and prolific blogger.

I met Jared last year when we were on a panel at the Aspen Ideas Festival on America’s manufacturing future, and have been following his work ever since. I suggest you do the same.

He talked to us yesterday about the big questions where Washington needs help from academia. One of them was on the causes and effects of America’s large and growing inequality. He said some nice things about the work Erik and I did in Race Against the Machine to highlight technology’s role in this phenomenon (he blurbed our book), and showed a very clever graph.

Courtesy of Jared Bernstein,

It’s a graph of American labor productivity growth and employment growth for the whole post-war period. It shows that these two grew together in lockstep until the turn of the century. After that point they started to diverge, with labor productivity continuing to grow nicely while employment growth leveled off, then turned negative during the Great Recession.

This divergence is particularly puzzling because economic growth was pretty healthy in the 21st century, up until the recession hit. So anemic economic growth isn’t responsible for the anemic employment growth.

So what is? As Bernstein and others have noted, outsourcing and offshoring are probably part of the explanation. I think that technology is another big part of it. The impact of the Web and commercial enterprise software really started to become clear after the turn of the century.

These digital advances let companies grow and do more without employing lots more people. They were great for the productivity statistics, but not for the employment ones. As we discuss in Race Against the Machine, I expect the digital advances to continue and even accelerate. If this is the case, the gap between the two lines in the above graph will continue to widen.

Bernstein calls the right side of this graph — the time of increasing divergence between productivity and employment growth – the ‘jaws of the snake.’ It’s easy to see why —  flat or declining employment is venomous for an ec0nomy, especially 0ne like ours with a growing population.

I predict that the jaws of the snake will become an urgent policy matter for America, even more urgent than it is now. Bernstein advocates a large program to upgrade America’s public infrastructure – its schools, roads, ports, railroads, and so on. I completely agree that this will help a the country’s competitiveness and create a lot of jobs. After all, robots aren’t yet any good at installing a new boiler in a school.

What are your favorite ideas for closing the jaws of the snake as we move deeper into the digital era? Leave a comment, please, and let us know.