Where have all the Jobs gone?

Medicine Globally by Dr. Rene Menguy


If it were not for the Government, there are days when we would have nothing to laugh at.
(Nicolas De Chamfort).

I continue to listen to CNBC’s experts discussing the jobs report in the hope that someone will educate me about the US unemployment rate. I remain disappointed.

It feels like we’re back in the thirties. In Charlie Chaplin’s view, industrialization with its increased productivity caused the Great Depression and the joblessness (37% of all non-farm workers). More people were applying for fewer jobs, and the coincident economic slump forced employers to cut slack wherever they could, a state of affairs portrayed in his epochal movie, Modern Times (1935).

As a remedy, the Roosevelt administration used programs such as the Civilian Conservation Corps to create jobs for single unemployed men. The imprint of their work upon our country is visible everywhere, particularly in the Midwest. It became obsolete in 1942 when many new jobs were created by the “Lend and Lease” program and then by the build up of the US war machine. Without the war, the Great Depression might have lasted longer

Steam engines, appearing in 1800, heralded the beginning of the Industrial Age. Its zenith came by the end of the Second World War, at which point, the productivity growth associated with mechanization reached a plateau. Then a New Age appeared.

Introduction of the ENIAC (Electronic Numerical Integrator And Computer) signaled the beginning of the Digital Age. With its thousands of vacuum tubes, diodes, resistors and relays, this machine capable of an incredible number of computations per second, filled an entire room. Marketed by companies like Sperry-Rand (UNIVAC), and IBM, these mainframe computers, because of their cost and complexity of operation, were used for research programs sponsored by Universities and the Government. I vividly remember going to the head of my University’s Computer Department and begging for a few hours of time on the “mainframe”. Then, I had to write the operating program. Remember the old adage: garbage in: garbage out. The economy did not begin to feel the impact of the digital age until the seventies and eighties when powerful personal computers and packaged software programs appeared.

Anyway, this is probably why the early decades of this digital age did not immediately deliver the promised growth in productivity. Robert Solow, who won the Nobel Prize in 1987 for his analysis of economic growth, summed up this apparent conundrum with the often quoted statement: “You can see the computer age everywhere but in the productivity statistics.”

He might not have made that statement had he remembered that it took close to two centuries for mechanization to fulfill its promise. During those years, man drove the machines. Likewise, it will take time before the world enjoys the full benefits of the digital age; an age during which computers will do the driving. Recently in California, a commuter train whose driver became distracted was involved in a horrific accident. This would not have occurred had the operation of that train been completely computerized. If you happen to fly into the Newark, NJ airport, you’ll find it ever so convenient to go from one terminal to another via a driverless talking train. It’s always on time and, to my knowledge, has never had an accident.

Industrialized economies have been slow in moving toward a digitized economy.. At first, there were too many trivial applications. With more and more applications for goods and services, jobs are being replaced. Where have all those typing pools gone? My bank keeps reminding me that a usual transaction costs over a dollar whereas the online cost is a penny.

Some economists believe that the increased productivity associated with the digital revolution could cause a permanent “structural unemployment”. However, Paul Krugman argues that, although a productivity increase in a given industry may cause unemployment in that one; this does not necessarily mean that increased productivity in the whole country will lead to widespread unemployment. A view that one may counter by suggesting that he did not appreciate the extent to which computerization will permeate the economy.

Since January 09, our economy has lost 3.4 million jobs, many of them forever. What to do?

People cry for “Job Creation”. However, a job can only be “created” in response to a specific demand.

In my view, the following will happen. As the economy recovers, as it surely will, employers will once again over hire to create some slack. But for the longer term we may have to accept a Natural Unemployment Rate exceeding the usual 4.5%- 5.%.

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