February 19, 2013

SHE HAD THE POINT AND LOST IT:

China, technology and the U.S. middle class (Chrystia Freeland FEBRUARY 15, 2013, Reuters)

The main point of democracy is to deliver positive results for the majority.

All of which is why understanding what is happening to the middle class is urgently important. There is no better place to start than by talking to David Autor, an economics professor at the Massachusetts Institute of Technology. Autor is one of the leading students of the most striking trend bedeviling the middle class: the polarization of the job market. That is a nice way of saying the economy is being cleaved into high-paying jobs at the top and low-paying jobs at the bottom, while the middle-skill and middle-wage jobs that used to form society's backbone are being hollowed out.

But when I asked him this week what had gone wrong for the U.S. middle class, he gave a different answer: "The main problem is we've just had a decade of incredibly anemic employment growth. All of a sudden, around 2000 and 2001, things just slowed down."

Academics can usually be counted on to have a confident explanation for everything. That is why I was surprised and impressed by Autor's answer when I asked him where the jobs had gone. "No one really understands why that is the case," he said.

It was a winningly modest reply. But work by Autor and two colleagues -- David Dorn, a visiting professor at Harvard, and Gordon Hanson of the University of California, San Diego -- is starting to untangle the two forces that both the conventional wisdom and the academy agree are probably responsible for a lot of what is happening to the middle class.

Those forces are technological change and trade. The easy assumption is that the two go together. After all, trade needs technology -- it is hard to imagine outsourcing without the Internet, sophisticated logistics systems and jet travel. Technology is dependent on trade, too: The opportunity for global scale is one reason technological innovation has yielded such outsize rewards.

But in a careful study of local labor markets in the United States, Autor, Dorn and Hanson have found that trade and technology had very different consequences for jobs.

"We were surprised at how distinct the two were," Autor said. "We found that the trade shock had a very measurable impact on the employment rate. Technology led to job polarization, but its employment effect was minimal." Trade, at least in the short term, really did ship jobs overseas. Technology did not kill jobs per se, but it did hollow out those essential jobs in the middle.

The big surprise, at least for believers (like me) in the classic liberal economic view that trade benefits both parties, is the strong and negative impact of globalization on U.S. workers -- Autor estimates it accounts for 15 to 20 percent of jobs lost.

That first sentence is the key.  The main point of economics is to create wealth.  A main point of politics is to deliver it equitably.  The main point of neither is work.  Jobs were just one method for redistributing wealth.

Posted by at February 19, 2013 5:15 AM
  

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