More on the automated economy from NBER

From a new NBER working paper, "Artificial Intelligence, Automation and Work,"  by Daron Acemoglu and Pascual Restrepo. 

Abstract:

We summarize a framework for the study of the implications of automation and AI on the demand for labor, wages, and employment.  Our task-based framework emphasizes the displacement effect that automation creates as machines and AI replace labor in tasks that it used to perform.  This displacement effect tends to reduce the demand for labor and wages.  But it is counteracted by a productivity effect, resulting from the cost savings generated by automation, which increase the demand for labor in non-automated tasks.  The productivity effect is complemented by additional capital accumulation and the deepening of automation (improvements of existing machinery), both of which further increase the demand for labor. These countervailing effects are incomplete.  Even when they are strong, automation increases output per worker more than wages and reduce the share of labor in national income.  The more powerful countervailing force against automation is the creation of new labor-intensive tasks, which reinstates labor in new activities and tends to increase the labor share to counterbalance the impact of automation.  Our framework also highlights the constraints and imperfections that slow down the adjustment of the economy and the labor market to automation and weaken the resulting productivity gains from this transformation:  a mismatch between the skill requirements of new technologies, and the possibility that automation is being introduced at an excessive rate, possibly at the expense of other productivity-enhancing technologies.

Another China Shock: Economists: "When work disappears"

Another formidable paper by the noted economist David Autor, David Dorn and Gordon Hanson: "When Work Disappears: Manufacturing Decline and the Falling Marriage Market Value of Young Men." 

Abstract: 

We exploit the gender-specific components of large-scale labor demand shocks stemming from rising international manufacturing competition to test how shifts in the relative economic stature of young men versus young women affected marriage, fertility and children’s living circumstances during 1990-2014. On average, trade shocks differentially reduce employment and earnings, raise the prevalence of idleness, and elevate premature mortality among young males. Consistent with Becker’s model of household specialization, shocks to male relative stature reduce marriage and fertility. Consistent with sociological accounts, these shocks raise the share of mothers who are unwed and share of children living in below-poverty, single-headed households.

Hat tip to David Warsh over at Economic Principals.

Federal Reserve Bank of St. Louis: MSA real income in the early 1970s influenced population growth

Extract:

The figure seems to indicate a positive correlation between these variables. For instance, the Seattle, Denver, Anchorage, and San Diego MSAs, which had relatively higher real incomes in 1970, experienced high population growth over the period. On the other hand, the Detroit, Philadelphia, and Pittsburgh MSAs, which had lower real incomes in 1970, seem to have experienced lower (negative) population growth. Not all cities exhibit the positive correlation, however. The Atlanta, Houston, and Dallas MSAs had low average real incomes in 1970 yet experienced high population growth over the period. Incomes in these MSAs, however, have grown rapidly since 1970, which could be a main reason for the population growth.

Read the entire synopsis here.  Complete analysis in PDF. 

"How to save humanity from the Malthusian destiny" resulting from AI

From the new NBER working paper by Anton Korinek, Joseph E. Stiglitz  titled, "Artificial Intelligence and Its Implications for Income Distribution and Unemployment."

Abstract:

Inequality is one of the main challenges posed by the proliferation of artificial intelligence (AI) and other forms of worker-replacing technological progress.  This paper provides a taxonomy of the associated economic issues:  First, we discuss the general conditions under which new technologies such as AI may lead to a Pareto improvement.  Secondly, we delineate the two main channels through which inequality is affected - the surplus arising to innovators and redistributions arising from factor price changes. Third, we provide several simple economic models to describe how policy can counter these effects, even in the case of a "singularity" where machines come to dominate human labor. Under plausible conditions, non-distortionary taxation can be levied to compensate those who otherwise might lose.  Fourth, we describe the two main channels through which technological progress may lead to technological unemployment via efficiency wage effects and as a transitional phenomenon. Lastly, we speculate on how technologies to create super-human levels of intelligence may affect inequality and on how to save humanity from the Malthusian destiny that may ensue.

Read the whole working paper here. (Gated)

Is There a Productivity Miracle Lurking in the Economy? - WSJ

From the Streewise column in the Wall Street Journal, Is There a Productivity Miracle Lurking in the Economy?

Perhaps 2018 will be the year productivity finally begins to pick up. Technologies such as speech recognition, online chatbots and machine learning are being quickly adopted, capital spending is picking up and tight labor markets give companies an incentive to find better ways of working.

But productivity defies forecasters, and the lesson of the past is to be humble. This is a story of how little anyone really understands about what moves productivity, even though it’s the key to long-run prosperity—and to what happens to inflation and share and bond prices.

Increased consumption for most families despite growth in income inequality

Income inequality has been increasing but so has consumption according to a working paper by Bruce Sacerdote of Dartmouth College. 


Extract:
Despite  the  large  increase  in  U.S.  income  inequality,  consumption  for  families  at  the  25th  and  50th percentiles  of  income  has  grown  steadily  over  the  time  period  1960-2015.  The  number  of  cars  per household  with  below  median  income  has  doubled  since  1980  and  the  number  of  bedrooms  per  household has  grown  10  percent  despite  decreases  in  household  size.  The  finding  of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator (Broda and Weinstein 2008). Small biases in any price deflator compound  over  long  periods  of  time.  Using a  different  deflator  such  as  the  Personal  Consumption Expenditures index (PCE) yields modest growth in real wages and in median household incomes throughout  the  time  period.  Accounting  for  the  Hamilton (1998)  and  Costa  (2001)  estimates  of  CPI  bias  yields  estimated  wage  growth  of  1  percent  per  year during  1975-2015.  Meaningful growth  in  consumption  for  below  median  income  families  has  occurred even  in  a  prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor.


Link: Fifty Years Of Growth In American Consumption, Income, And Wages - 61497-w23292.pdf

The debate on what to do about income inequality intensifies

Or, is the debate shifting to one about semantics?

From Fatih Guvenen and Greg Kaplan in a new NBER paper.

We revisit recent empirical evidence about the rise in top income inequality in the United States, drawing attention to four key issues that we believe are critical for an informed discussion about changing inequality since 1980. Our goal is to inform researchers, policy makers, and journalists who are interested in top income inequality. Our analysis is based on a reexamination of publicly available detailed statistics from two administrative data sources: (i) Internal Revenue Service (IRS) data on total incomes (labor income plus capital income), reported in Saez (2012), and (ii) individual-level micro data on labor income (wage plus self-employment income) from the U.S. Social Security Administration (SSA)  reported in Guvenen et al. (2014).

One key take-away:

Put simply, so far in the 21st century, all the action in top income shares has been S-corporation income at very, very high income levels.

National Bureau of Economic Research Working Paper 23321.