Automation Blows A Hole In The Bottom Of The Economy

And especially for less-educated men (I'm thinking Joe The Plumber) that's not a good thing at all:

The economy no longer reliably and consistently transmits productivity gains to workers. The result is that many millions of Americans, in particular less-skilled men, are leaving the workforce, a phenomenon the country has never seen before on the present scale.

...“This is something that has been happening and building for years and is now really rooted in the economy, and it’s vicious,” said Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank in Washington. “There’s a remarkable disconnect. The problem isn’t a lack of the economy producing sufficient income to make everybody’s living standards improve—it’s that the economy is structured so that the majority don’t benefit.” Or, to state the point more cautiously, the majority doesn’t benefit from productivity gains very much—certainly, less than our parents and grandparents did.

...So, productivity is rising, but it isn’t being evenly allocated; the top is effectively disconnected from the rest of the spectrum—slippage No. 2. One reason, especially pronounced in the past decade or so, is that fewer of the productivity gains are flowing to workers, and more are flowing to investors. Chart 3 shows what happened. From the end of World War II through about 1980, almost two-thirds of every dollar of income generated by the economy flowed to workers in the form of wages and benefits. Beginning around 1980, workers’ share began to slide and, in the past decade or so, has nose-dived, to about 58 percent. The difference went to shareholders and other investors—who provide capital rather than labor—in the form of higher returns on their holdings.

...First, globalization has reduced American companies’ ability to raise prices, and thus to increase their workers’ pay, without losing competitiveness against companies in, say, China and India. Second, a smaller share of the value that companies produce today comes from the physical goods made by people like factory workers, and a larger share comes from ideas and intangible innovations that people like software designers and marketers develop. Between the early 1980s and the mid-2000s, Shapiro says, the share of a big business’s book value accounted for by its physical assets fell by half, from 75 percent to only 36 percent.

“So the basis for value shifts,” Shapiro explains. “This is the full flowering of the idea-based economy.” Which is great if you are a brain worker or an investor; otherwise, not so much.

...As a result, less-educated workers are in trouble, and men are in trouble, and less-educated men are in deep trouble. The problem has become more serious than most people realize. “It has reached a very extreme point,” said David Autor, a labor economist at the Massachusetts Institute of Technology.

...In effect, the economy is telling less-educated men: Get lost. And they are doing just that.

...If you are out of the workforce, economic growth can’t reach you, at least not directly. You might live off a girlfriend, receive welfare or disability payments, or dip in and out of the underground economy. But the performance of the economy as a whole becomes largely irrelevant. “A lot of these people will never work again,” said Looney at Brookings. “Less-skilled workers are falling so far behind that they are going to place a huge strain on the social safety net in the coming decades.”