Chapter 1: Unemployment Today

We usually get a sense of how good (or how bad) things are by reading the news and by looking at the world around us. We see how we live, we talk to our neighbours, we read newspapers, blogs, tweets, and watch TV. Very few people find the time to check for themselves the long and boring tables from the OECD Factbook, or the US Bureau of Labor Statistics. The business columns in newspapers are often filled with financial jargon, which does not really encourage a clear understanding to those who are not familiar with the intricacies of the economic system. As a result, most people do not have a clue about what is really going on. A quick glance at the recent statistics about job growth in the United States and in Europe should make us a bit concerned, to say the least.

In July 2011, the US Government released a report showing that 117,000 new jobs had been created that month, and the New York Times featured a promising headline “US Posts Stronger Solid Growth in July”.1 But, an ugly truth was hidden behind this veil of false hope. A growth of 117,000 jobs was not even enough to make up for population growth (about 130,000 people every month), let alone make a dent on the 12.3 million jobs lost during the 2008-2009 recession. Later in the article, we discover a few more things. The official figure for the unemployment rate was 9.1%, which is already staggeringly high, but it gets even more concerning when considering that an additional 8.4 million people were working part time because they could not find a full-time job, and 1.1 million had become so discouraged that they had stopped looking for work altogether. If we include these people, the broader measure of unemployment was 16.1% in July 2011. Please take a moment and let that sink in. The United States of America, possibly the wealthiest country in the world, had an unemployment rate at 16.1% as recent as July 2011.

As if that was not enough, it turns out that only 58.1% of the population was working, the lowest level in nearly three decades.2 Laura D’Andrea Tyson, Professor at the Haas School of Business at the University of California, Berkeley, calculated that even if we could somehow create 208,000 new jobs per month, every month, for the foreseeable future, it would still take until 2023 to fill that gap.3 In January 2012, thanks to massive efforts from both the private sector and the government, the unemployment rate fell to 8.3%.4 A very mild consolation, considering that people employed part-time for economic reasons, marginally attached to the labor force, discouraged workers, and the long-term unemployed changed very little over the year. To make things even worse, the labour force participation rate is 63.7%, its all time lowest since 1983, when women had not entered the work force in large numbers, and it is dropping consistently every year.5

MIT Economists Erik Brynjolfsson and Andrew McAfee make a lucid analysis of this problem in their book Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy6, which deals with the current unemployment crisis and tries to offer some solutions, particularly by reforming education, the system of economic incentives, and by promoting entrepreneurship. While I concur with their analysis, I think their solutions are limited to the way things have worked until now. They appear to be assuming that the system of economic incentives, what drives people, and human nature itself are almost immutable. According to Voltaire, “Work spares us from three evils: boredom, vice, and need”, and having a job has undoubtedly been the driving force to combat them up until now. However, I challenge the assumption that this is the only way we can do that, and we shall explore why in the coming chapters.

Other authors have addressed the same issue. Jeremy Rifkin was one of the first to seriously consider this problem. In 1995 he published The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era7, where he predicted that worldwide unemployment would increase as information technology eliminates tens of millions of jobs in the manufacturing, agricultural, and service sectors. He traced the devastating impact of automation on blue-collar, retail and wholesale employees: “While a small elite of corporate managers and knowledge workers reap the benefits of the high-tech world economy, the American middle class continues to shrink and the workplace becomes ever more stressful”8. While he may have gotten some of the details wrong, the general outline is so spot-on that it seems almost prophetic. Over the past twenty years we have witnessed the gradual disappearance of the American middle class, with rising costs and lower income910, while the wealthiest Americans have accumulated more wealth than ever before in history.

To get an idea of the disproportionate amount of wealth generated by the system, how unevenly distributed it is, and exactly how it had steadily become worse since 1979, let us look at the following graphs11.


pict

Figure 1.1: Average Household Income

As you can see from Figure 1.1, average household income had remained pretty much the same for well over 80% of the population, while the top 1% experienced a tremendous increase, particularly starting in 1994. Even more revealing is the change in share of income, calculated after taxes (Figure 1.2).


pict

Figure 1.2: Change in share of income 1979-2007, calculated after taxes.

The lower 80% have actually seen a substantial decrease of income, while the very top has hardly been affected. what is even more worrying is the distortion in the public perception of this phenomenon, even after the worldwide Occupy Movement broke out.

A 2011 paper by Harvard Professor Michael Norton and Duke University Professor Dan Ariely, called Building a Better America – One Wealth Quintile at a Time shows just how skewed our perception is.12


pict

Figure 1.3: Building a Better America – One Wealth Quintile at a Time, Michael I. Norton, Dan Ariely. Journal Perspectives on Psychological Science.

History proved Rifkin right. The middle class is disappearing, the richest are getting richer, and we have no idea how bad the situation truly is. The question is, was Rifkin right about work and automation, too?

Martin Ford followed up on this, utilising his entrepreneurial and software engineering perspective. His 2009 book The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future aims to show how automation will inevitably lead to structural unemployment, and millions of people, both skilled and unskilled workers, will soon find themselves out of the workforce, with little to no chance of getting back in. Ford has since written many articles on major news websites, thereby bringing the issue of technological unemployment back into the public eye. He was also a source of inspiration to me when I decided to write this book. However, as with Brynjolfsson’s book, I do not think his solutions are feasible; nor, in most cases, desirable.

All of these authors have identified a real problem and they’ve tried to propose viable solutions to that problem using their knowledge, skills, analysis, and background. But as I read their books, I felt there was something missing. Something was not accounted for. I felt they were trying to find solutions in a context where solutions were nowhere to be found.

Before I continue, let us be clear on something. All of the authors I just mentioned are highly qualified and intelligent professionals, with much more academic and working experience than myself. That is not in question. But they were not born into a culture where things changed dramatically in just a few years. They had to adapt to the idea of rapid change, they were not born in a generation that created this massive accelerating change. I was lucky enough to be part of that generation. I have seen the free and Open Source movement rise and become one of the greatest forces on the planet. The dreams I had when I was a child of small groups of dedicated and intelligent people changing the world, have come true. It has been exhilarating to witness these events, which are becoming even more ubiquitous, as their rampant increase terrifies the establishment and excites the revolutionaries.

Perhaps I am wrong and all of this comes from my arrogant, blissful ignorance of youth. But perhaps there is something true that transcends me as an individual and speaks through me. It is the collective intelligence of all the people I have spoken with, all the books I have read, the experiences I’ve had in the ever-connected cybernetic organism known as the Internet. I do not pretend to be the voice of my generation, or that of the entire Web for that matter. But it is undeniable that these intelligences have shaped me, influenced me, and directed me over the years. And now I am simply remixing what I received. This is social evolution: copy, transform, and combine.13

However, there is also another possibility. It is entirely conceivable that we are all wrong, myself and those authors. Mainstream economists and analysts could be right. It may be that we do not understand some basic economic concepts, and that our analyses are nothing more than a fallacy, which could be easily solved by getting our economics right and by studying the past a little bit more. After all, we have seen unemployment fluctuate up and down for hundreds of years, only to go back to familiar levels, without any substantial change in the structure of the economy. As new technologies come along, we cyclically move from one sector to another, creating new jobs, and everything works just fine. Economists have a name for this phenomenon, which takes us back a long time. So, before I go any further, let me tell you a story.

Notes

1US Posts Stronger Solid Growth in July, Mokoto Rich, 2011. The New York Times.
http://www.nytimes.com/2011/08/06/business/economy/us-posts-solid-job-gains-amid-fears.html?pagewanted=all

2Private Sector Up, Government Down, David Leonhardt, 2011. The New York Times.
http://economix.blogs.nytimes.com/2011/08/05/private-sector-up-government-down/

3Jobs Deficit, Investment Deficit, Fiscal Deficit, Laura D’Andrea Tyson, 2011. The New York Times.
http://economix.blogs.nytimes.com/2011/07/29/jobs-deficit-investment-deficit-fiscal-deficit/

4The Employment Situation, 2012. Bureau Of Labor Statistics
http://www.bls.gov/news.release/pdf/empsit.pdf

5Civilian Labor Force Participation Rate. Bureau of Labor Statistics.
http://data.bls.gov/timeseries/LNS11300000

6Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy, Erik Brynjolfsson and Andrew McAfee, 2011. Digital Frontier Press.
http://raceagainstthemachine.com

7The End of Work Website, Jeremy Rifkin.
http://www.foet.org/books/end-work.html

8The End of Work, Wikipedia.
http://en.wikipedia.org/wiki/The_End_of_Work

9A rough 10 years for the middle class, Annalyn Censky, 2011. CNNMoney.
http://money.cnn.com/2011/09/21/news/economy/middle_class_income/index.htm .

1022 Statistics That Prove That The Middle Class Is Being Systematically Wiped Out Of Existence In America, Michael Snyder, 2010. Business Insider.
http://www.businessinsider.com/22-statistics-that-prove-the-middle-class-is-being-systematically-wiped-out-of-existence-in-america-2010-7

11US Congressional Budget Office, 2011. Graphics adapted from Mother Jones.
http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph

12Building a Better America – One Wealth Quintile at a Time, Michael I. Norton, Dan Ariely. Journal Perspectives on Psychological Science.
http://pps.sagepub.com/content/6/1/9

13I highly recommend the four-part video series Everything is a Remix by Kirby Ferguson, one of the best piece of work I have ever seen on this subject.
http://www.everythingisaremix.info


You're reading the free version of a book that required more than one year of work. You can show your support by purchasing a copy on Amazon (Kindle/Paperback), Lulu (ePub/Hardcover), Apple iBookstore, or via PDF direct download. All files are rigorously DRM-free. Want to support my work, but don't want to buy the book? You choose how much to give :-) You may send a donation via Bitcoin or PayPal

Donate Bitcoins

Get new chapters
every week for free!