Tech, jobs and continuing low rates
James Saft is a Reuters columnist. The opinions expressed are his own.
HUNTSVILLE, Ala. — Technology is limiting U.S. employers’ appetite for both lawyers and big box stores, two excellent reasons to expect monetary policy to remain loose for a long time to come.
In fact the underlying theme, an economy that uses technology to efficiently dispense with labor, raising productivity but forcing many into difficult transitions to new work, may well help to explain why rates were allowed to stay so loose for so long before the crisis broke.
While the U.S. employment report released last Friday was passably strong, the overall picture is of an economy that is going to take a long, long time to return to anything approaching full employment. The drop in the unemployment rate to 8.9 percent looks good at first glance, but the rate is flattered by a drop in labor force participation that is probably itself a marker of weak employment conditions. If the same percentage of the population were in the labor force as before the financial crisis, unemployment would be 12 percent.
To be sure, technology is not the principal reason for the jobs mess — that lies at the feet of the bursting bubble — but there are interesting reasons to think job losses tied to newer technology may be making the recovery that much more difficult.
Of course technology has been destroying old ways of making a living for a very long time — think of blacksmiths and the automobile — and the huge mass of evidence indicates that technological efficiencies are associated with both economic growth and rising demand for labor.
That being said, two forces associated with recent spikes in productivity, the Internet and very cheap and very powerful computer processing power, are of recent advent and may be doing a lot to encourage the Federal Reserve to keep conditions easy.
These forces are neatly illustrated by two recent stories in the financial press.
Large retailers are increasingly turning away from so called big-box stores, according to the Wall Street Journal, in part because of competition from the Internet. Home Depot, Wal-Mart and Best Buy are all shifting in different ways towards smaller stores. This is bad for employment in a number of ways; directly it means fewer staff for smaller stores and indirectly for the construction and real estate industries.
This also ties in with a trend evident in the last holiday season of ‘pop-up’ stores, short-term retail outlets set up by major brands to build awareness but without a commitment to staff or to maintain the store long term.
It is not just shop assistants and construction workers who are finding themselves on the wrong side of the cutting edge of technology. A fascinating New York Times article from Friday detailed the ways in which software is being used to do work that used to fall to lawyers. This is the formerly time-consuming and tedious business of sifting through documents as part of the process of “discovery,” the part of a lawsuit when both sides must make available to the other documents which may contain pertinent facts.
What used to add up to hundreds of billable hours now can be done much more quickly and cheaply by software programs which search documents for terms, concepts and specific information. Who knows, rather than cutting back employment for lawyers perhaps this will cut the cost of litigation to the point where more people engage in it, but somehow I doubt we will all end up suing each other for a living.
If high-end workers like lawyers find themselves hurt by the forces of technology, perhaps even more of the benefits of economic growth will be channeled towards the very top of the economic tree. I don’t think that would be a good thing, but perhaps more to the point, I don’t think it is something a central bank in a democracy like the U.S. can stand by and watch. The pressure, more indirect than direct, to keep rates easy to keep the machine of consumption trundling along will be strong.
Arguing that current historical conditions are exceptional is almost always foolish. That being said, it is very striking that the past 20 years or so have seen huge leaps in technology and a much more globally integrated economy. At the same time the benefits of economic growth, at least in the U.S., have largely gone to the best paid and the most wealthy.
Those forces don’t look to be weakening, in fact they may be accelerating. This will make it harder for the Federal Reserve to tighten, despite signs of strength in the economy.
(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)