Arnold Kling writes
Yes, there is technological unemployment. Russ [Roberts] continues,
Somehow, new jobs get created to replace the old ones. Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines.
Re-reading the first sentence, with its passive voice, I can almost feel his hands waving. The PSST story is that entrepreneurs must figure out how to reallocate resources when productivity rises faster than demand in some industries. I want to suggest that it can be a very difficult process. As labor gets more specialized and production processes become more roundabout, large adjustments require more steps.
Here is the core issue in my mind: why isn’t this process made simple by price adjustments. Its clear that it might be difficult to find a way to utilize labor that was just as productive as the method used before technological innovation.
However, if the wage falls low enough then there should be lots of value add that could be done.
Taking this to the extreme makes this point clear.
Suppose that Michigan autoworkers lost their jobs and their wages fell to One Cent per Year. Well at One Cent per Year I could hire armies of men to scrub my house by hand, to take out the garbage, to walk behind me recording every thought I had and double checking that every appointment was made and kept.
At one cent per year there are millions of extremely easy uses and worthwhile uses for labor.
If we accept that the labor market would clear at One Cent Per Year. Then the question is why has the labor market not cleared while at the same time the wage has not dropped to One Cent Per Year.
There are lots of reasons why we can think that this hasn’t happened but this is – at least in my mind – the central question. We know that we can profitably employ everyone in America at some wage. So why is there a prevailing wage at which people are not employed?