superstar firms and unemployed workers

Tim Harford, ‘undercover economist’ for the FT, has written a very interesting column on the unintended consequences of technological change. Increased productivity should be welcomed by all of us. The problem is that some of us suffer, while others gain. An equitable distribution of gains will not happen with markets alone. Government action is needed.

Workers, from shelf-stackers to chief executives, have seen their total share of economic value-added fall from about 66 per cent to about 60 per cent in the US since 1980. This decline in “labour share” is often blamed on international trade making life harder for workers and easier for footloose capital. [MIT economist David] Autor and his [four] colleagues find little evidence for this idea [in a recent working paper].

Superstar firms, instead, seem to be the cause. The story is simple. These businesses are highly productive and achieve more with less. Because of this profitability, more of the value added by the company flows to shareholders and less to workers. And what happens in these groups will tend to be reflected in the economy as a whole, because superstar firms have an increasingly important role.

All this poses a headache for policymakers — assuming policymakers can pay attention to the issue for long enough. The policy response required is subtle: after all, the growth of innovative, productive companies is welcome. It’s the unintended consequences of that growth that pose problems. ….

In the very long run a superstar economy could become a technological utopia, where nobody needs to work for a living. That would require quite a realignment in our economic system; I wouldn’t bet on such an outcome happening by chance.

Tim Harford, “This is the age of the Microsoft and Amazon economy“, Financial Times, 18 May 2017 (gated paywall).

For details, click on the ungated recent working paper by Professor David Autor and colleagues from Zurich, Harvard and MIT.

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