# Beating a Dead Robotic Horse

NOTE: The Growth Economics Blog has moved sites. Click here to find this post at the new site.

One of the recurring themes on this blog has been the consequences of robots, AI, or rapid technological change on labor demand. Will humans be put out of work by robots, and will this mean paradise or destitution? I’ve generally argued that we should be optimistic about robots and AI and the like, but others have made coherent arguments for pessimism. I spent a chunk of this week reading over posts, both new and old, and thinking more about these positions.

If there is one distinct difference between the robo-pessimist and robo-optimist view, it is almost exclusively down to timing. The pessimists are worried that the rapid decline of human labor is occurring now, and in many cases has been occurring for a while already. The optimists believe that we have time in front of us to sort things out before human labor is replaced en masse.

Brynjolfsson and McAfee‘s latest is a good example of this robo-optimist view. They concede that human labor is in danger of being replaced:

But will there be enough demand, especially over the long term, for those two types of human labor: that which must be done by people and that which can’t yet be done by machines? There is a real possibility that the answer is no—that human labor will, in aggregate, decline in relevance because of technological progress, just as horse labor did earlier. If that happens, it will raise the specter that the world may not be able to maintain the industrial era’s remarkable trajectory of steadily rising employment prospects and wages for a growing population.

But at the same time they do not think this is imminent:

But are our interpersonal abilities the only ones that will allow us to stave off economic irrelevance? Over at least the next decade, the answer is almost certainly no. That’s because recent technological progress, while moving surprisingly fast, is still not on track to allow robots and artificial intelligence to do everything better than humans can within the next few years. So another reason that humans won’t soon go the way of the horse is that humans can do many valuable things that will remain beyond the reach of technology.

On the robo-pessimism side, Richard Serlin has a mega-post about the declining prospects for human labor and the possible consequences. What is interesting about Richard’s post is that he essentially makes the case that the replacement of human labor by automation has been occurring for decades; we are already living with it.

He cites a 2011 Miliken Institute report,

Surely, the most astonishing statistic to be gleaned from the trend data is the deterioration in the market outcomes for men with less than a high school education. The median earnings of all men in this category have declined by 66 percent [not a misprint] [from 1969 to 2009]. At the same time, this group has experienced a 23 percentage point decline in the probability of having any labor-market earnings. Roughly 10 percentage points of the 23 percentage points is attributable to the fact that more men are reporting disabilities, even though work in physically demanding jobs has been declining for many decades. Men with just a high school diploma did only marginally better. Their wages declined by 47 percent and their participation in the labor force fell by 18 percentage points.

Richard’s point is that demand for unskilled (male) labor has shrunk demonstrably over the last few decades, and that this is only going to continue as robots or AI or automation come online. Even if you include the increase in female labor force participation, we’ve seen in the last 20 years that labor force participation has flatlined and started to decrease.

There isn’t a lot of daylight between the robo-pessimists and robo-optimists. Both are wary of the replacement of human labor. The big difference is whether you think this is a present or a future problem. It is becoming hard to see what is optimistic about the robo-optimist viewpoint.

I think it is helpful to get beyond the binary viewpoints. Let’s divide things up as follows

• Strong robo-pessimism: Robots and AI will come no matter what we do. They will reduce demand for labor so much that the majority of humans will have no work to do, and we will be at the whim of the minority of robot/AI owners. The “horse argument” is a form of strong robo-pessimism.
• Weak robo-pessimism: I’d classify Richard Serlin here. Weak robo-pessimism thinks that labor is already being replaced, but there are things we can do to ameliorate this: education, redistribution.
• Weak robo-optimism: Brynjolfsson and McAfee are a good example of this viewpoint. Possibility that labor will be replaced, but this hasn’t occurred yet. We have time to adapt to the distributional issues.
• Strong robo-optimism: Robots and AI will come no matter what we do. They will create a scenario of material wealth such that humans will no longer need to work, but if they want to they will always be able to invent something new to do.

One of the issues in discussing these topics is that we often are not arguing with the right group. Weak robo-optimists use Strong robo-pessimists as their straw man. Weak robo-pessimists use Strong robo-optimists as their straw man.

I am as guilty of this as anyone. I think the argument that humans are doomed because “look what happened to horses” is stupid. People are not horses, they are apes. And apes are intelligent, creative, and social. The last one is very important, because it means we have a built-in demand for being around other people. A demand that we routinely pay to have supplied. We will always find ways to pay other people to interact with us.

The horse agument, though, is a form of strong robo-pessimism. When I go after it, it makes it seem as if I have a real distinct difference from someone like Richard, a weak robo-pessimist. I don’t. I think I am a weak robo-optimist.

And if you really get down to it, the implications of the weak forms are not really different. Read through Richard’s post or the Brynjolfsson and McAfee post, or this article in the Guardian, or this one in the FT, you get the same advice from weak robo-pessimists and weak robo-optimists.

• Training. We need to equip people with skills that allow them to move into jobs that are harder to replace, or at least to keep leapfrogging into jobs before robots replace them. Different people mean different things by “training”, but it runs the gamut from pre-school to vocational school.
• Redistribution. Whether this is simply taxes on wealthy robot-owners, state ownership of robots, or some kind of robot share-ownership plan, the idea is the same. Spread the returns from owning robots around to everyone.

One interesting thing I see is that the robo-pessimists tend to be more worried about training. You have to keep providing people with skills to compete with robots. But it is important that people work, or can work, or should work.

Robo-optimists tend to be more worried about redistribution. How do we reallocate ownership or the proceeds of ownership so that everyone can maintain living standards?

The more I thought about it this week, the more I think the important distinction between the optimists and pessimists is in their attitudes towards work. The optimists ultimately see the decline in working hours for humans as a good thing. Yes, there are issues with distribution, but those details can be attended to. How great will the world be when we all only have to work 5 hours a week?

The pessimists see the decline in work hours as a distinct problem. This need not be because they have some Puritanical need to see people act busy, but rather because they don’t see how we could solve the distributional issues necessary to ensure people can afford a basic living standard. The best we can do is to ensure that people can continue to work full time in order to meet their needs. How awful will the world be when we can all only work 5 hours a week?

As I said above, I tend to be a weak robo-optimist. I, like Brynjolfsson and McAfee, completely agree that robots/AI will create a drag on the demand for human labor, and in particular unskilled labor. My robo-optimism isn’t a belief about technology. It is a belief that we can figure out how to manage the glide path towards shorter work hours while maintaining living standards for everyone. It’s a good thing that we’ll have to work less.

And there remains a little piece of strong robo-optimism lurking inside of me. I don’t think work less is really well defined. We will likely have to spend less time working for wages to afford the basic material goods in our lives. But that doesn’t mean we won’t spend lots of our time “working” for each other doing other things. Whether that work is paid in wages or not is immaterial.

NOTE: The Growth Economics Blog has moved sites. Click here to find this post at the new site.

This really has nothing to do with economic growth, so feel free to dismiss it. My most recent “hobby reading” has been on the fall of the Roman Republic and the emergence of the empire under Augustus. I’ve got a nice little reading list if you are interested in the topic or time period, or looking for gifts for that special nerd in your life.

1. Tom Holland’s Rubicon: The Last Years of the Roman Republic is a great introduction to the era. He writes in an engaging style, but provides enough information and analysis to make you think. It’s not just a “then this battle happened” kind of history book.
2. Richard Allston’s Romes Revolution: Death of the Republic and Birth of the Empire argues that you have to understand the nature of Roman social networks to understand what happened to allow the Republic to die. The Republic survived because the networks of major families were in something like a balance of power. Caesar, and then Augustus, broke that balance of power by creating a network outside of the major families, the legions. Whether this was inevitable (the balance could not hold), necessary (to limit civil war), or desirable (was the old balance so great?) is not something Allston takes a firm stand on. But he describes nicely how the Senate got coopted into the new Augustan network.
3. Ronald Syme’s The Roman Revolution is a classic in this area. Written in 1939, it is one of those books that presumes the reader is already educated in classical history. So I’d suggest trying some of the others first before you tackle this one, unless of course you graduated from Oxford in 1917. For all that, it is an excellent book, albeit quite grim. Syme see’s Caesar and Augustus as somewhat inevitable given the inherent problems that the Roman Republic had with administrating an empire. Like Allston, it was about the persona network of power that Augustus built, not any grand political theories, that created the empire.
4. H.H. Scullard’s From the Gracchi to Nero: A History of Rome 133 BC to AD 68 is another classic in this arena. A little more accessible than Syme’s work, and not a bad intro. The nice aspect is that it covers the early part of this period with more depth than most. There are two reasons the Gracchi brothers are often used as the start of this story. First, because they were the first to take full advantage of the position of tribune to veto Senate legislation, asserting the power of the plebs. Second, because the Senate/oligarchy got so spooked by this that they had the Gracchi killed, which opened the door to violence as a legitimate political action.
5. Gareth Sampson’s The Collapse of Rome: Marius, Sulla, and the First Civil War is not a great book. It’s very much “and then this battle happened” kind of history. But the actors and time period are where I think much of the interest is at. The Republic starts to wobble as Marius and then Sulla use “break the ice” and use violence to assert their political power, all in the name of the people. Caesar learned his lessons from these men.
6. Tom Holland’s Dynasty: The Rise and Fall of the House of Caesar is really about a different time. He provides some background, but the first part of this book is about how Augustus built his dictatorship into a hereditary dynasty. The second part is about how Augustus’ various relatives tried desperately to screw this up. I didn’t find this book nearly as engaging as Rubicon. Perhaps because the story of the early emperors is something I was more familiar with, and the minutiae of palace intrigue gets a little old after a while.
7. Plutarch’s Lives. One of the classic “original” sources, despite the fact that Plutarch was writing himself from other sources. Regardless, much of the story of this era is based on guys like Plutarch, so it is worth reading. I think it’s one of those things to read after you’ve exposed yourself to the general story, because Plutarch is a little sloppy about name usage, places, and dates.
8. Appian’s The Civil Wars. Again, an “original” source that forms a lot of the basis of later history. As you can glean from the title, the period leading up to the establishment of the empire is a series of civil conflicts, not a single one. You have, generally speaking, a running series of conflicts between populares (those claiming to represent the people) and optimates (those claiming to represent the traditional Republic) over who will actually be in charge. The Gracchi’s versus the Senate is one brief skirmish. Marius versus Sulla turns into full scale war. Caesar versus Pompey is a really just an extension of that war. Augustus versus Antony loses a little of this thread as by then it is simply a slugfest over who gets to be the dictator. But another book to read after you’ve got the essential history in your head.

I won’t claim that everything I read here is fraught with Deep Contemporary Relevance. But, there are some interesting elements of the Roman world around the time of the end of the Republic that have parallels worth thinking about.

• Technological disruption. An influx of slaves from the east eliminates jobs for Roman citizens, creating a class of people with a lot of uncertainty and little to lose.
• Increasing wealth disparities. The landowners who owned the slaves consolidated land, becoming even richer, and displaced even more common Romans.
• Citizenship questions. Italian allies of the Romans had helped defeat Carthage and win the east, but were not citizens. This bothered them, but the idea of making them citizens bothered the existing Romans, who had little more than their political rights as assets.
• External threats. In the middle of this period, a new wave of Gauls descends on Italy, scaring the *\$%&(# out of Rome and people quickly abandoned traditional limits on the power of the consul in order to ensure safety. Once granted, the legions would never really relinquish this power even as the effective dictator changed (Marius, Sulla, Pompey, Caesar, Antony, Augustus).

It’s a fascinating period of time. Enjoy!

# Women and the Wealth of Nations

NOTE: The Growth Economics Blog has moved sites. Click here to find this post at the new site.

I discussed a paper by David Cuberes and Marc Teigner at the SEA meetings in New Orleans a few weeks ago. It provides some interesting calculations on the economic cost of discrimination against women in developing countries.

CT set up a simple model of occupational choice, a la Banerjee and Newman, where people can be (a) workers, (b) self-employed entrepreneurs, or (c) firm owners with multiple employees. As in that standard model, there is some distribution of managerial talent, and so the most capable managers become firm owners, and hire lots of employees. Those with medium management skills run firms, but it only makes sense for them to hire themselves (self-employed). Finally, those with low management skills find it more lucrative to work for the firm owners than start their own firms.

What CT add to this is frictions that prevent women from entering those different categories, even though their distribution of managerial talent is similar to that of men. They set this up so that if affects the number of women in each category, but not the distribution of their skills. For example, if 100 men have sufficient management skills to become firm owners, then 100 women presumably also have sufficient management skills, but the friction means that only 20 of them get to be firm owners. The average skill of those 20 is the same as the average skill of the 100 men (the friction discriminates purely on gender, not on talent).

This takes place all down the line. So you have fewer female firm owners, fewer female self-employed entrepreneurs, and fewer female workers. Now, because we have gotten rid of some possible firm owners and entrepreneurs, we are worse off. Fewer firm owners means lower demand for labor, so the wage of workers is lower. Thus more people (men and women) want to become self-employed. So the firms that do exist are smaller (fewer workers are available) and more of the population works as self-employed entrepreneurs. On the other hand, if few enough women are in the labor force, then the wage of the men and remaining women may actually be higher, which also limits the incentive to start a firm. Regardless, we get distortions to the number of firms, distortions to the wage of workers, and distortions to the number of self-employed entrepreneurs. In the end, this results in lower output per capita.

How much lower? That is the real contribution of CT. They take survey data from a set of developing countries that contains information, by gender, on whether people are workers, self-employed entrepreneurs, or firm owners. They then ask what kind of frictions are necessary in their model to generate the observed numbers. Once they know that, they can ask the counter-factual question of what output per capita would be if they removed any or all of the frictions to women.

Their Table 5 shows the percent loss of income per capita due to various frictions. Focus on the long-run loss columns (which have allowed for capital to adjust to the lower supply of labor). The first column, with a 7.06% loss for Central Asia, shows the impact of the frictions that limit women from becoming firm owners and/or self-employed entrepreneurs. As you can see, there is a sizable loss across regions, ranging from about 5-ish% to not quite 10%.

The second column adds in the loss from limiting women from becoming workers. In other words, limiting their labor-force participation rate. This increases the loss in all regions of the world, but there is really wide variation in the effects. The full set of frictions lower output per capita by about 37% in the Mid-East, for example, due to very low labor force participation rates by women. South Asia has a loss of about 25% of output per capita. The other regions have losses that are still sizable, but not quite as large in absolute terms.

For comparison, CT did the same calculations for OECD countries, and report those in their Table 3, shown below. Here, they break the results down by percentile of losses. So Top 25% means the average loss of the quarter of OECD countries with the biggest losses.

While not quite as bad as the Mid-east, the worst OECD countries have losses from frictions towards women’s work that are as costly as in many developing countries. Even the Bottom 25%, representing the countries with the smallest losses, are losing 10% of output per capita from frictions towards women, which is no better or worse than any developing region of the world.

One interesting note about both tables is that the losses associated with just the frictions towards self-employment and firm-ownership (i.e. losses due to ${\mu}$ and ${\mu_0}$) are relatively consistent across all OECD groups and developing regions, at between 5 and 7 percent. Rich countries are not necessarily any better at limiting these frictions than poor countries. When you add in the labor-force participation effects (i.e. losses due to ${\mu}$, ${\mu_0}$, and ${\lambda}$), there we still find that there is not a significant advantage for the OECD. The implications is that the OECD is not richer than developing countries because it treats women better. It is rich despite the fact that it puts up barriers to women participating in the labor force and/or in entrepreneurship.

When I discussed the paper, I threw up the following quote from David Landes’ The Wealth and Poverty of Nations, p. 413:

In general, the best clue to a nation’s growth and development potential is the status and role of women.

These numbers seem to indicate that this might not necessarily be right. It is not necessarily true that rich countries put women to work in a more efficient manner than poor countries.

One way that Landes’ point could manifest itself is in which women are discriminated against. The CT model has frictions that apply in a blanket manner to all women, regardless of managerial ability or worker skill. If rich countries discriminate against low-skill women, but allow high-skill women to enter the various categories of professions CT use, then this would limit the loss of output per worker.

On the other hand, even if high-skilled women are not discriminated against in entering certain professions, they may still be discriminated against within those professions, and that would create further losses. Perhaps rich countries do less of this kind of discrimination? I don’t know for sure, I’m simply trying to take Landes’ idea seriously and think of how why CT’s results might not be capturing it.

For the US, Hsieh, Hurst, Jones, and Klenow calculated that 15-20 percent of US growth in output per worker from 1960 to 2008 could be due to the improved allocation of talent across occupations due to the alleviation of discrimination. Again, they don’t have measure of specific discriminatory practices, but use the fact that the race and gender composition of occupations is converging over time towards the aggregate composition. In their calculations, about 3/4 of the total gains from reduced discrimination are due to white women entering professions they previously were underrepresented in. 90% of the gains are due to reduced discrimination against all women (their table 10).

Landes’ point could be valid if we think of the US (and other OECD countries?) doing better than poor countries in the allocation of women across occupations, conditional of them being allowed to work in the first place. Where we do not see major differences between rich and poor, as CT show, is in allowing women to work in the first place. The losses from this type of friction are roughly equivalent around the world, with a few notable exceptions (the Mid-East and maybe South Asia).

Now, it is simply implicit frictions that CT (and HHJK) calculate, and not a measure of the respect, status, or treatment of women in general. Landes may be right that the position of women is a good indicator of growth, even if the frictions that CT calculate are not much different in the OECD than in other regions. The position of women in society may well be an indicator of development (economic or otherwise) that is simply not captured in statistics on labor force participation or rates of entrepreneurship. But even leaving aside Landes’ point, the CT results indicate a significant amount of money left on the table because of limitations on women’s participation in economic life.