18 December 2012

Jaws of the Snake

Writing in the New York Times last week, Erik Brynjolfsson and Andrew McAfee argue that “a wonderful ride” began to unravel in the late 1990s when employment growth became “decoupled” from productivity growth.

Their contention is that something fundamental has changed in the economy over the past decade, illustrated in the following graph by the increasing gap between gains in productivity and employment, described ominously as the “jaws of the snake.”

A closer look at the data shows, however, that the “jaws of the snake” have been open for more than 30 years. More fundamentally, rather than a “great decoupling” between trends in employment and productivity, it is clear that productivity and employment have been diverging for a very long time as the composition of the economy has changed.
And here is how it concludes:
So when we look into the “jaws of the snake” it is not the perverse consequences of rapid technological change on the economy, an influence which Brynjolfsson and McAfee implies that “we also need to start preparing for a technology-fueled economy that’s ever-more productive, but that just might not need a great deal of human labor.”

To the contrary, an analysis with more appropriate data suggests that the rise of the machines is not the main reason for our current economic challenges, and a world where labor is less needed is not yet upon us.
For the meat in the sandwich, head on over to the BTI, and feel welcome to come back here and comment and critique.