Accidental Factors

There were some headlines recently along the lines of "Economists who predicted the gig economy say it never happened’. Timothy Taylor has a succinct summary of the work that prompted that on his blog, along with some other research from the Boston Fed. He concludes:

It seems clear that more people are receiving income and tax from activities that are outside traditional jobs. But other than ride-sharing jobs, just how to characterize these jobs remains murky, and the question of what rules and regulations might apply to such income-earning activities remains murky, too. It feels to me as if a shift is happening in US labor markets, in which the expectation of a long-term bond between employers and employees has declined on both sides. But I don't yet feel that I understand the details of this shift.

The gig work apps have clearly grown, but as the economy recovered there has been a recovery in traditional employment options as well. The big question at the heart of this stuff is when are people taking on app-based worked in a way which is positive, versus negative. For example, for someone who in reasonable employment and who is looking to add some extra earnings, the app-based option is likely positive; if they’re driving due to a dearth of employment opportunities it is likely less so.

Rob May has an interesting piece of commentary in the weekend Inside AI newsletter.

And then there is the ethnical issue of job loss - it's not a problem now when we are making people more productive but, what about when we automate higher and higher levels of work? [...] Most buyers still look at AI software like a tool, and expect to buy it like software, rather than like labor. I always encourage people to take AI tools from the headcount budget instead of the tools budget. Changing this mindset will take a while but, AI adoption at the level it needs to happen won't occur until the mindset shift becomes the mainstream view.

I just finished the excellent Capitalism without Capital, which covers the rise of investment in intangible assets such as knowledge and brand, rather than tangible assets like machines.

One of their final conclusions is that the properties of intangibles will lead to systemic underinvestment by the private sector. These properties include the property rights around intangibles and the spillover effects that often lead to firms other than the innovator getting the benefits of an innovation. The book promoted greater investment by government in areas likely to have high spillovers - basic research, adult education and training, and so on. The challenge is funding this when the specific beneficiaries are often hard to tax.

One question I had (that we likely don't have the data to explore right now) is how this increased intangible investment has played out in China. As a major partner or owner in many businesses, the CCP fits the definition of a long term investor who would be tolerant of spillover effects. In fact, I’d say that the pressure around technology transfers and aggressive subsidies under certain technical domains (particular networking and electric cars) is a heavy handed demonstration that is still in line with the principles Haskel and Westlake outlined.

I wonder how much the disparity in relative economic growth of (say) India and China over the last decade can be credited towards increases in production of intangibles in China (new IP development) versus use of intangibles in India’s high-tech space (Wipro, HCL and friends). Similar comparisons could be drawn with Taiwan as part of the state sponsorship of the development of the chip foundries there.

Overall: strong recommendation on the book.

Forbes have a good piece about how much of the technological change in the workplace is enhancing worker surveilance, specifically around monitoring completion and form of jobs, and breaks. They place this in the context of the famous shirtwaist fire:

The increased employee surveillance facilitated by telemetric vehicles and wristband monitoring exert the same kind of power – and using the same justifications of possible theft and unauthorized breaks – that the owners of the Triangle Shirtwaist Factory did when they locked the workers inside the factory.

The removal of agency, the reduced worker mobility, and total lack of skill development available to these workers have a deeply negative social spillover. They significantly cap their productivity and their growth of productivity, which ends up worse for everyone.

Timothy Taylor has a great summary of Santiago Levy's Under-Rewarded Efforts, a book about the lack of productivity growth in Mexico. One of the core points is that the social welfare system drew a big distinction between salaried and non-salaried workers, which failed to account for the incentives that would create:

The combination of tax, social insurance, and labor regulations deployed to increase social welfare taxed the high-productivity segment of the economy and subsidized the low-productivity segment, impeding productivity growth and thwarting rapid GDP growth. It also failed to provide workers with satisfactory levels of protection and efficient coverage against risks, while limiting their opportunities to get better paid jobs congruent with their increased schooling. Thus, over a quarter of a century later, it is not possible to assert that this program delivered the prosperity expected from it.

This reminds me a little of the implicit government subsidy to employers of lower paid retail worker (famously, Walmart) due to wage levels being so low that employees were supported with food stamps and other government benefits, benefits which are effectively paid for by taxes on higher-paid workers. I wonder whether there have been any similar effects in areas of the US, where the (relatively mild) disincentive has encouraged companies at the margin to avoid investing in workers (at the lower end of the wage scale) in the hopes of higher levels of productivity. These negative spillovers (if happening) feel like they could offer support for a higher minimum wage.

Bradley Tusk's fun book The Fixer describes some of the political fights he took on. One was for Handy, a gig economy house cleaning and services market place. Handy wanted to pay into a portable benefits plan, but avoid pushing it's contractors into employee status, and avoiding that triggered a fight with unions (particularly 32BJ in New York).

Tusk ended up taking the issue to Congress as part of the tax amendment, but it didn't make it. The California equivalent of the bill was AB 2675, which is still winding about the legislature, and has the same pushback from unions.

Regardless of the merits of the bill, the tension that Tusk identifies in the book is clearly present, namely that the ambiguity in the rules about what defines an independent contractor or an employee is a status quo with benefits to both both organized labor and management:

Even prior to introduction of this bill, labor representatives in Sacramento had been quite vocal in announcing their opposition to any proposal that would clarify independent contractor status in exchange for portable benefits.

Portable benefits have a whole host of advantages. Decoupling specific employment status from services seems an inevitable step, but its unclear how organized labor best fits in to this. Just as with any grouping, there are progressive and conservative segments: here the SEIU and Freelancer's Union seem on the progressive side, with the bulk of labor on conservative turf. The thing that seems to differentiate the more flexible groups is a broad definition of their constituencies.

Unions have a huge role in the future of work, but only as so much as they are actually looking to define a future, rather than a return to a past, of work. For all the ills of the gig economy apps, the better job they can do at spreading opportunities helps break local monopsonies, particularly outside the cities.

I realised that the distinction I drew yesterday between reshaping the economy and reshaping businesses is better described by Joel Mokyr’s terms macroinvention and microinvention.

Once a macroinvention occurs, and a "new species" emerges, it creates a fertile ground for further adaptive microinventions. The macroinvention itself need not be economically very important right away. It is defined as a new conceptual departure and it thus raises the marginal product of subsequent microinventions.

The last chapter of Lever of Riches covers an evolutionary view of technology - new inventions are the mutations, the hopeful monsters, of existing ideas. And, as Mokyr makes clear, you need the conditions to allow those mutations.

What made the West successful was neither capitalism, nor science, nor an historical accident such as a favorable geography. Instead, political and mental diversity combined to create an ever-changing panorama of technologically creative socieities.

Fred Wilson posted a (relatively long for him) blog entry about, roughly, whether billionaires are immoral, and the current progressive agenda.

And that’s where we are. We are not willing to move away from the things of the past to get the things of the future. So our elected officials decide to try to give us both and we struggle with how to pay for it all.

The post is worth a look, but the comments are particularly interesting. There is something in there I believe to be off, which is actually touched on in Fred's post:

I believe that technological revolutions, like the industrial revolution and the information revolution, create opportunities for entrepreneurs to reimagine how the economy should operate. Those entrepreneurs, like Rockefeller, Carnegie, Morgan, Bezos, Page, Zuckerberg, build very powerful monopolies and amass billions.

I have a minor quibble with the idea of re-imagining how the economy operates. Almost of these businesses reshaped how businesses operate, while I would note that the people who probably did reshape the economy had a tendency to be the people who introduced significant infrastructural changes (which has an annoying propensity to involve the government). Reshaping the economy doesn't often create exploitable benefit for the reshapers themselves - Bezos, Page and Zuckerberg benefited and profited in the reshaping enabled by the internet, Carnegie the railroads and so on.

More than that though, it encourages the Great Man approach to history, which is suspect on a few levels, but particularly so in that it attributes success to the characteristics of those people. For example, from the comments:

History has shown time and time again that when an economic system is setup in a way that does not incentivize those that are smarter, faster, more wise, more ambitious, i.e. whatever human trait(s) cause some to excel over others, that the overall economy suffers

Assuming that the reason some excel over others is human traits avoids you have to really grapple with the factors that constrain people with those exact same traits. I can see the arguments - would a high marginal tax rate have encouraged Zuck to sell Facebook to Yahoo rather than build it into a true company of his own? Maybe! But equally, its hard to say how many wonderful creations and enterprises we have lost out on because their potential creators simply don't have access to the prerequisites.

Marx famously described a varied world of work, which he viewed as a better one:

to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic.

Occupations are helpful identifiers - they are a (relatively) constrained set of options to slot people in to. I rarely think of the people I know best in terms of their careers, but for people I don’t know as well its a handy shorthand. This is true in our broad constructs too: a large number of government forms and other applications require listing an occupation, and usually a single one.

The source of your living seems an important part of your social identity and social worth. This hasn’t always been true - at various points intellectual or artistic pursuits have been seen as markers of status, with simple production relegated to a less distinguished role. Even those feel enveloped by work these days though - you would describe someone as an artist, whether or not they made money from it, and actors are actors even when they’re waiters.

The link between wealth and social status from employment is unclear - a working class job and background can be a strong social status marker. Even when workers are extremely well compensated, status is relative: in Silicon Valley an entrepreneur is more highly regarded than a corporate middle manager, even though they may have similar net-worths at a given point.

Marx’s view that having production allocated by committee obviates the need for a defined occupation, but from the perspective of the individual it doesn’t seem wildly different from the allocation by the market. Where he is right is that defining an identity that transcends specific employment or occupation isn’t something an individual can unilaterally do - its a social construct. Future of work thinkers often discuss the meaning that comes with work, but part of that meaning is expressed through the view society has of us, mediated by our job title. We call someone an entrepreneur when they have started a business, whether or not it succeeds and whatever it does. We don’t have an equivalent word for those that put together a living in several different ways.

Recently, Arnold Kling posted a list of Klingisms, which is worth a look. One caught my eye in particular:

Most of us are Garett Jones workers.

I wasn't very familiar with Garett Jones or what his workers were, which led to a) discovering (another) interesting GMU economist and b) listening to this econtalk episode from 2010, where he talks about the tweet and conversation that inspired the Kling quote.

The gist of it, as I understand it, is that a much larger percentage of workers than in the past spend their time building intangible assets, and beyond that, most of the folks working on those intangible assets are building organizational capital. Their day to day work isn't in contributing directly to the production of the goods their firm makes, but instead is in creating the structures, processes and knowledge necessary to produce those goods (or variants) in the future.

This is comparing the work of designing the procedures for running a fast food restaurant, managing the books, or working on branding for it to actually working in the restaurant delivering burgers. Even in high-intangible businesses like Google or other software companies you can see a difference.A percentage of the work on software (an intangible) is really tightly connected to the products Google operate, and likely has some market value: the source code to the Gmail Android app is a non-trivial asset that could be useful to another company in an imagined Google firesale. A lot of the work of software engineers inside Google doesn't have that property though, from the design documents to the source code for the internal tools that are too tied to Googles structures to ever have a life outside.

One of the takeaways in the podcast is that this kind of work is weird in productivity terms. You could lay off substantial parts of Google without effecting its revenue at all, at the cost of forgoing some future opportunities. In terms of productivity statistics, this would be make Google look more productive: the same production is being generated by fewer people. As the final parts of the production process get less labor intensive (which has happened in hard industries like car making too), an increasing percentage of the workforce is putting their efforts into capacity for the future rather than into production for the present, which is very different to the world 60 years ago.