EUCOM Economic Analysis - Part I

[Firn]

The economist's view zoomed in on an interesting issue in this case with a post of Tim Taylor.

'Cautionary Details on U.S. Manufacturing Productivity'

Awhile back I asked Tim Taylor if it would be okay to reprint a post occasionally in full or in part, and he quickly and graciously said I could. As he notes, this is an important addendum to the standard story on manufacturing, productivity, and employment. The bottom line is that "the condition of U.S. manufacturing looks more ominous than the standard story" would have us believe:

Said McKinsey report states:

"A rich pipeline of innovations promises to create additional demand and drive further productivity gains across manufacturing industries and geographies. New technologies are increasing the importance of information, resource efficiency, and scale variations in manufacturing. These innovations include new materials such as carbon fiber components and nanotechnology, advanced robotics and 3-D printing, and new information technologies that can generate new forms of intelligence, such as big data and the use of data-gathering sensors in production machinery and in logistics (the so-called Internet of Things). ...

Important advances are also taking place in development, process, and production technologies. It is increasingly possible to model the performance of a prototype that exists only as a CAD drawing. Additive manufacturing techniques, such as 3-D printing, are making prototyping easier and opening up exciting new options to produce intricate products such as aerospace components and even replacement human organs. Robots are gaining new capabilities at lower costs and are increasingly able to handle intricate work. The cost of automation relative to labor has fallen by 40 to 50 percent in advanced economies since 1990."

Krugman discusses the role of the human versus the physical capital.

So the story has totally shifted; if you want to understand what’s happening to income distribution in the 21st century economy, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital. Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.

I enjoyed his earlier 'wonkish' post about the role of technology. Indeed not all technology is created equal in their effects on the marginal product of labor.

So it’s wrong to assume, as many people on the right seem to, that gains from technology always trickle down to workers; not necessarily. It’s also wrong to assume, as some (but not all) on the left sometimes seem to — e.g., William Greider — that rapid productivity growth is necessarily jobs- or wage-destroying. It all depends.

What’s happening right now is that we are seeing a significant shift of income away from labor at the same time that we’re seeing new technologies that look, on a cursory overview, as if they’re capital-biased. So we could be looking at my technology B story above.

There are, however, other possibilities — including the possibility that the fact that we don’t actually have perfect competition is playing a big role here.

So that’s the story so far. And it’s important stuff.

I think it would be worthwhile to look more at this stuff also in the European context. Personally I think it is a highly interesting topic. Overall I thought that great built-up in capital in the last 60 years cpuled with the marginal product of capital and the demographic trends would result in a generally more worker-biased shift. The simplified cited model of the role of technology might be part of the answer.