The Wealth of Humans is a book about large-scale changes in labor markets resulting from the rise of digital technologies. Its author, Ryan Avent, is a journalist for The Economist. What follows are some of the insights I got from reading it.
One theme running through the book is that we live in a time of widespread labor abundance. The causes of this over-supply of labor are: automation, globalization, and the rising productivity of a highly skilled few. Traditionally, we’ve relied on three mechanisms for soaking up the resulting excess labor: 1) making workers more productive via new technologies; 2) increasing education levels; and 3) falling wages.
Avent goes on to show that the first and second solutions are running out of steam and that we are increasingly left with lower wages as the way to soak up excess labor supply. He notes throughout the book that demand for labor is elastic, which means that as labor rates drop, demand increases. This is a key point that many observers of automation overlook (including me, sometimes).
One of the key concepts Avent introduces is the “employment trilemma.” New forms of work never seem to satisfy more than two of the following three conditions:
Jobs with high productivity and wages can exist, but as soon as they scale beyond a few jobs, there are incentives for automation. An automation-resistant job might emerge that is highly productive and pays well and it might scale to employ many people, but then the supply of people wanting those jobs increases and soon there is an oversupply of labor in that market. It’s a sophisticated way to think about the challenges of employment in an era of growing automation.
Avent makes a very useful distinction between “human capital” and “social capital.” He sees social capital as “contextually dependent know-how, which is valuable when shared by a critical mass of people.” Human capital includes the things we can take with us when we leave a job, but social capital loses its value when it is taken out of the context of the firm or society from which it derives its meaning. Avent draws on social capital to explain a lot of things, including global economic development problems, the attractiveness of cities like London, New York San Francisco, and the cultural power of certain companies.
Politics of Labor Glut:
Today’s persistent labor glut is creating a number of problems for workers and society. When these problems are not addressed economically, it creates pressure to resolve them politically. Avent wrote this book before the rise of Trump, but his insights in this book accurately predicted much of what we see among the hardened “Make America Great Again” core of Trump’s supporters. As Avent sees it, one of the core political drives stems from an underlying economic incentive to suppress new supplies of labor by preventing immigrants from joining the economy.
There is much more in this book that is worth sharing, but then there would be less incentive for you to go out and buy your own copy of this fine book. For anyone interested in understanding the rise of technological unemployment within a broader lens of labor economics, this book is a valuable read.
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