Welcome to the Well-Educated-Barista Economy
A century ago, Henry Ford startled the world by doubling his workers' wages, with some reaching the unheard-of level of $5 a day. Although accounts of Ford's motivation differ, his decision fit into a larger context: A mass-production economy requires a mass-consumption society. In the absence of broad-based, steadily rising purchasing power, the engine of economic growth will sputter and die.
Fast-forward four decades to the day in the early 1950s that a Ford executive was showing United Auto Workers President Walter Reuther around a state-of-the-art automated assembly plant. The executive pointed to some gleaming new machines and asked Reuther, "How are you going to collect union dues from these guys?" Reuther replied, "How are you going to get them to buy Fords?" News accounts record no answer to either question; nor do the ensuing 60 years.
This brings us to the present day—to a slow-motion recovery that thus far has left millions of Americans unemployed or underemployed and millions more outside the workforce. One key reason for this sluggish performance is a housing industry that is falling far short of a normal rebound from recessionary lows... So why aren't there more housing starts? Answer: Because new households are forming at less than 40% of the normal rate. Young adults are living with their parents at much higher rates than before the Great Recession. Many cannot afford monthly rental costs, let alone come up with the down payments they need to qualify for mortgages.
This reflects the continuing travails of young adults in a slack labor market. Among recent college graduates ages 20 to 29, the Bureau of Labor Statistics reports, unemployment stands at 10.9%, more than three points higher than in 2007. A study from the Federal Reserve Bank of New York finds that of the recent college graduates who have managed to find work, more than 40% are in jobs that do not require a college degree; more than 20% are working only part-time; and more than 20% are in low-wage jobs.
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To explain this, Messrs. Beaudry, Green and Sand argue that as the IT revolution matures, the demand for advanced cognitive skill cools relative to the preceding investment stage, as it has with the maturing of every preceding general-purpose technology. That's plausible, but so is the even more troubling hypothesis that IT can replace an ever-widening range of higher-skilled workers with less-educated individuals using systems whose inner workings they cannot begin to fathom.
If correct, these economists' work turns conventional wisdom on its head. It would imply that our wage and employment woes are structural as well as cyclical—that in tandem with the global market for labor, the IT revolution has permanently transformed the U.S. labor market by suppressing the growth of purchasing power on which the economy depends. Responding to this new reality would challenge the innovative capacity of a political system that is hard-pressed to discharge even its most routine obligations.
By William A. Galston, a senior fellow at the Brookings Institution
http://online.wsj.com/news/articles/SB10001424052702303939404579530230397152314
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