Thursday, January 03, 2013

Are Smart Machines Hurting Young Adults?

The always insightful economists Laurence J. Kotlikoff and Jeffrey D. Sachs have written a new, thought provoking paper that begins to get at what is missing in the lives of today's young adults. In the paper, Smart Machines and Long-Term Misery, Kotlikoff and Sachs argue that smart machines are substituting for young unskilled labor and complementing older skilled labor. The result is that our children and their descendants will be worse off as the wages of unskilled young adults decline. They present a model of how this works, and certainly the income trends back them up.

But wait a minute. Aren't young adults supposed to be tech savvy? Don't older adults sneer at smart machines? Kotlikoff and Sachs are on to something, but what they've unearthed may be more complex than a generation gap in skills. In fact, there is a subset of the young who are tech savvy, the leading edge of Internet development, and highly rewarded for their skills. Then there are the others--the larger segment of young adults who have been raised and educated to be tech consumers rather than producers and now face a lifetime of low wages as ever-smarter machines substitute for their labor. These impoverished younger generations are a creation of the older generations--a society more concerned with protecting its children from the Internet than making sure its children can produce for the Internet.

So Kotlikoff and Sachs are right: the old have benefited more than the young from technological change, partly because--as the authors explain--the old are the owners and managers of the businesses profiting from technology. Inertia plays a role as well--the decade or two it takes for industries to collapse after being hit by the Internet wave, all the while providing a living to middle-aged and older workers. But the bigger reason the young are falling behind is this: the old have failed (are still failing!) to teach them how to program and produce for the Internet Age. Learning to program is as necessary for unskilled labor in the Internet Age as reading, writing, and arithmetic were to unskilled labor in the Industrial Age.

Source: National Bureau of Economic Research, Smart Machines and Long-Term Misery, NBER Working Paper 18629 ($5)

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