Are we facing "Robocalypse Now?"

For ages there have been concerns about workers being displaced by machines.  remember Ned Ludd?  John Henry?  With the growth of machine learning and artificial intelligence, those concerns have become heightened recently.

Basic economics says that the introduction of a new advanced technology will have two effects on the labor market: (1) there will be some displacement of workers whose skills are no longer in demand (e.g., blacksmiths and the automobile, bookkeepers and the computer) and (2) the extra wealth created by more efficient production methods will lead to increased demand for a wide range of products.

MIT economist David Autor has taken a look at the historical evidence on productivity enhancements and displacement.  Exploring 19 countries over 35+ years, he finds that the displacement definitely happens and is sizable within the affected industries.  However, employment actually ends up growing overall.

The downside is that some skilled workers are displaced and lack attractive options.  This means we face a challenge creating new opportunities for the unskilled and medium-skilled workers who are most likely to be affected.  The full report can be found here.

A challenge to Piketty

French economist Thomas Piketty has become a media celebrity as a result of his "Capital in the 21st Century."  One of his central claims is that capital income grows faster than labor income, which necessarily dictates growing inequality over time.  Piketty does show this to be the case in the US and a number of other countries over the last 40 years.

A recent study by an MIT economist featured on an WSJ blog takes a closer look at capital income.  As it turns out, capital income is not limited to capital gains, interest, and dividends.  It also includes housing, and this is where it gets interesting.  If you break capital income into two components (housing and all other forms), the data show that all of the upward trend in capital income is the result of housing appreciation.  In other words, who is getting wealthier?  It is not the idle rich; instead it is homeowners.

This has important implications for the societal implications of growing inequality.  Ownership of stocks and bonds is relatively concentrated in the upper income brackets, whereas most Americans are homeowners.  If the returns to capital are being distributed in the form of rising home prices, then the impact on inequality across households will be relatively minor.