Who Is Winning the Spoils of Economic Recovery? The Rich, and Robots

The U.S. economy, as so many of life’s big issues, has a blind-man-and-elephant problem. If you have a good job or you just got a raise, you think America has rebounded nicely. If you are still struggling to replace income you lost during the Great Recession, you think things stink. Who’s to say either is wrong?

Well, I am. Let’s all agree on terms first. A healthy, growing middle class means the economy is back on solid footing, right?

America is growing all right, but the middle class isn’t. Almost all of the middle class feels restless, a phenomenon I’m chronicling in The Restless Project. In fact, new research I will discuss below shows that in many places, most of the income growth since 2012 has gone to America’s 1 percent. In 14 states, ALL the income growth went to America’s richest.

This is not a new phenomenon. It began in the 1980s. Recessions have merely helped accelerate it. So did technology. And while billionaire Peter Thiel laid out an impassioned defense of robots this week (easy for him), there is plenty of evidence that very soon, robots will eliminate middle-class jobs and shove potentially millions of Americans into low-wage work.

Barbell economy

Try as you might to retrain and retrain and retrain, most of you won’t be able to keep up with robots in the future. Science fiction warns us that artificial intelligence will arrive and force us into a robot war, as in “The Matrix.” In reality, robots won’t have to fight us on a battlefield. They’ll just take our jobs.

Get used to the word barbell, because you’re going to hear it a lot. In the barbell economy, we’ll have lots of folks becoming millionaires, and lots of overqualified folks stuck in dead-end jobs that don’t pay enough. Another term for this is job polarization, as used by David Autor of MIT.

But first, who’s “winning” the recovery?The Economic Policy Institute issued a report last week with this shocking claim: Not only has the 1 percent captured 95 percent of the income growth from 2009 to 2012, but in 39 states, the 1 percent captured between half and all income growth.

And here’s a list you don’t want to be on: the states in which all income growth between 2009 and 2012 accrued to the top 1 percent. It includes Delaware, Florida, Missouri, South Carolina, North Carolina, Connecticut, Washington, Louisiana, California, Virginia, Pennsylvania, Idaho, Massachusetts, Colorado, New York, Rhode Island and Nevada.

“In the next decade, something must give,” the report’s authors conclude. “Either America must accept that the American Dream of widespread economic mobility is dead, or new policies must emerge that will begin to restore broadly shared prosperity.”

More jobs, if you can afford to work for the wage

How can this be? Much of it can be explained by the mixed bag that is our employment recovery. Yes, unemployment is down drastically since the recession. But no, wages haven’t climbed with them. That’s because all jobs aren’t created equal. Endless stories have described the terrible reality that many workers who lost middle-class jobs have returned to the workforce earning much less. In California, for example, almost all new jobs are low-wage jobs. Those $15-to-$30-an-hour jobs have been replaced by minimum wage jobs. (Minimum wage in California is $9 an hour.)

This is common in recoveries. An examination of victims from the 1980s recession in Pennsylvania found that, even six years after their layoff, displaced workers were still earning on average 25 percent less. They also tended to die younger; something else we can expect from this most recent recession. Know someone who had to take a pay cut and a job they’re wildly overqualified for, post-recession? Of course you do.

Some of this is the result of traditional wage pressures that persist after a recession, as the economy processes a worker surplus. As we get closer to something like full employment, wage pressure will rise. Thankfully, in the most recent jobs report, there was an indication that wages are rising.

But about those robots. A troubling report out earlier this week from Boston Consulting claims that machines are poised and ready to disrupt workers in plenty of middle-class professions. Robots will cut labor costs by 22 percent in the United States, the report says. Even more ominous, robots are getting cheaper. The cost of owning and operating a robotic spot welder, for example, has tumbled from $182,000 in 2005 to $133,000 last year, according to the Associated Press. That’s enough to keep you up at night.

Thiel and other wide-eyed optimists argue that robots will take mundane jobs, leaving workers to pursue higher, more gratifying pursuits. Who wanted to be a tollbooth collector anyway, right? Who sheds a tear when EZPass displaces another government worker, right? (Other than that worker and her/his family).

The real fallacy is the faith, shocking among folks who otherwise demand science, that this magical class of even better jobs will appear. Just because farmers were able to move to cities and find good jobs 100 years ago doesn’t mean middle-class workers replaced by robots will find good jobs in this decade. The reality will be much more mixed, as described with great thoughtfulness in this Farhad Manjoo story on Slate.

Minimum wage for robots?

Certainly, some people will find a way to make money with robots. But it’s easy to imagine that taxi drivers replaced by robot drivers will end up in intense, face-to-face, plentiful-but-lower-paying jobs such as elderly health care. As robots become intelligent enough to remove the human element from good-enough jobs such as security guards, reporters (yes, robots are writing AP stories now) and even lawyers, it’s foolhardy to imagine a little retraining will turn all these workers into mini-entrepreneurs.

It’s easy to imagine that, as in the economic recovery today, the 1 percent will reap the benefit from lower wage costs and many in the middle class will be pushed downward. That’s the barbell: folks will be pushed to either end of the economic ladder, with fewer in between.

Boston Consulting says robots can be operated for $4 an hour. Their health care is a lot cheaper, too. Think underpaid Chinese workers are the biggest menace to American jobs? Just wait.I don’t recommend violence against machines as a solution. The problem isn’t unsolvable. It’s a mixed bag. There will be winners and losers. The key is to make sure the spoils of the transition are more reasonably distributed. Workers need to be paid a real living wage, not a farcical minimum wage.

Everything possible should be done to make workers more mobile, including radical concepts such as putting in place completely portable health care and rules that make both training and moving easier. Collective bargaining needs to be restored and strengthened. Today’s income inequality is a great time to have this discussion, before tomorrow’s even bigger problems arise.

A country where all the gains go to the 1 percent is not a country with a healthy middle class. There are good reasons to be scared that lingering impacts of the Great Recession and coming cosmic leaps in technology will polarize these groups even more. It’s in everyone’s interest to nurture the middle class and spread the wealth around. Otherwise, as zillionaire Nick Hanauer has elegantly said, even the 1 percent will have a lot to lose sleep over.

Click to learn about The Restless Project
Click to learn about The Restless Project

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