One of the truly depressing things about listening to the presidential debates was that both sides seem to be disregarding a fundamental factor in the economy: the displacement of humans by “machines” (in quotes because these days the machines in question are computers).  Because politicians are largely ignoring the importance of this trend, the proposed policy solutions all belong to the same tired arsenal of either supply side or demand side economics.  It’s a bit as if you were on the Titanic *after* hitting the iceberg and arguing about turning to port versus starboard instead of getting everybody into the life boats.

For context, here is an interesting little chart that I pulled together mostly from US Census data.  It shows the composition of employment over the last 200 years.

As you can see the percentage of people employed in the US in agriculture collapsed from a high of over 80% of all people employed in 1810 to below 3% in 2010.  Manufacturing (tightly defined) peaked in the 1950s and 1960s, accounting for about 1 in 4 jobs, but has been declining since 1970 and by 2010 was down to only 10% of employment.  The rest of employment has gradually shifted into “other” which includes services, transportation, government and more and now accounts for over 85% of all employment in the US.

Now of course over the same time period total employment has grown in absolute numbers and as the following chart shows even as a percentage of the population (again mostly based on Census data)

This growth over time from about one third to almost one half of the population being employed has been driven in no small part by the increased participation of women in the workforce.  As far as total job creation goes this is an even bigger accomplishment given the tremendous population growth over this time period. In 1810 the US had barely over 7 million people in it and in 2010 there were over 300 million Americans for a growth of more than 40x!

Against this backdrop of a growing population and growing workforce participation, the collapse of agriculture and manufacturing is even more dramatic.  Both of these sectors are in fact down in *absolute* numbers of people employed off their highs.  Agriculture peaked in the early 20th century at around 12 million people and is now down to 3 million.  Manufacturing peaked in the 1980s at around 22 million and is now down to below 15 million employees.

What is behind the shrinking of agriculture and manufacturing?  Innovation and globalization. Innovation has allowed us to be vastly more productive in agriculture and manufacturing (meaning fewer people can achieve the same output) and globalization has allowed us to import food and products from other parts of the world.  Innovation is at work everywhere though and so if you assembled similar charts for say China or India you would find the percentage of the population working in agriculture there declining as well.  I am not sure whether manufacturing is already declining there, but the announcement that Foxconn is planning to deploy 1 million robots suggests the eventually inevitable direction.

What happens to employment then in the US going forward essentially depends on the “other” category that now dominates employment.  The US is currently reporting about 12 million people as unemployed.  Now consider only a 10% further population growth (need another 14 million jobs at a 45% participation rate) combined with a hypothetical 10% contraction in the “other” category (lose 12 million jobs).  That wold open a gap of another 26 million jobs, thus tripling the number of unemployed!  Even at a steady population, a 10% contraction in the “other” category would result in a doubling of the number of unemployed.

Now the obvious argument here is that surely there must be parts of the “other” category for which employment is growing.  That’s something I will dig into more in a second post.  But at a high level there is no reason why the growing parts of “other” *have* to add employees faster than the contracting parts are shedding them.  Put differently: we are already using fewer people to feed ourselves and fewer people to make stuff so it is entirely conceivable that we will need fewer people for everything else!  Essentially all it takes for employment to drop is for productivity growth in “other” to outstrip the growth in demand.

To be continued!