Polanyi’s Paradox and the Shape of Employment Growth

From David Autor:

In 1966, the philosopher Michael Polanyi observed, “We can know more than we can tell… The skill of a driver cannot be replaced by a thorough schooling in the theory of the motorcar; the knowledge I have of my own body differs altogether from the knowledge of its physiology.” Polanyi’s observation largely predates the computer era, but the paradox he identified—that our tacit knowledge of how the world works often exceeds our explicit understanding— foretells much of the history of computerization over the past five decades. This paper offers a conceptual and empirical overview of this evolution. I begin by sketching the historical thinking about machine displacement of human labor, and then consider the contemporary incarnation of this displacement—labor market polarization, meaning the simultaneous growth of high-­‐‑ education, high-­‐‑wage and low-­‐‑education, low-­‐‑wages jobs—a manifestation of Polanyi’s paradox. I discuss both the explanatory power of the polarization phenomenon and some key puzzles that confront it. I then reflect on how recent advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth. A key observation of the paper is that journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities. The challenges to substituting machines for workers in tasks requiring adaptability, common sense, and creativity remain immense. Contemporary computer science seeks to overcome Polanyi’s paradox by building machines that learn from human examples, thus inferring the rules that we tacitly apply but do not explicitly understand.


HT: Marginal Revolution

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How to restart lending in Ukraine despite unfavorable macroeconomic and legal conditions


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Secular stagnation: Facts, causes, and cures – a new Vox eBook | vox

Secular stagnation: Facts, causes, and cures – a new Vox eBook | vox.

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The Macroeconomics of Piketty

From Chad Jones:

Since the early 2000s, research by Thomas Piketty, Emmanuel Saez, and their coathors has revolutionized our understanding of income and wealth in- equality. In this paper, I highlight some of the key empirical facts from this re- search and comment on how they relate to macroeconomics and to economic theory more generally. Top inequality is tightly linked to Pareto distributions. The paper describes simple mechanisms that give rise to this Pareto inequality and considers the economic forces that influence top inequality over time and across countries.

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Tax Evasion on Offshore Profits and Wealth

From Gabriel Zucman:

This article attempts to estimate the magnitude of corporate tax avoidance and personal tax evasion through offshore tax havens. In the United States, corporations book 20% of their profits in tax havens – a tenfold increase since the 1980s – and tax avoidance reduces corporate tax revenues by up to a third. Globally, 8% of the world’s personal financial wealth is held offshore, costing more than $200bn to governments annually. Despite ambitious policy initiatives, profit shifting to tax havens and offshore wealth are rising. I discuss the recent proposals made to address these issues, and I argue that the main objective should be to create a world financial registry.

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Theory and Application of Network Models

Summer Institute 2014 Theory and Application of Network Models.

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Aggregate Demand, Idle Time, and Unemployment

From Pascal Michaillat and Emmanuel Saez:

This paper develops a model of unemployment fluctuations. The model keeps the architecture of the Barro and Grossman (1971) general disequilibrium model but replaces the disequilibrium framework on the labor and product markets by a matching framework. On the product and labor markets, both price and tightness adjust to equalize supply and demand. There is one more variable than equilibrium condition on each market, so we consider various price mechanisms to close the model, from completely flexible to completely rigid. With some price rigidity, aggregate demand influences unemployment through a simple mechanism: higher aggregate demand raises the probability that firms find customers, which reduces idle time for firms’ employees and thus increases labor demand, which in turn reduces unemployment. We use the comparative-statistics predictions of the model together with empirical measures of quantities and tightnesses to re-examine the origins of labor market fluctuations. We conclude that (1) price and real wage are not fully flexible because product and labor market tightness fluctuate significantly; (2) fluctuations are mostly caused by labor demand and not labor supply shocks because employment is positively correlated with labor market tightness; and (3) labor demand shocks mostly reflect aggregate demand and not technology shocks because output is positively correlated with product market tightness.

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