17/10/17: Intel Opens the Era of Unemployed Insurance Brokers...

If you have a job structuring and selling, marketing and monitoring/managing car insurance contracts, you should stop reading this now... because, Intel has developed the first set of algorithmic standards for self-driving vehicles that aim to ensure that any accident involving a self-driving vehicle cannot be blamed on the software that operates that vehicle.

How? Read some scant details here: https://www.bloomberg.com/news/articles/2017-10-18/intel-proposes-system-to-make-self-driving-cars-blameless.

What does this mean? If successful, regulating algorithmic standards, most likely more advanced than the one developed by Intel, will mean that self-driving vehicles collision will be by system definition blamed only on human drivers, bicyclists and pedestrians. Which will, de facto, perfectly standardise all insurance contracts covering vehicles other than those operated by people. The result will be rapid collapse in demand for car insurance as we know it.

Instead of writing singular (albeit standardised) contracts to cover individual drivers (or vehicles driven by them), using actuarial risk models that attempt to identify risk profiles of these drivers, insurance industry will be simply writing a single contract to cover software running millions of vehicles, plus a standard contract to cover the vehicle (hardware). There will be no room left for profit margins or for service / contract differentiation or for pricing variation or for bundling of offers. In other words, there will be no need for all the numerous marketing, sales, investigative, enforcement, actuarial etc jobs currently populating the insurance industry. Car insurance sector will simply shrink to a duopoly (or proximate) providing cash management service to autonomous vehicles owners.

There will be lots of armchair-surfing for currently employable insurance industry specialists in the near future...

16/5/17: Technology: Jobs Displacement v Enhancement

Technological innovation is driving revolutionary changes across the labour markets and more broadly, markets for human capital. These changes are structural, deep and accelerating, and, owing to their nature, are not yet sufficiently understood or researched.

One theoretically plausible aspect of the technological innovation in terms of human capital effects is the expected impact of technology on demand for (and therefore supply of) different occupations. For example, we know that technology can act as a complement to or a substitute for labour.

In the former case, we can expect advancement of technology to create more jobs that are closely linked to enhancing technological innovation, deployment and productivity. In other words, we can expect more geeks. And we can expect - given lags in education and training - that as demand for geeks rises, their wages will rise in the short run before falling rather rapidly in the longer term.

In the latter case, there is a bit less certain, however. Yes, technology’s primary objective is to lower costs of production and increase value added. As a result, it is going to displace vast numbers of workers who can be substituted for via technological innovation. However, not all substitutable workers are made of the same cloth and not all technological innovation is capable of achieving unambiguous returns on investment necessary to sustain it. Take, for example, an expensive robot that costs, say, USD 600.000 a pop, but can only replace 3 lower skilled workers in a laundromat, earning USD16,000 per annum. So with benefits etc factored in, the cost of these 3 workers will be around USD70,000 per annum. It makes absolutely zero sense to replace these workers with new tech at least any time before the tech systems become fully self-replicating and extremely cheap. So, for really lower skills distributions, we can expect that jobs displacement by technology is unlikely to materialise soon. But for mid-range wages, consistent with mid-range skills, there is a stronger case for jobs displacement.

All of which suggests that we are likely to see a U-shaped polarisation process arising when it comes to jobs distribution across the skills segments: higher wage segment rising in total share of employment, as complementarity effects drive jobs creation here; and the lower wage segment also rising in total employment, as robots-induced increase in value added across the economy translates into greater demand for low-skills jobs that cannot be efficiently displaced by technology, yet. In the middle, however, we are likely to witness a cratering of employment. Here, the workers are neither complementary to robots, nor are they earning low enough wages to make expensive robots non-viable as a replacement alternative for labour.

Interestingly, we are already witnessing this trend. In fact, we have been witnessing it since the early 1990s. For example, Harrigan, James and Reshef, Ariell and Toubal, Farid paper titled “The March of the Techies: Technology, Trade, and Job Polarization in France, 1994-2007”, published March 2016, by NBER (NBER Working Paper No. w22110: http://ssrn.com/abstract=2755382) looked into “employee-firm-level data on the entire private sector from 1994 to 2007” in France.

The authors “show that the labor market in France has polarised: employment shares of high and low wage occupations have grown, while middle wage occupations have shrunk.” So the story is consistent with an emerging U-shaped labour market response to technological innovation on the extensive margin (in headcount terms). And more, the authors also find that inside margin also polarised, as “…the share of hours worked in technology-related occupations ("techies") grew substantially, as did imports and exports.”

However, the authors also look at a deeper relationship between technology and jobs polarisation. In fact, they find that, causally, “polarisation occurred within firms”, but that effect was “…mostly due to changes in the composition of firms (between firms). [And] …firms with more techies in 2002 saw greater polarization, and grew faster, from 2002 to 2007. Offshoring reduced employment growth. Among blue-collar workers in manufacturing, importing caused skill upgrading while exporting caused skill downgrading.”

22/8/2014: Minimum Wage and Employment: Recent Study

The effects of minimum wage laws on employment levels and employment prospects for various categories of workers are subject of voluminous literature in economics. Still, little consensus exists on whether higher minimum wages impede new jobs creation or destroy existent jobs or suppress earnings growth for lower wage employees.

A recent paper by Meer, Jonathan and West, Jeremy, titled "Effects of the Minimum Wage on Employment Dynamics" (June 26, 2012, http://ssrn.com/abstract=2094726) offers estimates "how the minimum wage affects both employment levels and dynamics... To do so, we employ the Business Dynamics Statistics, a long (1977-2009) panel of administrative data on the aggregate population of non-agriculture private-sector employers in the United States, broken out based on establishment location. These data offer the ability to examine gross job creation and destruction separately, an important advantage."

The authors first discuss "why even a carefully-designed study may not find a statistically significant effect of the minimum wage on employment levels":

1) "…Newly hired employees within a company are more likely to be paid minimum wage than are more senior employees. …It follows that minimum wage employees are likely to be relatively recent hires. …A direct implication is that minimum wage increases are most likely to affect workers who are (or would be) recent hires."

2)"…any reduction in new employment should also be reflected in total employment, so theoretically the decision of which of these outcomes to analyze is arbitrary. However, for estimates using a finite panel of real-world data, the distinction becomes much more important because the impact of an unrelated shock to total employment may easily overwhelm an effect of the minimum wage. Furthermore, …relatively rapid transitions to higher wages are common for minimum wage workers; we… calculate that nearly two-thirds of minimum wage workers who remain employed after one year earn more than the minimum wage. This illustrates the policy importance of focusing on the job creation margin; if higher minimum wages reduce employment entry by these workers, they never have the opportunity to develop the skills or tenure to earn even higher wages."

3) "…inflation can inhibit identification of statistically significant employment effects,
especially in studies relying on data from the 1970s-1980s, which experienced relatively
high rates of inflation. Historically, minimum wages have been set in nominal dollars and not adjusted for inflation, so any nominal wage differential between two states will become economically less meaningful over time."

4) "…sooner or later every state experiences a nominal increase in its minimum wage, either due to a revision to a state law or because the federal minimum wage increases. Unlike the slow erosion of nominal minimum wage gaps brought about by inflation, a discrete increase to the counterfactual's minimum wage may quickly close or even reverse this gap. To put this another way: in the long run, there is no permanent control group. This situation would not be problematic if the minimum wage affected employment in an abrupt, discrete manner. But if the minimum wage primarily affects new employment, then it may take years to observe a statistically significant effect on total employment."

So the authors conclude that "considered together, we believe that examining employee hiring and job growth directly provides for a more accurate assessment of minimum wage effects than examining total
employment. There are also theoretical arguments for why minimum wages are more likely to impact employment dynamics than employment levels."

The authors find that "…the minimum wage significantly reduces rates of job growth, that this occurs primarily through reductions in job creation, and that this effect is somewhat more pronounced in continuing establishments than for establishment births. We also find that the reduction in job creation cannot be attributed to reductions in employee turnover, as well as no effects on the entry and exit of establishments."

05/11/2011: Jobs destruction in Ireland 2008-2010

So we had the Celtic Tiger, now we are having a Celtic Bust. Our extreme (for a young, small open economy with high levels of tertiary education - in numbers, if not quality - etc). But how do we stack up against other advanced economies in this area?

Here's some data from the OECD covering the period of the crisis (2008-2010, no annual data for 2011 yet) on jobs destruction in Ireland, compared to same in other advanced economies.

For a small economy, even in absolute terms, the number of jobs lost in Ireland in 2008-2010 period was 261,000 or 8th largest loss in the sample of 24 advanced economies. Net of new jobs created (+11,000), Irish economy lost 251,000 (note rounding differences) jobs in the period covered. The net loss we sustained in terms of jobs destruction in absolute terms was the 5th largest in the advanced economies sample.

Chart below puts the above numbers in relative context. As a percentage of total employment, Irish net jobs destruction was 12.2% - second highest after Estonia.

In terms of sectors most severely impacted by losses, Construction leads with 87.8% share of all jobs changes during the crisis. Surprisingly - being the source of so much destruction via Irish domestic banking collapse - Financial Services jobs category posted the shallowest jobs declines at 15.1%. This is most likely due to the lack of layoffs in the state-controlled banking sector, plus the resilience of the IFSC. The only sector that saw increases in jobs numbers is the sector of Community, social and personal services.