Hal Varian, from 2003, on the distribution of the gains from technological
change and international trade:
Rising productivity is a good thing, right? Tell that to the newly unemployed,
by Hal R. Varian, Economic Scene, NY Times: Recently productivity has been
growing at a rate of about 4 percent a year. For the country as a whole, this
means that each year we can work as much as we did last year and consume 4
percent more; or we can consume as much as we did last year and work 4 percent
That's got to be a good thing, right?
Well, it depends on whom you ask. In truth, those productivity gains have
resulted in some people's working 100 percent less, with the rest of us
consuming 4.01 percent more. If you are one of the unemployed, chances are you
are less enthusiastic about the productivity gains than are those who have
enjoyed the increased consumption.
Strangely, productivity growth is not getting much blame for the ''jobless
recovery.'' Criticizing technological progress is downright un-American. On the
other hand, criticizing foreign trade is a traditional pastime here, as in every
To economists, trade and productivity growth have a lot in common: each
allows you to produce more with less.
James Ingram's economics text tells the story of how an entrepreneur built a
factory that was significantly more productive than his competitors' plants, and
was hailed far and wide for his brilliance.
But then his dirty little secret was revealed: all he was doing was importing
goods from abroad through the back door.
In terms of impact on employment, trade is usually better than productivity
growth; those dollars sent abroad eventually come back to purchase American
products, and employ more workers. By contrast, jobs lost to productivity
increases stay lost; try to find someone today who can make buggy whips.
Gains from trade or technology initially tend to accrue to owners of capital.
When a company fires a computer programmer and shifts the job to India, the
company captures the difference in wages.
It wouldn't have to work that way. Suppose the programmer found his
doppelgänger in India, and started exporting tasks on his own. ''Dear Sanjay,
please write a subroutine to sort these accounts and send it back to me by 5
p.m. (California time).'' Each week the programmer could cash his $1,000
paycheck and send $100 to Sanjay.
This is only a thought experiment, not a policy proposal. But it illustrates
the point that the controversy over trade and technology is not about whether or
not they are good things -- of course they are -- but about who will capture
their benefits and who will bear their costs.
There is little doubt who wins in the long run: consumers. Virtually all the
gains in the standard of living in the last two centuries have come from
technology. Trade has had a smaller but still significant effect on growth in
per capita consumption.
Achieving the gains from technological advances can be tortuous. Back in
1886, when America's railroads standardized on one gauge, it became
substantially cheaper to transport goods. A great boon for everyone, right?
Well, tell that to the workers who unloaded and loaded freight at the cities
where different-gauge railroads met. They rioted over the change, and
understandably so -- the benefits from technological progress came at the
expense of their jobs.
Eighty years later, the longshoremen's union was more farsighted. It saw new
technology coming for unloading ships and negotiated lifetime employment at high
wages. The result was that by 2002 a full-time longshoreman earned $80,000 to
$107,000, depending on whether you ask the union or management.
The crucial issue in last year's West Coast port strike was not whether
technology for managing shipyards would be introduced -- both sides were in
favor -- but whether the new information-processing jobs went to union workers.
The longshoremen's union has tried to ensure that a significant part of the
gains from productivity increases accrued to its members. But even the
longshoremen recognize, though they might be loath to admit it, that there has
to be something for both sides in the negotiation; if all the gains go to labor,
there will be no incentive for capitalists to adopt more productive technology.
Capitalists have to get their piece, so they will have an incentive to pony
up the money. How much labor ends up with depends on its bargaining power. If
workers do not have much bargaining power, they get the short end of the deal.
In the long run, as the new technology becomes widely adopted, competition
pushes prices down. The gains that originally accrued to the owners of capital
are competed away, and consumers -- meaning workers for the most part -- end up
with the benefits.
Look at travel agents. The Internet opened up a new channel for airlines to
communicate directly to travelers. Intense competition for passengers meant that
most of the gains from the new technology were passed along to consumers, with
travel agents squeezed out of their jobs.
But once they find new jobs, those same travel agents will benefit from the
lower prices that resulted from productivity gains elsewhere.
Workers who are at a stage of their life where they want to increase
consumption, or accumulate assets, naturally resent labor-saving productivity
growth or trade. But those who are about to retire, and consume more leisure,
find cheaper goods attractive. It's unfortunate when trade or productivity
growth causes a 50-year-old worker to lose his job; but the same economic
changes can be a boon to a 62-year-old who can then afford to retire a few years
In the next decade, the baby boomers will start to retire and we will have to
learn to produce more with less labor. Productivity growth and international
trade will be important to making a successful transition to a labor-scarce
But if these gains from technology and trade are to be politically palatable,
we have to find a way to make sure that all can benefit from the increased
opportunities they offer for consumption and leisure.