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September 03, 2013 10:00 AM What the New ‘Nimble Economy’ Really Needs

By Matthew Kahn

I am in Singapore working at NUS but I continue to read the New York Times. David Autor and David Dorn have written an important piece about the role that computers have played in hollowing out middle class jobs. They end on an optimistic note;

There will be job opportunities in middle-skill jobs, but not in the traditional blue-collar production and white-collar office jobs of the past. Rather, we expect to see growing employment among the ranks of the “new artisans”: licensed practical nurses and medical assistants; teachers, tutors and learning guides at all educational levels; kitchen designers, construction supervisors and skilled tradespeople of every variety; expert repair and support technicians; and the many people who offer personal training and assistance, like physical therapists, personal trainers, coaches and guides. These workers will adeptly combine technical skills with interpersonal interaction, flexibility and adaptability to offer services that are uniquely human.

Three points: For this new “nimble economy” to replace lifetime jobs will require some capitalist magic;

1. Health insurance will need to be portable across jobs. Read Dr. Madrian’s paper on job lock.

2. Internet services in providing kosher “rankings” of quality of different artisans will have to be developed. In a fair world, a good artisan will be able to objectively signal to potential customers that she offers high quality services per $ she charges.

3. This will be a risky world as self employed workers may still face periods of low demand. In the Keynesian model, consumption today is a function of income today (do you remember: C = a + b*Y?) . If we take this model seriously, this means that artisans could face very volatile consumption as their incomes bounce around over time. Since people prefer smoothed consumption over time, such artisans will have to become shrewder life time consumers and explicitly embrace the permanent income hypothesis of consumption. In this age of behavioral economics featuring myopic consumers, the nudgers will have to think about how to incentivize the Homer Simpsons to save for a rainy day.

In this age of product differentiation and celebrating the individual, it makes perfect sense that new artisans will arise in cities around the world. Such services are often non-tradeable and this means that these producers will locate close to the final consumers. Such final consumers will often be the 1% and in this sense they create jobs. Read Moretti’s Local Multipliers paper.

[Cross-posted at The Reality-based Community]

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Matthew Kahn is a professor at the University of California, Los Angeles's Institute of the Environment. He specializes in the environmental consequences of urban growth and related quality-of-life issues.

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