The Great Okun's Law Violation
By Arnold Kling
During the last recession, the authors write, one in 12 people in sales lost their jobs, for example. And the downturn prompted many businesses to look harder at substituting technology for people, if possible. Since the end of the recession in June 2009, they note, corporate spending on equipment and software has increased by 26 percent, while payrolls have been flat.
He refers to a new e-book by Erik Brynjolfsson and Andrew P. McAfee. Thanks to Mark Thoma for the pointer. Tyler Cowen spotted it also, and he may very well say more before this post goes up. I have not read the new e-book, but by all accounts it squares more with my view than with Tyler’s. That is, as the authors remark,
The stagnation in median income and employment is not because of a lack of technological progress. On the contrary, the problem is that our skills and institutions have not kept up with the rapid changes in technology.
And in the earlier article on their work:
Productivity growth in the last decade, at more than 2.5 percent, they observe, is higher than the 1970s, 1980s and even edges out the 1990s. Still the economy, they write, did not add to its total job count, the first time that has happened over a decade since the Depression.
If that is accurate, then it is inconsistent with Okun’s Law, which connects GDP with employment. One may choose to view recent trends as combining a Great Okun’s Law Violation with a Great Factor-Price Equalization.