Structural Unemployment is Here: Blame the Software Engineers

Here in the U.S. we just concluded our Labor Day holiday, and I spent it thinking about labor. 

More specifically, I was intrigued by the difference between the labor required to design something versus actually building that thing.

For example, in almost every engineering discipline, an engineer cannot his or herself physically build the entirety of their design. One person alone usually cannot build a house or an automobile or a bridge. I’m obviously not including outliers like small rural shacks which can be envisioned and built by the same person. I’m talking about things that bring lasting value to a significant number of people.

In contrast, software engineering stands out as one of the only, if not the only engineering discipline where one person could conceivably build out their entire vision, no matter how large.

In fact, it’s no secret that Facebook founder Mark Zuckerberg coded almost the entire site himself. [1] Bear in mind that Facebook is web software that’s roughly equivalent to a large urban agglomeration in the physical world. To think that one man could singlehandedly build a city of that size would be absurd. But in the realm of software, one individual could build a proverbial palace of software with nothing more than their own intellect and rapid-fire typing.

This amazes me, but it also leads to deep questions about the long-term sustainability of our labor market.

The evidence has been mounting lately about the structural nature of post-recession U.S. unemployment. [2] As the Federal Reserve contemplates QE3 (“Operation Twist”) and Treasury officials scratch their heads over possible fiscal or monetary fixes, it’s become clear that deeper underlying conditions are keeping more and more Americans jobless.

[3]

The labor efficiency of software engineers and related high-technology workers is likely a culprit in the structural unemployment problem. As more highly utilized products and services are digitized, more things are built by fewer people. This isn’t even about robots and automation, but the changing nature of what we’re building and how it’s built.

This could be the end of the theory: software is less labor-intensive than previous economic output and therefore labor demand will continue to drop as software demand rises.

But stopping here would be naive. The digital revolution has just begun. We are only now beginning to build out the “application layer” of the technology stack upon all the infrastructure that was built out in the 90s and 00s. [4] This means that while overall demand for labor may not increase, demand for software engineering and related fields will continue to skyrocket as a larger chunk of economic output is dominated by software.

This makes our economics problem an education problem: making sure enough of the labor force is trained in software engineering, computer science and related fields. There should be a twofold focus on both technical retraining for adult workers and strong reform of K-12 programs that emphasize these disciplines. The former received a creative proposal by Jason Calacanis a month ago entitled “A New New Deal” that’s worth taking a little seriously in times like these. [5]

Hopefully by Labor Day 2012, policymakers have realized this and allow me to enjoy the holiday without such intellectual exercises. We can only hope (or learn to code).

[1] – Most of the early product, at least, was coded solely by Zuckerberg. Shortly after launching, other top programmers like Adam D’Angelo joined the effort and it scaled up from there.

[2] – A recent report on investing blog Seeking Alpha contemplates “Quantitive Easing 3″ in light of structural unemployment concerns. It quotes an FOMC member as stating that, “the current high level of long-term unemployment, which as of July accounts for about 44% of all the unemployed, might signal a mismatch between the skills of the unemployed and the jobs currently available.”

[3] – Structural unemployment chart from Felix Salmon’s warning in June.

[4] – See Carlota Perez’s book Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages

Delaying Graduation: Career Development Hacks for Post-Recession Students

“The only people hiring right now are Panera Bread and Mexican drug cartels.”

-Conan O’Brian (in his 2011 Commencement speech at Dartmouth)

Young adults of the Great Recession years, take heed! To future graduating classes, be in absolutely no rush to graduate. (And graduates of ’09, ’10, and ’11… I wish this advice came sooner!) The perverse incentives of the current economic condition make spending a fifth or sixth year in college an oddly smart choice.

(Note: this may not apply to students of the science or engineering disciplines who are still abundantly sucked up by industry.)

The studies, reports, and news pieces have all been out for awhile now: this generation of college graduates face the worst job prospects since World War II. [1]

As a 2010 graduate, I know countless colleagues who are still:

  • “currently in between things”
  • “working at Dad’s (or Mom’s) shop”
  • “applying (indefinitely) to grad school”
  • “working on some things”
  • going into third- or fourth-tier graduate or professional programs because there’s simply nothing else for them to productively do

Graduating sooner rather than later just doesn’t make sense these days (for many, but not all students). Think about it: when you’re out of college, one of the only things that define you is “what you do” and people will always ask. In our culture, when you’re in college, there’s no question, even about what you study or for how long: you’re simply in college!

Being currently enrolled in college confers several benefits, most notably the fact that you can still be hired as an intern or extern or whatever-tern. [2] In addition, you’ll still be able to:

  • continue networking
  • take classes
  • engage in truly substantive undergrad research / dissertation-work
  • use your campus Career/Employment Center (in most cases)

So while your friends race toward the finish line to graduate in four years or less, adapt to the times and play the marathon game. Fatten up that resume and prove the tortoise-beats-the-hare principle.

Go for a fifth year, maybe even a sixth. Your graduated friends will lose steam in that year or two, either sulking in joblessness or taking up pointless jobs with meaningless experience. Some will dive into costly graduate or professional schools in an ill-mannered attempt at staving off further stagnation (a costly deterrent, mind you, both in time and money). [3]

Meanwhile, you can use your “in-college” title to keep getting those sweet internships. Sure they’re (mostly) unpaid, but the experience and resume-building is an intangible asset that can’t be recovered if you graduated early and otherwise shut those doors behind you.

I’ll take valuable quasi-employment over unemployment or useless employment any day. Remember: time is innumerably more valuable than money, so don’t get hung up on the extra loan money for years 5 and 6. Building relevant domain expertise is far more valuable and will generate stronger ROI.

Even if you don’t go the internship route, you can keep busy taking some vocational classes to actually learn a skill (i.e. computer programming or graphic design), or dedicate lots more time to possibly getting publishable work as an undergraduate (something that would be very difficult in a four-year timeframe for most people).

I know a few friends who are slowly padding up their resumes using this technique, and believe me, employers are never alarmed to see that it took five years. Hey, there’s budget cuts man! [4] Exploit to your heart’s content. For better or worse, the system will reward you for it.

[1] – This 2010 report by the Economic Policy Institute clearly highlights just how bad “young worker” employment prospects are in Post-Recession America.

[2]- Most companies won’t hire an intern if they’re not eligible for college credit to avoid nasty legal repercussions. See this New York Times piece on “The Unpaid Intern, Legal or Not.” The relevant laws include:

See this document for more on the applicability of these laws: http://wdr.doleta.gov/directives/attach/TEGL/TEGL12-09acc.pdf

[3] – This New York Times piece on how “Law Students Lose the Grant Game as Schools Win” covers the bait-and-switch tactics law schools use with scholarships. Conclusion: some are sordidly pure-profit enterprises that lure students susceptible to the aforementioned “stagnation.” It doesn’t always make sense for some kids to go on to these schools.

[4] – In states like my own California, these budget cuts are severely deep, sufficient enough to knock most average students off a standard four-year graduation path. Taking necessary classes can become a serious challenge, as winter and summer sessions are canceled, entire departments are merged or shuttered, classes get cut, professors get furloughed or laid off, etc… Employers (should) understand that delayed graduation does not necessarily indicate poor academic performance.

Armenia Foreign Policy Thought Experiment Pt. 2: California and the Claim to Historic Lands

On this day in 1848, Mexico ratified the Treaty of Guadalupe Hidalgo, officially ceding present-day California (and many other Western states) to the United States. Exactly seventy-one years later, in 1919, Mustafa Kemal Ataturk established the Turkish National Movement that stopped the Allied Powers from partitioning the Ottoman Empire after World War I (the day that Armenia effectively lost all claims to its historical Western provinces).

That these two moments are coincident is a historical irony, for there is a great parallel in the narrative of California and that of Armenia.

As a Californian who’s cognizant of his own state’s history, I can truly understand the sentiment of Turks living in “Eastern Turkey.” One would assume that living in either of these regions implies a sort of burden or guilt of living in someone else’s dispossessed homeland, but that is entirely untrue and unrealistic.

My own personal experience as a Californian sheds light on how Turks living in “Eastern Turkey” do not care for the fact that it used to be Western Armenia. However, a deeper examination of the history of my U.S. state and the region I call home is a useful tool in predicting and carving out an international diplomatic settlement between two clashing nations, one I hope many of my fellow Californian-Armenians can believe in.

A proud Californian, I’ve always accepted my state land to be part of the United States, but that wasn’t always so. Sure, we Americans have been settled here for a long time (over a century and a half), and we view this place as distinctly “ours.” However, just because we’ve been here so long and it feels like it’s ours, doesn’t really objectively make it ours, even though it legally is ours.

Whose land did this used to be? Indeed, the indigenous peoples of North America, the Native Americans, were the first human beings to call this land home. These peoples’ lands were then conquered by the Mexicans, who were themselves a hybrid of Native Central Americans and European Spaniards. They replaced the indigenous Native Americans of California, and became known as the “Californios.” Fifty years later, on this day in 1848, the United States, the country on the eastern part of the continent, in turn came to displace them.

What happened to the “original” indigenous peoples? Were they afforded anything for repeated displacement? Were they assisted in any meaningful way? Nearly a century after the U.S. established total dominion over California, some paltry land was ceded to these peoples, in addition to legal and civil rights initiatives to “even the score a bit.” These achievements, particularly the Indian Civil Rights Act of 1968,  absolutely pale in comparison to the fact that we own all the land, and we, as “Americans,” do what we please with it.

Now let us think about the Armenian claim to Western Armenian lands. In four years, by 2015, they will have been in Turkish hands for over a century. The people who inhabit those lands, “Eastern Turks,” genuinely feel that it’s theirs, just like Californians feel that Los Angeles or San Francisco are truly and utterly theirs. Turks living in Van or Erzurum would surely think:

“Who the hell are these Armenians? We don’t know, we don’t remember, and we don’t care. This is our land.”

This isn’t too dissimilar to a present-day Californian saying:

“Some Native American wants to live in my house? Wants to cultivate and productively use my landWho do these people think they are?

Since such a direct “international score-settlement” would be ludicrous after the U.S. has productively used the land of California for over a hundred and fifty years, legal and civic initiatives are invoked to provide redress to displaced peoples.

Realistically, this should be the path both sides seek in reconciliation. Although the U.S. example was not exactly the most equitable one, it is a framework that reasonable people can agree to for policy decisions. These efforts should therefore include:

  • the transfer of some lands, most likely lands that are barren and deserted, with minimal productive use and virtually no human habitation (such as the Indian Reservations of the U.S.)
  • a few legal, civic, and political concessions within Turkey
  • the full opening of borders and resumption of trade and economic activities

This would not mean a wholesale return of Western Armenian lands to Armenians nor an immediate end to a long history of discrimination and violence towards ethnic Armenians living in Turkey. But this would certainly be a slow start to normalization among peoples in a civilized and diplomatic manner that can set the tone for future generations to respect and build upon. As a Californian-Armenian raised under my state’s civic heritage, I could only hope so.

Armenia Foreign Policy Thought Experiment: Energy Exports

Let’s assume, for argument’s sake, that Armenia became fully economically self-sufficient. We somehow managed to:

  • build a state-of-the-art nuclear reactor (with extremely high output and similar level of safety/security)
  • become a net-energy exporter
  • reinvest all energy export profits into service industries (independent of natural resources, or lack thereof)
  • witness a blossoming of sectors like finance, information technology, legal, etc…
  • progressively enhance our education system to train this new economy’s future leaders

In a word: we’d give our social capital steroids with these profits, all without relying on border expansion, delicate international diplomacy, and intermittent peace attempts with our neighbors.

The question then becomes: would we still want our western Armenian lands back? Under what auspices? For what reason other than, “They were unjustly stolen? Would those justifications still hold any weight?

I understand I’m playing devil’s advocate here in a sense. Developing our economy should lie independent of correcting past international crimes. This we can all agree on.

But in thinking about the opportunity cost of the time and resources both the country and the diaspora spend on “retribution,” maybe we could redirect these efforts to something with a little higher payoff? Maybe something that could yield “retribution” in the long-term. The problem is one of convincing millions of people that the short-term should be de-prioritized in lieu of the long-term view.

As most political economy literature teaches us, this rarely ever happens. But I’m still going to think about this nuclear reactor!

China’s Hyper-transition Seen Through the Foxconn Lens

How could you possibly need more evidence for the Chinese Postmodern Social-Industrial Revolution?

“While Foxconn still exports most of what it produces in China, global brands are looking to sell to increasingly affluent Chinese consumers. That’s why Gou hired Woo to help develop the so-called channel business, which will take Foxconn into retail. Woo, who ran the consumer side of Apple in Taiwan in the 1990s, says he plans to have 10,000 retail outlets in China by 2014, many operated by former Foxconn factory employees. In most economies, an individual’s journey from the low wages and long hours of the factory floor to the relative comfort of white-collar work can take generations. Thanks in part to Gou, Chinese laborers may make it over the course of a few years.”

From: The Man Who Makes Your iPhone (Bloomberg Businessweek)

The Steroids of Innovation: Culture

Why is Silicon Valley what it is and where it is? One word: culture. Since the turn of the century, the San Francisco Bay Area has fostered a culture that embodies these golden characteristics of innovation:

  • entrepreneurial and financial risk-taking that tolerates failure
  • an ardent belief in commercializing applied research and science
  • competitive yet collaborative institutions
  • ‘horizontal’ and not ‘vertical’ corporate hierarchies

The risk-taking, adventurous qualities of Silicon Valley go as far back as the California Gold Rush days of the mid-1800s, where tens of thousands came from around the world to stake their claim to fortune. Soon after, Stanford University led the way in a progressive academic agenda focused on taking the groundbreaking research of science and turning them into real products governments and consumers could actually utilize. The development of the radio was aided by amateurs and enthusiasts, some as young as ten years old, who would share their work and experiments with the technology, all the while forming their own companies and taking on east-coast rivals. Newly emerging high-tech corporations espoused progressive management ideals, like profit sharing and communal decision making, keeping their employees so happy they’d never think about joining unions who would slow down the cut-throat competition by making hiring and wages inflexible.

There’s only one factor outside of culture that helped make Silicon Valley what it is: billions of dollars of military funding for radio, telecom, and aerospace defense projects. At the root of it still, is culture.

If you like this analysis, you’ll appreciate the full text of this amazing blog entry by Bradford Cross. Everything written above is derived from Bradford’s article.

Stories from my Housekeeper (or… Why My College Degree is still Useful)

When I was studying Political Economy while an undergrad at Berkeley (just a few months ago), I took a course on 20th century immigration to the U.S. and its various political, social, and economic factors. We learned several things, some more analytical and complex than others. One of the more basic bits of the course was just the raw emotional exposure to some of the immigrants’ experiences, especially more recent ones, who have to put up with a hyperactive border patrol that’s bent on erecting all types of barriers to prevent further immigration. We learned of the “coyotes”–special guides hired south of the border to help would-be immigrants navigate the rough journey to the U.S. across treacherous borderlands. Countless stories of people dying of starvation or being killed by border patrol filled our classroom discussions. They were never central to the academic undertaking of the course, but punctuated the experience with a necessary humanity that was all too difficult to ever forget.

Recently, for no reason other than pure curiosity, I approached my housekeeper to ask about her stories as an immigrant. I jumped to the question right away: “Did you use a coyote to get here?” And she actually said yes! She discussed at length about how there were prearranged plans for her to be sent to Dallas to work but how those were somehow never followed upon. She ended up in LA, alone, by mistake, but made a living here and found a husband and started a family regardless. It was a true story of extreme risk and danger, but also one of overcoming adversity and persevering through immense challenges. The person who washes the dishes and cleans the floors had risked more than I ever had my entire life.

I explained to her how I took a course on immigration to the U.S. and its various causes, effects, and trajectories. I was surprised to know that she had a very elementary understanding of NAFTA and how it could allow “stuff” (her word) to be traded but not people and how this was a crucial piece of the immigration puzzle. We traded a few more stories and the conversation ended with her saying, “You are so knowledgeable! One day you shall be a judge to rule on these matters properly!” (I cleaned up the English a bit there.) I laughed as the dialogue concluded, silently thinking to myself that my degree from Berkeley is not as useless as I might have thought.

It suddenly dawned on me that the events, places, and people I studied are real: so real that they’re right under my nose, in my own home. The effects of political economy can be found all around us, and it’s not just a study of banking institutions and types of economic or political systems. It’s not limited to communism versus capitalism. It’s a study of human experiences, of people who matter to us in one way or another. And in the end, that’s what you get an education for, to improve people’s lives, starting with your own and concentrically growing outward.

3 Convenient Categories for the World’s Problems

The world’s problems can be categorized into 3 main areas:

  • Information
    • knowledge, data, understanding, etc…
  • Energy
    • resources, power, electricity, etc…
  • Collective Action
    • widespread consent around political, social, and cultural values

If you have enough information about a problem, enough energy/resources to solve it, and enough consent around a chosen solution to execute, odds are overwhelmingly in your favor that the problem will be solved.

The future will witness the unbridled advancement of all three of these areas. We’ve already come a long way in terms of the information category, with the world more interconnected and knowledgeable than ever before. Energy is probably the biggest area we need to work on, with the next few decades ushering an entirely new energy regime based on renewable energy. Not only will energy be produced at no cost politically or socially, but a much more plentiful amount will be available as well. The category of consent is similarly daunting, but much more abstract to quantify and thus much more difficult to solve. Science is easy to work with. Humans are not.

If we attack humanity’s large-scale problems with an eye out for these 3 main categories, we’ll have the structural understanding necessary for the most efficient execution of solutions.

Healthcare Reform as Fun & Games [VentureBeat]

Sick of the debate about healthcare? Glad it’s finally over? Not sure whether new reforms will work or not? Looking for a better solution? How about technology and “funware?” That’s right… another day, another post, another way to change the world. Read it here.

“We can lower healthcare costs while having fun and playing games. This isn’t an impossible feat — but it requires Washington, D.C. to turn its focus far outside the Beltway and look at what’s happening in the burgeoning industry of social games.”

Obama’s Offshore Drilling Initiative: Purely Political

President Obama’s recently announced Offshore Drilling initiative must be purely political. He makes the argument that opening up our reserves of oil and natural gas deposits off of a large part of the American coastline will actually help in the long term for environmental protection and the promotion of green jobs. In reality, opening up these reserves will increase the supply of oil and natural gas, causing a decrease in the price of those resources, and greatly reducing the incentive to innovate around alternative/renewable fuels and associated infrastructure.

I suspect that he is inking this deal only to gain Republican support for the upcoming climate legislation. Although some senior Republicans have ranted that the offshore drilling proposal is not doing enough, I feel that this is just to please their constituencies and they are in fact satisfied with Mr. Obama’s initiative. To be sure, this initiative will provide more jobs to American workers. There is no doubt that the offshore exploration will require the American workforce from the mainland. However, my particular gripe is that the initiative will do nothing to promote green jobs, in fact, it may very well hurt the expansion of that sector. However, Mr. Obama flaunts the initiative as critical to green job creation and growth. That, my friends, is a contradiction.