Thanks, you had mentioned the short- vs. long-run before, but after this discussion it is more foregrounded and the “racing” explanation makes sense. :) Though I appreciated the references to marginal value and marginal cost.
You’re assuming that the economy will produce new jobs faster than the factories will produce new chips and robots to fill those jobs.
Well, the assumptions are primarily that the supply and demand for AI labor will vary across markets and secondarily that labor can flow across markets. This is an important layer separate from just seeing who (S or D) wins the race. If there is only one homogenous market, then the price trajectory for AI labor (produced through the racing dynamics) tells you all you’ll need to know about the price trajectory for its human substitute. So the question is just which is faster.
But if there are heterogenous markets, “which is faster” is informative only for that market and the price of human labor as a substitute in that market. The price trajectory for AI labor in other markets might be subject to different “which is faster” racing dynamics. Then, because of composition effects, the trajectory for the average price of AI labor that is performed may diverge from the trajectory for the average price of human labor that is performed.
This is true even if you assume the economy has no vacancies and will not produce new jobs (i.e., labor cannot flow across markets). For example, average hourly earnings spiked during COVID because the work that was being performed was high-cost/value labor, an increase seemingly entirely due to composition [BLS]. Although I am alleging that predicting the price trajectory remains difficult even if you take a stance on the racing dynamics because you need to know what the alternative human jobs are, in that world where jobs are simply destroyed, the total value accruing to human laborers certainly goes down. This is why I think the labor flows could be considered a secondary assumption for the left-side depending on how much you think that side would be arguing—they are not dispositive of what the price changes will be (the focus of the post was on price), but they definitely will affect whether human labor commands the same total value.
Thanks, you had mentioned the short- vs. long-run before, but after this discussion it is more foregrounded and the “racing” explanation makes sense. :) Though I appreciated the references to marginal value and marginal cost.
Well, the assumptions are primarily that the supply and demand for AI labor will vary across markets and secondarily that labor can flow across markets. This is an important layer separate from just seeing who (S or D) wins the race. If there is only one homogenous market, then the price trajectory for AI labor (produced through the racing dynamics) tells you all you’ll need to know about the price trajectory for its human substitute. So the question is just which is faster.
But if there are heterogenous markets, “which is faster” is informative only for that market and the price of human labor as a substitute in that market. The price trajectory for AI labor in other markets might be subject to different “which is faster” racing dynamics. Then, because of composition effects, the trajectory for the average price of AI labor that is performed may diverge from the trajectory for the average price of human labor that is performed.
This is true even if you assume the economy has no vacancies and will not produce new jobs (i.e., labor cannot flow across markets). For example, average hourly earnings spiked during COVID because the work that was being performed was high-cost/value labor, an increase seemingly entirely due to composition [BLS]. Although I am alleging that predicting the price trajectory remains difficult even if you take a stance on the racing dynamics because you need to know what the alternative human jobs are, in that world where jobs are simply destroyed, the total value accruing to human laborers certainly goes down. This is why I think the labor flows could be considered a secondary assumption for the left-side depending on how much you think that side would be arguing—they are not dispositive of what the price changes will be (the focus of the post was on price), but they definitely will affect whether human labor commands the same total value.