Excerpted from James Cooke Brown, The Job Market of the Future: Using Computers to Humanize Economies, (M.E. Sharpe, 2001). (From chapter 6, "Experience, Training and Productivity," p. 102-106.) It is now time to deal with another democratic mechanism that will be at work in job-market economies: the mechanism by which local increases in productivity will immediately have quite general effects that will spread throughout entire economies. This happens slowly, of course, in labor-market economies as well. In job-market economies, the markets will instantly distribute the benefits of each technological advance made anywhere in it over the entire economy. There will be no lag. There will be no punishment of workers left behind in "smokestack industries."How can this be? ... In the short term...people and industries are often not only not helped by the "progress" ... but actually hurt by it. If it is true that job markets can turn these sometimes unpleasant effects into positive benefits for the entire population, then it will be worthwhile to discover how this democratic distribution mechanism works. By shortening workweeks and increasing purchasing power for everyone in response to any advance in productivity... job markets plainly will distribute the benefits of technology universally; but to show exactly why this would also happen instantly in a modern industrial setting could get a bit complicated. It will be wiser for me to try first to convey the power of this remarkable mechanism to you in a parable, one that will show the effect of immediate benefit sharing in an exceedingly simple case. Later, we can consider the details.
Widgets & Wombels: A Job Market ParableHere is a story about how members of a certain South Sea Island community weathered the changes in their economic lives brought about by an invention. To keep our story simple I will ask you to imagine that these islanders have a much simpler economy than any we are used to. Grant me this, and it will become clear how the beneficial effects of a single invention would spread rapidly over an entire community.Let us suppose that our island community has a population of 1,000 souls and trades with no other community. Suppose a quarter of the islanders, or 250 of them, work 40-hour weeks. They do this in gardens, factories, and fisheries in which they either make or find the goods that they buy and sell for money.Let us assume the islanders use cowry shells for money. What we can call their "money economy" does not include cooking their own food, changing their babies' diapers, or telling their children stories. Nor does it include making the things they make for themselves or give away, such as the fishing spears that old folk make for fisherfolk, or the toys that grownups make for children. Their money economy does include catching fish, making bread, making other tools, and building and repairing other people's houses after storms. In short, these paidworkers exchange for money only those things that they make in their specialized trades, such as fishing, bread making, and house repair. The rest of their needs are satisfied by ownwork.Let us also suppose that no one else besides the 250 paidworkers on this island either wants or needs paidwork. That is, the 750 old people, children, teenagers, and stay-at-home parents are perfectly content to stay as they are. As far as their money needs are concerned, they are happily dependent on the 250 cowry-shell earning workers, who are members of their families and equally happy to support them. In other words, there are no involuntarily unemployed persons on this island, and everybody is content with these arrangements.Into this bucolic scene comes an inventor-or rather, one of the 250 paidworkers who is already there turns out to be an inventor of truly formidable dimensions. He invents a tool, a "widget," with which a substantial proportion of the islanders' money-earning labor, say 20 percent of it, can be done in half the time they previously spent doing it. Before the widget came along, each of the 250 cowry-shell earners in this community put in 40 hours a week earning cowry shells, and they were paid proportionally; that is, they earned a certain number of cowry shells for each hour of work they put in (for our purposes, it does not matter how many, so long as the number is constant). Thus,10,000 hours a week of paidwork produced 10,000 units of purchasing power; and, as the workers put in 50-week years, 500,000 hours of paidwork per year was being worked on this island-before the widget.Of this paidwork, 20 percent, or 100,000 hours, was being spent making wombels, which is the industry in which the productivity of labor was suddenly doubled by the introduction of widgets. There is a constant demand for wombels in this community. As it happens, there are 250 families on the island and each family uses up exactly 4 wombels a year, and they can by no stretch of the imagination be induced to consume any more wombels than that. (To make this reasonable, let us say that the families on this island are of uniform size and have a uniform appetite for wombels.) On the other hand, if any family acquires fewer than 4 new wombels a year, it grieves horribly. In other words, wombel making is an essential industry, and there is a guaranteed market for 4 ´ 250 = 1,000 wombels a year right on this island-provided, of course, that the 250 families have enough cowry shells to buy them. In normal times, there always are enough cowry shells. Naturally, 1,000 wombels a year is what their wombel factory regularly produces.As mentioned above, until the widget came along, fully 20 percent of this community's money-earning labor was spent making wombels. That is 20 percent of the 10,000 hours a week that the 250 employed persons worked, which comes to 2,000 hours a week or, at 50-week years, 100,000 hours a year that were spent making wombels, and so were affected directly by the invention of the widget.Recall that the annual output of the wombel factory in the prewidget era was 1,000 wombels. Simple arithmetic shows us that the labor cost of each prewidget wombel must have been 100 hours (100,000 hours divided by 1,000 wombels). After the widget was invented, the management committee at the wombel factory gave each of the 50 wombel workers a widget, thus cutting the factory' s work requirement in half. This promptly doubled the potential output of the wombel factory. In other words, from now on either these workers could make twice as many wombels in the same time as they worked before, or they could make the same number of wombels in half that time. What should they do?After examining their predicament, the management committee at the wombel factory announced: "We can now make 2,000 wombels a year for the same labor we used to spend making 1,000.Ó (The widgets, remarkably enough, are practically free; anyone can whittle a widget out of a palm branch once having been shown how.) The announcement continued: "But we couldn't sell them. We have, as they say, ‘ saturated our market.' All we can sell each year are 1,000 wombels, and that's what we're making now with 50 workers. Obviously, we have to let half of our employees go. Looks like we'll have to give out 25 pink slips tomorrow afternoon." "No, no, no!" said the fellow who had invented the widget, and who, luckily enough, happened to be on this committee and also pretty handy with arithmetic: "That's not at all what I meant to happen! If we let 25 of our workers go, then there will be 25 families, or one-tenth of our entire island population, who won't have enough money to buy bread or fish! Or even wombels! Or to repair their houses when the annual storms come!"There was a moment of silence. Then someone said, "We'll have to set up a dole! We'll have to give these unemployed people enough cowry shells to buy the bread, fish, wombels, tools, and annual storm repairs that they and their families will still need. Never mind that these 25 unemployed adults will feel very bad! Perhaps they'll even turn into criminals because they feel so bad! But it's clear to me that we'll have to tax the rest of us to get the cowry shells to give these 25 families. It's also clear that we are morally obliged to take care of them! It isn't their fault that someone invented the widget!" "Well, it is my fault, of course!" said the widget inventor. "But we don't really have to do that! There is another, simpler thing that we can do. This plan needs no taxes, no one needs to stay unemployed, and it will help everybody!" "What is it?" asked his comrades on the committee. "It will require some arithmetic!" warned the inventor. "Tell us! We' re not afraid of a little arithmetic!" "Well, then, all we have to do is calculate how much labor the widget has saved us: how many hours we don't have to work because we're using it." "We've already done that. The widget has saved us half our annual labor bill here at the wombel factory. We used to make 1,000 wombels a year at 100 hours apiece by working 100,000 hours. The widget is now saving half that, or 50,000 hours a year." "Then we need to calculate how much all of us on this island work to earn money. We need to know what our total labor bill was before the widget came along. Can you do that?" "Sure. There are 250 money earners on the island; we each put in 40 hours a week. Let' s see. That' s a total of 10,000 hours a week, or during a 50-week year, 500,000 money-earning hours a year from the 250 of us." "Well, then, by saving us 50,000 of those 500,000 hours, the widget has saved us exactly one-tenth of all the time that we used to spend earning cowry shells. So if we all cut our work-week by one-tenth, we ought to be able to produce the same amount of goods-the same weight of fish, the same amount of bread, the same number of tools, wombels, and house repairs-as we were producing before. We will all be buying the same number of products that we bought before, so our wages really won't have to go down even though we're working less. In fact," said the inventor, surprising even himself, "they'll have to go up! None of us needs to take a cut in wages, for the very opposite will happen. Our hourly wages will go up by 10 percent! And of course none of us needs to be fired." "Even though we're working fewer hours?" said someone dubiously. "Yes," said the widget inventor. "Even though most of the workers on the island are not working in the wombel factory? Where widgets are actually used?" "Yes." "How can that be?" someone said. "Show us why this would work," said someone else. "It will work because, collectively, we are still making the same number of loaves of bread, tools, wombels, doing the same number of house repairs, and catching the same amount of fish. All we need to do is take the 50,000 hours a year we don't need to spend making wombels, and distribute it as a reduction in the work-weeks of the island's entire work force. All we need to do is spread this benefit over the same 250 workers who will be collectively producing exactly the same goods and services but doing so in 10 percent less time. So we can each work 10 percent less and still produce everything we produced before. That means that our hourly wages will have to go up 10 percent so that we can buy everything we produced before!" "So! We will now work 36 hours a week instead of 40?" "That'll do it," agreed the inventor. "And make higher wages?" "It would seem so." "Working only 36 hours a week means that in the wombel factory we'll only need-" (quick calculation) "27.7777 people instead of the 50 people who now work 40 hours a week? To make the same number of wombels?" "That's correct. But let's say 28 people." "Which means that 22 of us-actually, 22.2 of us-can now go over to the fishing fleet, the bakery, the tool works, and the house repair teams." "And fill in the hours that those other industries will be losing by going over to their 36-hour weeks!" "Really? Is it really that simple?" said someone, suddenly brightening. "It's really that simple," said the inventor of the widget.The widget inventor was also the inventor of the job market, of course, for there had never been one on this island before-and a job market is exactly what the widget inventor had just invented.Remarkably enough, the invention of the widget reduced not only the work hours of the wombel makers who used it, but also reduced the work hours of the fisherfolk, the bakers, the toolmakers, and the house repairers who did not use it. And after this sensible adjustment was made in the island's economy, the momentary consternation caused by the invention of the widget went away, and all the islanders enjoyed exactly the same standard of living as they had before the widget was invented. But they now worked 10 percent fewer hours to earn it.