Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?



  • Automation of Jobs, Part 1: Two Schools of Thought

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    The degree to which US jobs in the future will be replaced by automation is a question that has been debated for decades. More recently, perhaps during the past decade, it seems that more people believe that a larger portion of jobs will be lost to automation, particularly unskilled jobs.  And in the last few years, especially with the advent of Google’s driverless car, it seems that everyone is talking about the potential for a (nearly) jobless future for all but the most skilled, due the imminent automation of a larger and larger portion of jobs.

    This series of blogposts is my attempt to better understand the extent to which future jobs in the US will be complemented by or substituted for technology and automation.

  • Automation of Jobs, Part 2: The Current Global Environment Is Unique

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    Any attempt to predict what the future might look like should start with an examination of both the present — where are we now? — and the past — how did we get here?

    The current global economic environment is unique. A priori, this would tend to suggest that the This Time Is Different view is more likely to prevail. On the other hand, when one examines the specifics of any point is time, one must necessarily conclude that every point is time is different from every other point in time, to varying degrees. In that case, then, this time is no different from any other time. So a priori reasoning doesn’t help.

    The circumstances that characterize the current global economic environment include: (i) the increasingly global nature of the world’s economy, (ii) the global recession in which the world has been mired since 2008, (iii) the increasing connectivity of the world’s economies (this goes with increasing degree of globalization), and (iv) the transitional state in which the world’s economies have been engaged over the past few decades. I discuss each of these characteristics below.

  • Automation of Jobs, Part 3: The Nature of Jobs Has Changed over Time with the Introduction of New Technologies

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    In this blogpost I consider how the nature of jobs in the US has changed over time with the introduction of and adaptation to new technologies. As new technologies have been introduced into the marketplace, they have had three different kinds of impacts on the job market. New technologies have:

    •  Eliminated many jobs by substituting technology for human labor,

    •  Created new jobs by creating demand for new types of human labor, and

    •  Changed the nature of many jobs by complementing human labor.

  • Automation of Jobs, Part 4: What Automation Can and Cannot Do

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    Clearly, automation can perform many tasks more efficiently than people. What’s more, technologists continue to improve upon existing technologies that employ artificial intelligence, robots, and other forms of automation. As such, many jobs that are currently performed by humans will eventually be automated. Yet, there are still many tasks that automation will be unable to perform any time soon. This section attempts to clearly define tasks and jobs that automation can and cannot perform.

  • Automation of Jobs, Part 5: What Will the Future Hold for Jobs?

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.


    The purpose of this series of analyses has been to better understand the extent to which future jobs in the US will be complemented by or substituted for technology and automation.

    Summary of Analysis So Far

    In Part 1, I established that there are two perspectives on the impact of new technologies on future labor markets:

    •  The “This Time Is No Different” view suggests that based on what has always happened in the past, we can expect new technologies in the future to eventually create more jobs than they eliminate.

    •  The “This Time Is Different” view suggests that further improvements in technology will further exacerbate the current trend toward a bifurcation of society, eventually resulting in an unskilled lower class and a skilled upper class.

    In Part 2, I established that the circumstances that characterize the current global economic environment are unique. To briefly summarize, the current environment is global in nature, currently in the midst of a severe recession as well as a long-term state of transition as society adapts to new technologies, and actions undertaken by players (businesses, policymakers, etc.) will have an impact on other players globally. Since the current economic environment is different from those that existed in the past, any generalizations that attempt to project past experiences into the future must be carefully considered.

    In Part 3, I compared jobs counts by detailed occupation categories in 1940 to those in 2013, and I established that new technologies have:

    •  Eliminated many jobs by substituting technology for human labor,

    •  Created new jobs by creating demand for new types of human labor, and

    •  Changed the nature of many jobs by complementing human labor.

    In Part 4, I established that computers can perform any cognitive or manual tasks that can be clearly defined and specified by a set of rules. On the other hand, computers cannot perform tasks for which data inputs and/or outputs are not well-defined or cannot be fully pre-specified. Such tasks involve (i) solving unstructured problems, (ii) working with new Information, or (iii) performing non-routine manual tasks. Alternatively described, computers do not possess the ability to (i) be creative or form new ideas, (ii) recognize large-frame patterns, (iii) engage in or with complex communications, or (iv) perform tasks requiring sensorimotor skills.

    The Future of Jobs

    I can use Part 3 job comparisons, together with Part 4 restrictions on what automation can and cannot do, to provide some indication as to how new technologies might affect the future of jobs. However, Part 2 suggests that since the current environment is unique, I must be careful about using past experiences to predict the future. To the extent that the predictions about the future gleaned from Parts 3 and 4 suggest This Time Is No Different, do the forces furthering this conclusion transcend the forces causing the current environment to be unique with respect to past environments?

  • Can a Universal Basic Income Address Joblessness Caused by Automation?

    As computers become faster, cheaper, and more efficient, they're increasingly being used in place of labor to generate products and services. This creates a dilemma for society: If a large portion of the population becomes unemployed and is unable to earn an income due to increasing use of automation, then who’s going to buy all the goods and services generated by producers? In other words, having efficient producers doesn't do any good if there are no consumers who can afford to buy their output.

    A universal basic income is a system in which all citizens of a country are paid an unconditional annual income. Can a universal basic income that is funded from taxes on workers and on producer profits be used to solve the problem of joblessness due to automation?

    This analysis seeks to answer the following question: Given a society with a large portion of jobs replaced by automation and an associated large portion of its citizens with no employment prospects, would a universal basic income system ever be sustainable from an incentives standpoint? That is, would all members of society ever find it in their mutual self-interest to support a UBI?

  • Changes Over Time in Employment by Firm Size

    The BLS provides data on US employment by firm size. These data include information by size class (number of employees) for the following elements:

    • Job Gains
      • Total
      • Expansions
      • Openings
    • Job Losses
      • Total
      • Contractions
      • Closings

    The US Census provides data on total employment by firm size.

    This analysis employs these two data sets to analyze how job gains, losses, and total net jobs by firm size have changed over time.

  • How Have Jobs Changed between 2000 and 2015?

    Category Gains and Losses

    Subcategory Gains and Losses

    New Job Categories




    By 2000 much outsourcing and automation had already taken place. So a comparison of how private (i.e., non-government) jobs have changed between 2000 and 2015 should provide a better sense of where things are headed in the future than would a comparison of jobs in 2015 with those from an earlier time.

    The BLS provides job counts for the US by year and by private (i.e., non-government) Occupational Code, which sorts jobs into “major,” “minor” and “broad” categories. After perusing the data and considering the classifications provided, I decided to create my own job categories and subcategories that I thought were more meaningful to the way I’d like to consider the information. From here on, when I refer to categories and subcategories, I’m referring to the categories I created, not those used by the BLS.

    One important caveat to the analysis: The analysis includes only those jobs captured by the BLS. There is reason to believe that there are a nontrivial number of private jobs that are not being captured in the BLS data. For example:

    • According to one source, as of Oct 2015, Uber had “327,000 active drivers on the road in the U.S.” Considering that the BLS reports 180,960 Taxi Drivers and Chauffeurs in 2015, it is clear that the BLS is not capturing Uber drivers. And there are many other gig jobs currently in the economy, most of which are probably also not being captured. See, for example, “Top 100 On Demand Jobs Like Uber And Sites Like Airbnb.”
    • There are a lot of small producers (see, for example, Jeffrey Sparshott, “Big Growth in Tiny Businesses” in the economy, many of whom are likely not captured by the BLS.
  • Playing The Trade Protectionism Game

    Trade protectionism has been getting a lot of exposure in the media lately, with strong proponents of both sides of the issue. This analysis seeks to better understand:

    • What are the various forms of trade protection?
    • What are its advantages and disadvantages?
    • What are the big issues surrounding trade protection?
  • Playing the Trump Import Tax Game

    Description of Players

    Complications for Import Tax

    Other Issues



    One of Donald Trump’s more salient campaign promises was a promise “to bring back jobs to fading steel towns and former manufacturing areas.”To promote the create of more jobs in the US, Trump has proposed

      Tax cuts for the middle class and businesses;

      Reduction in government regulations by at least 75%;

      Incentives for businesses that produce and hire in the U.S.; and

      An import tax, at a suggested rate of 35% – 45%

    The import tax has been the most contentious measure, which opponents claim will harm

      US consumers, who will end up paying higher prices,

      US manufacturers who currently outsource production to Mexico, China, and other countries with low cost labor, who will suffer from higher costs/lower profits

      Foreign manufacturers who export their good to the US., who will suffer from higher costs/lower profits

    This analysis examines the actions and issues other market players face vis-à-vis Trump’s proposed import tax as a means of creating new jobs and growth in the US.

  • The Future of Jobs

    The future of jobs is a serious concern.

    The most popular opinion I’ve seen is that the answer is more education. Consider, though, that we are in a period in which historically high levels of the population have some amount of postsecondary education. Yet, less than half the population (about 42%) has at least an associate’s degree, and only about a third of the population has at least a bachelor’s degree. How much higher is it realistic to think these levels can actually go? Not to mention that student debt has reached massively unsustainable levels ($1.3 trillion).

    So then what about the other half of the population?

    I recently did an analysis of changes in employment by firm size over the past few decades. My analysis showed that

    • Increasing percentages of employees have been employed in large firms, at the expense of employees in small firms.
    • New firm creation has increasingly come from openings of smaller firms, while consolidation has been rampant among the largest firms.
    • The economy has become less dynamic than it was during the 1990s, with relatively greater decreases in job activity at smaller firms.

    Taken overall, the data are consistent with economic/market conditions that

    • Are less hospitable to firms overall, and
    • Favor small firms for new innovations, but large firms for continued market success.

    Factors consistent with this environment include

    • More regulations, capture by special interests, and/or uncertainty over-all that inhibit business activity;
    • Regulations, capture by special interests,  and/or uncertainty that favor large firms over small firms (e.g., Obamacare, bank regulations that favor large and/or less risky loans over small/more risky loans, minimum wage laws, etc.);
    • Bureaucracy in larger firms that prevents new ideas from developing and/or gaining traction; and
  • The Structural Nature of Changes in the Labor Markets

    US Unemployment Data

    The Changing Nature of the Labor-Capital Game

    The Labor-Capital Game

    V.1: Pre-1980s

    V.2: 1980s – 2000s

    V.3: 2000s -

    Job Mismatches

    The Job Mismatch Issue

    The Changing Nature of the Demand for Labor

    The Changing Nature of the Supply of Labor

    Government Policies Impacting Unemployment

    The Future of Labor


    US Unemployment Data

    The following three figures present US unemployment rates

  • The Unrecognized Casualty of Minimum Wage Hikes: Customer Service


    Brief History of the Federal Minimum Wage

    Studies of the Impact on Employment of Raising the Minimum Wage

    The Minimum Wage Game



    Back in April 2105, McDonald’s announced that in response to worker demands for higher wages, it would raise wages to the lowest paid employees to $1 above minimum wage. McDonald’s rationale for the pay raises was to increase the motivation of their employees to provide better customer service. As Kaja Whitehouse and Paul Davidson report in “McDonald's raises pay for 90,000 workers”:

    McDonald's, which has been struggling with workers protests and sagging sales, plans to increase pay for some 90,000 workers starting in July, the company said on Wednesday.

    The pay increase will lift the average hourly rate for its U.S. restaurant employees to $1 above the mandated minimum wage on July 1, the company said. McDonald's said it expects average wages to rise to more than $10 an hour by the end of 2016.

    CEO Easterbrook said the pay increase is meant to motivate workers.

    "We know that a motivated workforce leads to better customer service so we believe this initial step not only benefits our employees, it will improve the McDonald's restaurant experience," he said in a statement. "We'll continue to evaluate opportunities that will make a difference for our people."

    Typical of those for and against higher minimum wage, the pro groups generally insisted that the dollar raise wasn’t sufficient, that the federal minimum wage should be raised to $15 per hour, while the anti groups warned that increases in wages would lead to higher prices, lower profits, and/or job losses.

    Recently, McDonald’s reported that they have, indeed, been seeing greater worker productivity following the wage increases. Noah Smith, in “U.S. Companies, Try This: Raise Your Minimum Pay,” reports:

    Recently, McDonald’s decided to raise wages for many of its hourly restaurant workers. The rise is modest, from about $9 to about $10, but already the company’s executives claim that they are seeing improvements in service quality:

    “It has done what we expected it to --90 day turnover rates are down, our survey scores are up—we have more staff in restaurants,” McDonald’s U.S. president Mike Andres told analysts at a UBS conference... “So far we’re pleased with it."

    But Why? If it helps the bottom line to raise wages, why haven’t companies done it already?

    As Noah Smith asked in his article, if raising wages increases worker productivity, then why haven’t more minimum wage payers increased their wages above the minimum?

    This analysis examines the dynamics between

    1. Employers of Unskilled Employees, 
    2. Unskilled Employees, and
    3. Customers.

    The purpose of the analysis is to better understand

    • The circumstances under which employers of unskilled workers will generate net benefits by raising wages above the federally established minimum, and
    • The impact that increases in the minimum wage have on players’ actions and outcomes.


    A copy of the analysis can be downloaded by clicking on the link below this blog entry.

  • Why Do Economists Think Free Trade Is So Wonderful, While Many Others Do Not?

    I think the differences in perspectives on free trade between economists and others (dare I say “normal people”?) comes down to the difference between

    1. The theory behind free trade, and
    2. The reality of trade as it has actually been implemented in the real world.

    Free Trade: In Theory

    Economists’ basis for touting the benefits of free trade comes from David Ricardo’s Theory of Comparative Advantage, developed in 1817: Countries can do better by specializing in producing what they do well and trading for goods in which other countries do well. Specialization will lead countries to maximize the size of the global output pie. Then, theoretically, everyone can be made better off by redistributing some of the income from those who gain to compensate those who lose.