Researchers Apply Economist's Theory to Entry-Level Job Automation

Sixty years ago economist Kenneth Arrow wrote that workers improve at their jobs by performing them. He stated that learning occurs only through attempts to solve problems and therefore takes place during activity. Arrow argued that this experience-based knowledge supports productivity growth for firms and the broader economy.

Researchers at the Federal Reserve Bank of Atlanta recently applied Arrow's framework to current labor market conditions. They examined how automation of entry-level white-collar positions may reduce opportunities for workers to build expertise needed for senior roles.

The researchers wrote that tasks in entry-level positions serve as a curriculum through which workers accumulate human capital.

The unemployment rate for young degree-holders now exceeds the overall unemployment rate. Some segments of college graduates face unemployment rates similar to those without degrees. Multiple factors contribute to the current job market for entry-level roles, including slower hiring amid global uncertainty, the war in Iran, tariffs, and reduced staffing after pandemic-era over-hiring.

The researchers proposed a tax on automation-derived profits paired with subsidies for companies that maintain or expand entry-level positions. They stated that this approach would discourage full automation while supporting skill development for young workers. The authors noted that if firms automate more entry-level tasks, the welfare cost falls almost entirely on workers.