Thursday, December 1, 2016

Thoughts on the Future of Labor and Wages

One of the pivotal issues in the presidential election was the decay of the middle class.  Manufacturing jobs have fled to other countries and automation has taken its toll.  Significant numbers of desperate voters turned to Trump as a possible savior, believing that his promises to punish corporations who were shipping jobs overseas and negotiate new trade agreements with low-wage economies like China and Mexico would restore American economic prowess and herald a renaissance of middle class wages and jobs.

Much has been written about how complex trading relationships are and how an aggressive stance on trade may backfire.  At a minimum it seems likely that forcing a turnaround in our trade deficit would end up making products more expensive in the U.S.  The simple fact is that labor is cheaper in other nations and if products are made here then they will ultimately be more expensive. 

This in itself would not be a bad thing from my perspective, but more expensive products would probably reduce overall demand for products and the net effect might actually be worse than the status quo for the general population.

But I do not believe that the future holds any real hope for a return of manufacturing jobs.  The true culprit is not outsourcing but rather automation.  Outsourcing accelerated the disappearance of those jobs, but they are destined to decline because of relentless automation. A fix for trade deficits and outsourcing is a short-sighted band-aid for the larger problem.

When automation hit agriculture during the industrial revolution the impact was dramatic, but agricultural workers flocked to the cities and found manufacturing or service jobs to replace their work on the farms.  A long, painful process was necessary to find a new equilibrium (child labor laws, unions, safety regulations, etc.), and world revolution was narrowly avoided, but eventually a relatively happy state was achieved.

An optimist might say that the current evolution away from industrial jobs will also find a new, happy equilibrium.  But there are reasons to doubt that such a pain-free future will unfold.

Automation eliminates jobs. The only way to replace those jobs with similar manufacturing jobs is to create more products.  But at some point there is a saturation effect.  Human beings can only make use of so many products.  We are already seeing that most of the new jobs in our economy are ‘service’ jobs.  Service jobs are generally lower wage jobs than those in manufacturing.

There is a second factor at work here – the impact of women working.  Since the second world war, women have joined the workforce in ever greater numbers.  Indeed, having two wage earners in a household is seen as an unavoidable fact of life by most people.  The double income family has more earning power and provides a woman with the possibility of a fulfilling career.  But it also puts tremendous pressure on the family in terms of focus, free time and flexibility.  As I pointed out in a previous post, the double income family also plays a role in increasing the income disparity between the classes.

One possible solution to increasing automation and a dearth of higher wage jobs would be to decrease the number of days/hours that are worked by the average worker.  In essence this would be a form of job sharing and would increase the number of available jobs.  The work week decreased from six days to five in the early years of the twentieth century.  Is there any reason it can’t decrease further?

The argument against this change is that it would result in lower incomes for families and start a recessionary cycle of decreasing spending/demand and further loss of jobs.  However, in theory the cost of products should also decrease with increasing automation, as the labor required to manufacture and even to distribute products would be lower.

There is a type of optimism that argues that new forms of labor will replace the industrial labor in this coming post-industrial society.  We have already seen that the computer revolution has produced many new jobs in the so-called ‘knowledge’ industry.  It is tempting to imagine an endless array of ‘on-line’ jobs that will become available for displaced industrial workers.

However, there are obstacles to this type of job growth.  Knowledge jobs require much higher intellects and job skills than industrial jobs.  Furthermore, it seems unlikely that the number of knowledge jobs created could ever compensate for the jobs lost in manufacturing, textiles and other industries affected by automation.

That leaves service jobs as the only real alternative for job growth if we cannot accept job sharing or a shorter work week.  The move from industrial jobs to service jobs is a phenomenon that we have already begun to experience.  But service jobs generally have low salaries and the income disparity that results is very corrosive in a society.  Market forces have generally kept service job salaries very low, but that may have to change if we are to avoid all of the unpleasant and potentially dramatic ramifications of our increasingly class riven society.


I am not a pessimist at heart, but I do not see an easy solution to our current economic travails.  The revered ‘marketplace’ may eventually sort it out, but a little social engineering may be necessary to preclude a further deterioration of our civil harmony.

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