On or Off-Shore Is Not the Issue: Why we need to “gear up” for new work
A glance at the deeper structural changes in what heavy industries like manufacturing and energy are becoming
“Certain inventions in machinery were introduced into the staple manufacturers of the north, which, greatly reducing the numbers of hands necessary to be employed, threw thousands out of work, and left them without legitimate means of sustaining life… Misery generates hate; these sufferers hated the machines which they believed took their bread from them; they hate the building which contained those machines; they hated the manufacturers who owned those buildings.”
- Charlotte Brontë, Shirley (1849)
The energy sector, like manufacturing, has often touted itself as a steady job creator in its contributions to both the economy and society. Manufacturing jobs were a huge part of America’s post-World War II economic miracle, and the discovery of fossil fuels led to the creation of an entire new job sector — mining, oil and gas — in the United States. Manufacturing, in particular, is a big focus during political campaigns because it embodies what is quickly disappearing in today’s economy — jobs with decent and steady pay to workers without a college degree. So, too, do many occupations involved in mining, oil, and gas offer employment at relatively high wages with only a high school education. Average hourly earnings in production and non-supervisory job roles in the sector was approximately $35 per hour last year.
Do you have the “goods”?
A significant factor that gets overlooked when digging into sectoral employment, job creation and political unrest is that manufacturing, construction, mining, oil, and gas, are all “goods-producing industries” as opposed to “services-producing” (according to the 2012 North American Industry Classification System and the U.S. Bureau of Labor Statistics). Manufacturing, in particular, has been granted a good amount of the spotlight as a primary job creator, making it a political hot spot. But I would argue that this industry owes its status to it “goods-producing” nature: it has historically absorbed most of the low-skill labour that has come out of the modernization of another goods-producing industry — agriculture.
But now, it’s job creator status seems to be on hold. One way to recognize this is not to simply look at how many jobs have disappeared in the sector, but to look at employment levels versus output levels. If we see production levels continue to rise, while job growth is falling, political unrest will most likely follow. We’ve seen this escalate rather recently in manufacturing, with nations like China, India, and Vietnam blamed for “taking our jobs.” Now THEY have OUR goods.
“We are going to take our jobs back from China and all these other countries.”
- Donald Trump (2016)
Pointing fingers isn’t just rude — it’s probably wrong
Finger pointing is easy, but leads to the wrong solution. Bringing back production bases from overseas won’t fix the employment problem. As a system, a production base — in all goods-producing industries — is not what it once was and does not offer employment opportunities like it once did.
We see this now in the mining, oil, and gas industry. Production is on a steady uptick, but employment growth is faltering. Employment has declined from 218 million jobs in 1980 to 180 million jobs in 2016, but production in both oil and gas has increased.
Unlike manufacturing, however, production bases in mining, oil, and gas did not move overseas — so where are the jobs going?
Two Sides to One Coin
Historically, there have been two main forces in job creation and destruction — globalization and technology. With advances in telecommunications and transportation, large corporations have moved jobs around the globe in an effort known as “off-shoring” — relocating jobs to developing countries in order to take advantage of lower wages. This is different from “outsourcing” where a different company is contracted to take over a portion of the work. After the 1980s, manufacturing jobs in particular became vulnerable to this phenomenon — employment plunged in America’s manufacturing sector from 18.9 million to 12.2 million jobs. As of recent, this has fueled working-class rage and given the rise to radical populism in American politics. One of the motivating factors between Trump’s election victory was his promise to make #AmericaFirst by bringing back production jobs “on-shore”.
Globalization has impacted America’s energy sector differently. Unlike factories, oil and gas reserves are confined to specific geographic location. In the States, rapid growth in oil and gas production from shale reserves, using advanced hydraulic fracturing and horizontal drilling, actually created high-paying jobs and boosted employment in the field in the 2000s. But in a time of plunging oil prices and resource abundance, oil and gas companies have been in a desperate race to cut costs. While it can’t ship its production site to overseas workers, it can off-shore some of its smart work. This includes off-shoring trends in human resources, financial services, and supporting functions, and also includes higher value services like engineering and design, and information technology operations.
But what about the second part of the story — technological change? This narrative is slightly older and has its roots in the Luddite movement of the 18th century. The Luddites were a group of British textile workers and weavers who were furious with the introduction of the Eli Whitey cotton gin, patented in 1794. The workers’ frustration turned to a familiar working-class rage as the machines took over weaving and textile work. It eventually lead to the destruction of weaving machines in a form of protest as workers grew fearful that machines were stealing their livelihood. This tale is as old as technology itself, but recent advances in artificial intelligence and robotics could open the door to a new paradigm in technological disruption — and job-loss confrontation.
Data Dive: Output vs. Employment
Time to look at some data. Instead of looking at one particular sector like is often done, I was curious to see if there were cumulative measures that incorporated all goods-producing industries. The following chart looks at the Industrial Production Index (INDPRO) and the employment levels in all goods-producing industries (natural resources, manufacturing, mining, construction, oil, and gas). The INDPRO is an economic indicator that measures all output for facilities located in the United States of manufacturing, mining, and electric, and gas utilities. Growth in the production index is a direct indicator of growth in the industry at home.
These trends lines strongly suggest that there has indeed been a surge ahead in production well past employment levels on American soil.
Now, let’s talk about robots
Until now, machinery has been unable to replicate the type of skills that are required in non-routine tasks, such as industrial field work. But that is changing. Rio Tinto’s Pilbara Mine, located in West Australia, will be among the world’s first fully automated mines using autonomous, driverless vehicles, automated drilling rigs, and smart meters. Suncor Energy is currently piloting similar automation technology in haul trucks, expecting to implement them by 2018. An offshore rig in the North Sea is also about to experiment with the dependability of a rig floor robot that can independently piece together an entire downhole assembly.
Robotics are becoming more agile in their functionality and cheaper than the average skilled worker simultaneously. The International Federation of Robotics reported in 2015 that robot sales worldwide continue to grow, with the majority of the purchases coming from China. It expects the number of industrial robots deployed worldwide will increase to around 2.6 million units by 2019 — the highest its ever been. Researchers studying the trend in the energy sector have no trouble seeing a scenario where the majority of oil sands operations are automated in the next 10 to 15 years. Commenting to Alberta Oil Magazine, Associate Professor, Scott Dunbar, at the University of British Columbia, stated, “I can certainly see economic incentives driving the haul trucks technology in the oil sands, because those drivers are expensive.”
So, what now?
Outlined below, the U.S. Bureau of Labor Statistics has published a comprehensive series through it’s Career Outlook initiative on job projections through to 2024. Out of all the goods-producing sectors, only construction is likely to add new jobs in the immediate future. The bulk of new jobs will come from the service-producing industry, usually requiring some form of higher education.
It looks like the only substantial job growth in the goods-producing industry will come from “support activities for mining”. But even these jobs are at the bottom end of “fast-growing industries” and likely to involve smarter work like computer and software skills, as opposed to low-skill labour.
Like manufacturing, the potential cost savings involved with automating production in other goods-producing industries are hard to argue with. But the risks that it poses to national employment need to be understood outside of sensationalist politics. Yes, maybe some factories and production bases will return to U.S. shores. Intel, for example, announced in early February that it would be investing $7 billion to finish a factory in Arizona, adding 3,000 jobs.
It’s time to switch gears
But this policy positioning to “on-shore” jobs is a window dressing and misguided. #AmericaFirst should be focusing on making all goods-producing industries more competitive. Factories such as the one that Intel plans to build will require a skilled workforce that includes people with higher education in chemistry and computer science and technicians who can repair robotic systems. This work looks a lot different than the repetitive, routine tasks in older factories. These kinds of production centers are research intensive and tend to blur the lines between a goods-producing industry and a service-producing industry.