The future of work.
What will we do and how will we do it?
Our jobs seem part of who we are, our identity, we spend years dreaming and planning what we’ll be when we grow up and jobs are even a focal point of conversation. (think of how you introduce yourself, or one of the first things you ask someone you’ve just met — “What do you do for a living?”) Some of us are proud to say what we do and others feel a bit embarrassed about our employment narrative. The nature of jobs is changing though. Manufacturing, mining and finite resource production are becoming relics of the past and white collar professionals are battling for jobs with computers and AI. The mass job losses and recession that started almost 10 years ago is often pointed at the GFC as the source, and although that’s not entirely accurate, it’s a good place to start exploring the future of work.
The global financial crisis (GFC) is seen by many as the catalyst to the structural changes occurring in the global economy. It’s an obvious precursor to current conditions but the GFC exacerbated the changes, it didn’t cause them. For over 50 years the “developed” world has been booming. Capitalism was the hero and free markets ruled the world. Technology progressed at astronomical rates and Moore’s law predicted that transistors per square inch of integrated circuits would double each year. Transistors doubled, tech progressed and with all of this prosperity came huge amounts of wealth. As we all know, what goes up…must come down and when the booming population starts to age, and regulated financial markets cause global chaos, the down becomes obvious. In economies a downward trend is called a recession, which is typically accompanied by job losses and a change in the composition of GDP.
On May 6 2010 there was a financial crash that lasted just 36 minutes. Stocks lost 9% of their value in minutes and then partially recovered. This 36 minutes in time signalled issues of before and after the GFC. Algorithmic trading and automated computer trading that moves huge sums of money and stocks in milliseconds were simply using their pre programmed algorithms to trade. The GFC really marked the risk of behavioural biases and over confident traders in the economy. Computers took off in their place. Able to execute trades faster and with process information in the blink of an eye, the finance industry was forever changed. Since the GFC there have been steady and consistent layoffs in the finance industry. Underpinning the GFC were years of unchecked deregulation and confidence.
The deregulation was to make markets behave more fluidly and facilitate wealth creation. The foundation of deregulation was the assumption that markets would regulate themselves and people were rational so they’d avoid taking on too much risk. Leading up to the GFC was an assumption that the housing market could expand at any rate and prices would simply continue to rise. Central banks seemed able to tame the wildest financial waves.
Buried in this exuberance and greed was a slowly changing economy. Our workforce was coming into retirement years and young people were pushed to go to colleges and universities rather than work. Our economic ship, buoyant on false assumptions and confidence started to take on more risks. We baled in student loans, credit cards, car loans, margin loans, travel loans, housing loans and household debt began to rise.
The expansion of credit increased the risks in society. Pressuring greater returns and the chase for money was on. More and more investment plied businesses with funds for R&D and new technology developed.
The technology that rose in the dot com bubble really enabled the speculation of the property industry. Financial markets were able to become more elaborate and reach into the far corners of the world to trade. Higher computational power allowed banks to get creative with financial products — collateralised debt obligations and residential mortgage backed securities. Simultaneously businesses were able to change how they manufactured products, how they transported goods and how they reached their customers. The dynamics of the whole marketplace and economy was moving. History shows that massive shifts like this have a pattern. There’s enthusiasm, excitement and speculation but no-one quite knows how to value the new tools, goods and services. They get over priced and eventually they come down, but they facilitate the creation of jobs in new industries. Whether that be exotic plants, Asian spices, gold, oil, steam or electricity, this pattern is fairly consistent. The GFC it seemed was part of the move to the service economy.
So, I live in the sun burnt country down under, Australia. In 1856 before Australia became a federation we had the Eight Hour Day League. This was a movement that campaigned for an eight hour day on the basis of eight hours work, eights hours sleep and eight hours for rest and education. This highlighted the Australian and classical economics beliefs that there is an opportunity cost between leisure and work. Australia prospered on multiple resource booms and has been labelled the lucky country for its economic prosperity in the 19th, 20th and 21st centuries.The current economy is in stark contrast to the past. Australia is experiencing negative real wage growth, jobs are concentrated to major cities, and Australians it seems are struggling to balance leisure and work. The employment problems that face Australians are seen across most of the developed world and have been at the root of political events like Donald J. Trump, BREXIT and the revolving door of Australian Prime Ministers.
A recession though is surely to be expected after such a long period of growth. Since 1946 the western world has been the ultimate bull. Bears raised their heads briefly each decade otherwise it’s been non stop growth. We had the renaissance, the age of enlightenment, the industrial revolution and the great metropolitan migration. Throughout history it’s been boom and bust. The age of globalisation 1946–2007, a 61 year boom had to teeter out eventually.
The 60 years following WWII saw leaps in medicine, life expectancy and quality of life. On the back of peace and prosperity, populations grew from approximately 2.1 billion people in 1944 to 7.5 billion today. A 257% growth in global population and a world GDP growth rate of 5334%. Mind boggling growth facilitated by population, creation of credit instruments and globalisation. After such exponential growth isn’t it reasonable to expect some form of a contraction, or change in our world? The population boom that helped fuel this growth is now ageing and technology is continuing to march forwards into new territory.
The elixir of productivity through this period was oil. Oil provided a resource that seemed infinite and was so valuable it was nicknamed black gold. This dirty liquid was tapped from the ground and able to do everything from power cars and planes for intercontinental travel, to making plastics for computers, food goods, and the list of its uses is almost limitless. Today we have the benefit of hindsight, years of research, and accumulation of knowledge. Oil and iron ore are unsustainable. They are finite resources and we can’t use these tools to keep growing. The scarier thought is that population is no longer a tool for growth. Japan is now entering into a “lost” 20 years as an ageing population and falling population growth has pulled back their economy sharply.
Our financial markets, retirement funds, and quality of life are built on this concept of continual growth though. The very nature of investment assumes a time value of money that says if I invest today, I will have more tomorrow. When that assumption of more tomorrow is barely there, it all starts to unravel and becomes quite scary and bleak.
In light of deteriorating economic conditions, uncertainty for the average Joe increases and fear starts to emerge as the very structure of the labour force is changing. The graph below highlights the casualisation and underemployment of today’s workers.
This is in part due to a shift away from manufacturing, industry and agriculture to a service and digital economy. Other factors include access to work, almost 80% of jobs created in Victoria were within 5km’s of the Melbourne CBD. Whereas over 70% of homes are built 30kms or more out of the CBD. The disconnect of housing and jobs furthers unfair distribution of income, prohibits some parents from working, and becomes a barrier to entry for labour. Locations such as the Latrobe Valley and Geelong are experiencing huge job losses as once crucial mines, mills and manufacturers close down. These workers are often left with only three options: 1. Move to the city, 2. Accept work with limited hours, or 3. Government welfare.
The casualisation of work ties in with the current negative real wage growth. As people work fewer hours their bargaining power reduces. Union participation is also dwindling and members of the labour force have a reduced bargaining position. Higher than trend unemployment rates coincidentally mean easier replaceability of staff and further erosion of bargaining power. If asking for a raise has the potential for you to be replaced by a cheaper worker, then you most likely aren’t going to run the risk of asking.
Australia’s unemployment issues are limited to outer city locations or parents. There are high levels of youth unemployment and unemployment of graduates on a global level. The competition to get into graduate programs is fierce and most likely located in either Melbourne or Sydney. Employers are able to be selective and often seek both experience and education from applicants. The most recent data shows that TAFE and trade skills are more employable and pay higher wages than university degrees. Yet we have more people completing master’s degrees than ever before. The question has to be asked, are people turning to higher education in lieu of failed employment attempts?
The disparity of wages between management staff and workers is also rising. CEO wages are at record high multiples of their employees salaries. The distribution of wealth and income is becoming increasingly unequal. With the top 20% of households earning almost 50% of the countries income. The competition and location of jobs lend themselves to be filled by the applicants that can afford to live inner city and get the best education. This preserves the wealth and income in the top bracket and continues to widen the opportunity gap. If Australia wants an economy to grow and for housing to be affordable then it has to address the core employment issues.
It’s quite simple really. We operate in a circular economy. Money transfers from one person to another in a chain of purchases and savings that allow everyone to pay for the goods and services they need. The more people demand the more that gets produced and the more people that get jobs. The way Australia is designed does not facilitate this. A shift toward a service economy actual enables an almost limitless amount of employment. As services aren’t dependent on resources for production, we can scale up and provide essentially infinitely. This isn’t happening because of poorly planned cities, aged infrastructure, a requirement for education and experience, and the resulting inefficient city that increases the opportunity cost of work.
Let’s turn our economic environment into a real life scenario. Using the most recent census data to determine the ‘average person’ we can assume that you are a 39 year old female and you live in a home that is 30km+ from the CBD.
We need a reason you are considering a change in the labour market so right now you’re considering whether to stay home with your new family or to continue working. The job hunt starts, first let’s start close to home. A couple of jobs appear, but you have years of corporate finance experience and want to put that experience to good use. You find a suitable position but it’s in the city. It’s an hour and fifteen minutes from your front door to your desk. Two and a half hours a day commuting; that’s the equivalent of 25 full days a year, just walking to the station, on a train and walking to work. You consider the cost of care for your child to cover the additional commuting time. In the end you decide to pass on the job, the costs are too high — care, lost personal time and lost quality time with your family. The household ends up relying on your partner’s wage, family tax benefits and you do some consulting work here and there. A less than ideal scenario for the household and a less than ideal scenario for the economy, but that is the current reality for a huge number of people; and that’s assuming they have years of experience and qualifications to use.
Let’s look at a second scenario. This time we will use the model of a plan for greater Sydney that focuses on redevelopment and mixed use sites. Instead of expanding further into the country the plan is to turn existing sites into buildings that have shops/cafes/restaurants on one or two levels, followed by another one or two levels of offices and three or more levels of residential apartments. We will also add in a national flexible work system where trading hours are from 7am-7pm AEST. Shifts are split into two, a 7am until 3pm shift and 11am until 7pm shift. This was established to facilitate CBD workers use of banks, postal offices, medical facilities and overall enable their consumption of goods and services.
You still live 30km out from the CBD, are 39, starting a family and considering whether to work or not. So the CV’s go out. You get asked to interview in the accounting firm in new mixed use development. The firm’s even part of the new trading hours initiative. It takes 15 minutes to walk from home to the office. The firm only has a position to work the morning shift but they are very enthusiastic to have you on board. It’s 15 minutes to get there, your partner is able to look the kids in the morning until school starts. You finish work at 3pm and your 15 min from home so there’s plenty of time to spare. Naturally you accept the job.
In scenario two the household has a higher income from the second full time wage so they increase their spending a bit. The work place is only 15 minutes walk so there are health and environmental wins there too. Work finishes earlier enough to enable shopping, necessities like the bank and post office and spending quality family time. The perfect balance when we think about the 888’s movement.
Society doesn’t need to be a welfare state where the government provides endless amounts of support for the unemployed. It needs to be about a country that enables people to make choices and take hold of opportunities. People need to be able to choose where they want to live and what type of work they want to do. The focus shouldn’t be on living in a location because that is the only place that there are jobs. It also shouldn’t be about going into a line of work because it’s on the government’s skills shortage list and therefore you know you will actually get a full time job.
Labour force participation from women, indigenous and youth are hindered by current societal requirements and designs. Wage gaps, skills mismatches and location mismatches are part of the problem. If the indigenous disadvantage were adequately addressed then the government would receive an estimated $11 billion in additional net tax receipts each year. That’s an astronomical return on investment.
The future holds a few challenges.
- A mismatch of skills. We need to transition from miners and manufacturers using finite resources to engineers and technical trades of automation, sustainable/green energy production.
- We are experiencing negative real wage growth. Inflation is outpacing wage growth, you buy less with a dollar today than you did yesterday.
- Inefficient and congested cities. Our poorly designed cities cost us in environmental damage, and more importantly wasted time.
- Our national tax receipts are dependent on bracket creep and consumption. That is our government bets on wage inflation and people moving up into the next tax bracket for increasing tax revenue, and consumer spending makes up almost 60% of GDP.
- We have high barriers to entry to the workforce. Prior experience, education and living in a location with access to jobs.
There are solutions though. There are idealistic solutions, pragmatic solutions, and useless solutions. What we need though are politically achievable solutions. I know this may sound challenging in the current political environment but it’s certainly possible. A charismatic leader that can honestly state the situation and the solution could garnish large support when contrasted against the “he said, she said” politicians of today.
The Possible Answers:
- Broad based traineeships
I’m sure you are familiar with the current apprenticeship system but incase you aren’t then here’s a brief explanation. Typically young people looking to become a tradesperson such as an electrician, plumber or carpenter do an apprenticeship. This is where they partner with an employer and work whilst also attending trade school to develop their skills. What I propose is this; a broad based traineeship program where employee’s partner with employers and education providers to work and complete their education. For example a budding accountant joins a firm and works 3–4 days a week and spends 1–2 days a week at university over the next 5 years while they get the Bachelor of Accounting. This is a win-win-win. The employer gets access to cheap labour, and possibly receives payment like HECS for the provision of training. The employee gets experience and education. The employee gets an income which means that they are paying down their student loans to the government straight away, they also have money to spend in the economy and instead of costing the government in benefits like Youth Allowance and HELP, they provide income tax receipts as revenue. - Split work hours
Split work hours enable more people to access goods and services more easily. Right now if you work 9–5 then you know that going to the shops, banks, etc. is a challenge. Some places are reserved for a mad dash on your lunch break, but then everyone has the same idea and you’re stuck in a queue. Split work hours allow people to avoid those situations and to spend their incomes how they need to. They also enable more family time as parents would be able to split shifts and ensure they can pick up — drop off the kids. Increases in wage costs will be mitigated by increases in trade. - Planning and infrastructure investment
An easy one for the government to do as it makes them look great. Especially with all the new hoo-ha about good debt/bad debt. Regulating and spending in planning and infrastructure has huge outcomes on employment. It creates jobs in initial construction phase, maintenance and operations. It should also facilitate society to grow sustainably. Apartments need to be design regulated so that they are liveable, comfortable and healthy substitutes for houses. Mixed use development for employment hubs rather than a focus on the city. Better public transport and transport infrastructure to reduce commute times between employment hubs, regional locations, etc. We should be building up not out as land can really only come from farms or parks which are essential to well being. So clever designs with urban agriculture and employment hubs will make a material difference. - Free trade and exportation of services
87% of jobs created in Australia are service based jobs. We have some of the best education providers in the world and the most forward thinking people. From the CSIRO through to Atlassian and then mum and dad small businesses, Australians show great ingenuity. Through free trade agreements we need to export our high quality services. We have a competitive advantage and we need to make the most of it. Free trade agreements and open markets will facilitate the growth of Australian service providers and the further creation of jobs, similar to how Singapore became a financial services hub.
These four strategies are perfect to work together, but they can be implemented as a single aspect and still make a material difference. I believe that they are all politically achievable and able to be phased in. Australia is in a unique situation with so many talented people, so many renewable resources, so much knowledge and a small enough population to make changes that make a real difference to peoples lives. We need to focus on the causes of change and structural rifts. Housing affordability, negative real wage growth and weak economic growth need to be addressed at the heart of the problem.
At Australia’s heart is an economy dependent on consumer spending. Yes all those other factors make a difference, and exports etc. are important but they pale in comparison to the sheer size of consumer spending. To sustain growth and to achieve environmental sustainability we need to maximise the transition to a service economy rather than ignore it.
Designing our cities better, ensuring our youth are engaged with employment and/or education, allowing parents to participate in the labour force are all positive outcomes. Increases in the labour force expand income tax revenue, increase revenue from GST, grow the GDP, reduce costs in unemployment benefits, family tax benefits, education loans, crime, and health care costs, and most importantly increased well being for community members like you and me.
There is hope for our country and for countries that are looking for an example. We can be the model that works but we need to stop bickering and start doing. These are not costly exercises, these will help restore the budget and help manage the future problems of an ageing population. We are coming off the back of the biggest economic boom in history and we can’t afford to turn this into the biggest economic bust. Change is to be expected. The types of jobs people do have evolved as society has and will continue to do so. Work provides job satisfaction, a sense of purpose and reward, so let’s push our politicians for policy that creates jobs and provides choice on where to live and work.
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