The real jobs issue that nobody’s debating

Lies, damn lies & statistics

Borders, trade barriers and currency manipulation are getting lots of ink these days. The often explicit, and occasionally implicit contention is that manipulative foreign government policies have resulted in the mass migration of US manufacturing jobs. The narrative tells of the tragic decline of American manufacturing.

That seems to play well to an uneasy audience, but it’s a misrepresentation of the overall picture. First, this disregards the complicity of each of us that ever shopped somewhere that seduced us with promises of low prices — and the clear message we sent manufacturers through those actions. Second, it ignores the historical reality that these changes happen. Third, it ignores important complimentary data.

While manufacturing employment has fallen from a peak in the late 70s, manufacturing output has risen in nearly a straight line. And notable interim declines correlate to broad economic distress not the implementation of Free Trade Agreements.

Research from St. Louis Fed (https://research.stlouisfed.org/fred2/graph/?g=3Whn)

In other words, this story isn’t fundamentally about the decline of American manufacturing; it’s about the decreasing number of jobs — specifically in this case manufacturing jobs.

That’s a worrisome interpretation because the shortsighted, retrospective look at manufacturing employment misses the enormous, looming social issue of total employment.

Millions of jobs will simply disappear

How has manufacturing output grown even as manufacturing employment fell? The answer is intuitive and easy. Productivity.

US companies awoke from their complacent stupor as foreign competitors rapidly gained ground. They improved processes, implemented rigorous management practices and automated repetitive, dangerous and cumbersome functions.

There is no debate that this eliminated some jobs. And while improvements in safety, quality, productivity, consumer costs and more were realized, the collective benefit doesn’t mitigate the individual angst.

But those were the easiest jobs to replace — often through mechanical automation. The next wave of automation will displace many times the number of workers who were impacted by advances in manufacturing.

When in 2013 researchers at Oxford assessed whether 702 different occupations could be computerized, they concluded that 47% of U.S. employment was at risk of being lost to machines. Fast Company

Most of the employment growth that has offset the decline in manufacturing employment in recent years has been in services. And now those jobs are in jeopardy. What began with ATM machines several decades ago is accelerating. Already “robots” are pouring drinks as bar tenders (and as AI improves, may even offer the willing ear as well.) Uber is doubling down on driverless cars. And hotel apps which offer remote check-in and the ability to unlock your hotel room door with your smartphone are obviating hotel clerks.

Whose problem is it?

As long as you’re not the displaced hotel clerk, it’s not all bad. Imagine recapturing commuting time with smoothly flowing traffic and the ability to work, relax, connect with family or even sleep during the drive.

While the decline in manufacturing employment caused substantial disruption for those who originally held the 8.5 million jobs which were eliminated between the peak in the late 70’s and trough in 2010, the next wave of job loss will have huge societal implications. Yet most of us are blithely ignorant.

Many Americans reckon it’s someone else’s problem: most of those surveyed believe that automation will change the workplace, but four-fifths don’t think their own jobs will be affected. Denial is a powerful force, but technology is stronger. Economist
From The Economist — https://espresso.economist.com/sites/default/files/styles/500_wide/public/images/20160312_DAC705_0.png?itok=vFcBI5fB

There will be enormous global implications too. I’ll write in the future, for instance, about how 3D printing may rob emerging economies of the important formative transition to low-skilled, light manufacturing. And that’s just one example of a myriad of outcomes which can be foreseen.

What’s legitimately scary (not in the context of hyperbolic political posturing but considering the foundations of stable society) as one looks out twenty years is the potential disruption to many business models, many employment expectations and many economic forecasting assumptions.

Wisdom, models and tools

As the debate rages over jobs that have been lost, precious little is being discussed about jobs which will be lost. And the reflexive responses most commonly proffered will likely aggravate the historical problem while doing nothing to address the impending one.

Consider the scale of the problem. 8.5 million jobs of 154 million in 2010 represented 5.5%. In contrast 47% (if Oxford is correct) of a total 120 million jobs in 2015 (itself an worryingly low number of 330 million residents) is >56% potential employment disruption. Far less changes societies.

It’s often said that generals fight the last war. In this case policy makers are not only fighting the last war, but haven’t even begun to envision the models and tools which they’ll need to creatively address the coming wave of job eliminations.

That should give every business owner, prospective retiree, current student, political candidate and policy wonk pause. And Bastiat’s observation has perhaps never been more poignant.

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them. There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

Let’s hope that our leaders rely on “good” economists; that our managers be agile; and that each of us be incredibly resourceful and resilient. Because….

This isn’t merely an academic question

Change like this happens, as we clearly see looking back over the last three industrial revolutions. In retrospect we call it progress. At the time it’s wrenching (although academics and policy makers refer to it euphemistically as ‘disruption.’)

When we’re being wrenched, we want an answer, or at least an explanation, for what’s happening.

To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown — the first instinct is to eliminate these distressing states. First principle: any explanation is better than none… The cause-creating drive is thus conditioned and excited by the feeling of fear …Friedrich Nietzsche ht John Mauldin

The real explanation is complex and ultimately, amidst acute pain, unsatisfying. And so we’re open to the claims of those who ascribe blame to an evil character: for instance the wealthy who earned it on our backs, the Chinese or others.

Blame may offer fleeting satisfaction, and populist appeal, but it doesn’t solve the issue. (NB — If you’re inclined to read a veiled attack on a particular candidate here that’s a reflection of your bias. It’s intended as an indictment of every public official who’s not contemplating this prospect.)

The future is already here. It’s just not evenly distributed. William Gibson

And it’s accelerating. It’s likely that most of this will play out over the next 3–4 presidential terms.

The debate we should have

This discussion should be prominent in our public discourse. Unfortunately it’s absent.

The related conversation should be around addressing our profligate public spending.

The disruption we are likely to face will be so significant that a government in well trimmed financial condition would be challenged to manage the disruptions. Ours, burdened by >100% of GDP in balance sheet debt (not to mention the $100–200 trillion of ‘off balance sheet’ obligations and unfunded liabilities) will have precious little chance.

Growth will help, but we must also gird our loins and build a reservoir of public financial strength to survive and thrive through the huge employment shift which looms.

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