Wednesday, June 1, 2011

Will We Ever Get Our Jobs Back?

This is the time of year when the media likes to do stories on graduation ceremonies to talk about the prospects of these new entrants into the work world.  Although some have struggled from time to time, these younger fresh faces have usually done relatively well in the job market, at least compared to many of the older workers who have been shut out of the job market for being “overqualified”.

But if nothing else, this recent NYT article Outlook Is Bleak Even for Recent College Graduates confirms that if anything, the job market in recent years has gotten even worse.
Now evidence is emerging that the damage wrought by the sour economy is more widespread than just a few careers led astray or postponed. Even for college graduates — the people who were most protected from the slings and arrows of recession — the outlook is rather bleak.

Employment rates for new college graduates have fallen sharply in the last two years, as have starting salaries for those who can find work. What’s more, only half of the jobs landed by these new graduates even require a college degree, reviving debates about whether higher education is “worth it” after all.
The article goes on to say…
Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007.
Even these figures understate the damage done to these workers’ careers. Many have taken jobs that do not make use of their skills; about only half of recent college graduates said that their first job required a college degree.
Taking a first job that doesn’t require a college degree isn’t the end of the world in itself.  For example, I worked as a bartender for several months after graduation before finding my first professional job.  But I’m sure that many of these current graduates fear that they may be waiting a long, long, time for that first professional job – and for good reason!  Because unlike previous recessions, many of our recent job losses are not cyclical but instead have been permanently lost to offshoring.

Back in August, I posted Our Jobs Crisis which argued that if anything, we are underestimating how serious a threat this present shortage of jobs is for America’s future.  And that it is no longer just low skill jobs that are being offshored but also many professional level jobs that were previously immune to economic downturns.  While each political party is pointing fingers at the other asking where the jobs are, the endless distractions with other issues causes me to fear that neither side really cares or even worse, knows what to do about it. 

Yes, our economy is slowly recovering based on economic output.  Corporations are making handsome profits.  But the jobs are just not there.  They are simply not hiring – at least not here in the US.  Will we ever get our jobs back?  Maybe, but there is plenty of reason to fear the worst.

By now, most of us are aware of how we are losing jobs to offshoring.  More and more companies are deciding to take advantage of cheaper labor rates elsewhere in relocating their factories. It has gotten to where many product categories at our stores are only available as imports.

But if we are to believe software developer and author Martin Ford who wrote The Lights in the Tunnel, offshoring is only the tip of the iceberg next to the far greater threat to our economy from automation.

Economists almost universally believe in something called the "Luddite fallacy" -- which basically says that advancing technology will always create more jobs than it destroys. In other words, any fear that technology will never cause widespread, long term unemployment is a fallacy. This has always been true in the past. Will it hold true indefinitely? Will advanced technologies such as robotics and artificial intelligence (AI) ultimately change the economic rules?
The previous link has not only a way to purchase a hard copy of the book but in the interest of bringing this issue to light also offers a free downloadable PDF version of the book to read and share.  I read it and found it to be compelling and yes, disturbing reading.

Like this passage which should send chills up the spine of a college-educated “knowledge worker”…
For knowledge workers, there is really a double dose of bad news. Not only are their jobs potentially easier to automate than other job types because no investment in mechanical  equipment  is  required;  but  also,  the  financial incentive  for getting  rid of  the  job  is  significantly higher.
As a result, we can expect that, in the future, automation will fall heavily on knowledge workers and in particular on highly paid workers. In cases where technology is not yet sufficient to automate the job, offshoring is likely to be pursued as a interim solution.

So while we lament about our jobs going to other countries with lower wages, if this scenario is correct, the job gains of the low wage countries will be only temporary until they too lose many of these same jobs to automation.

As this trend continues, it is not hard to see massive amounts of unemployment worldwide.  And with fewer people earning a paycheck, the demand for these products decreases which forces manufacturers to cut back on human labor even further to try and cut costs – the classic deflationary spiral which unchecked leads to a depression.

And when manufacturing jobs like this are eliminated, the result is that the upper management and stockholders make more money while the workers suffer economic hardship.  This increasing concentration of wealth at the top not only can create instability (such as what we had in Egypt and Libya) but results in even less overall consumer demand for goods and services.

Imagine  that  your  job  is  to  sell  as  many  $50  cell phones  as  you  can  in  one  hour.  You are offered two doors: Behind door # 1 sit Bill Gates and Warren Buffet, the two richest people in America. Behind door # 2 are a thousand average people.  You may well  be  tempted  to choose  the  first  door  just  so  you’ll  get  to meet  Bill  and Warren, but in terms of getting your job done, you would probably agree that door # 2 is clearly the best choice. This is because the demand for the mass market products that drive our  economy depend much more on  the number of  potential  customers  than  on  the wealth  of  any particular customer.  You  are  not  going  to  be  able  to  sell  40  cell phones to one person, no matter how wealthy they are. 
So is this doomsday scenario really going to come about someday?  Nobody really knows for sure. As noted before, most economists subscribe to the luddite fallacy and thus feel that new technology along with eliminating jobs creates enough new ones that we don’t have to worry.  But Ford’s argument is that with technology now accelerating exponentially, automation instead of helping man to do his job will soon in many instances be able to replace him altogether in the workplace – and in ways that were unforeseen only a short time ago.  Interestingly enough, one of the “Indicators to Watch For” in his book to tell us we are getting into trouble is “Diminishing prospects for college graduates”.

If these predictions come true, our leaders are going to have some very difficult problems to solve if there aren’t enough jobs to support much of our population and along with it, our economy.  One suggestion Ford offers is to tax corporations simply based on profits instead of the present system of payroll taxes which gives companies incentives to reduce headcount by offshoring or automation. This additional tax income can then perhaps be used to support government created jobs to do things that we need such as rebuilding the infrastructure while at the same time creating the demand for products and services our economy needs to survive. But while this solution would appeal to liberals who believe in FDR/New Deal types of programs, conservatives who say they hate big government would never stand for it.  But the conservative solution, which is about allowing the rich to become richer in the hopes of their someday providing more jobs certainly isn’t working. 

Whatever solution we come up with, we have to start taking mass unemployment as the extremely serious problem it is and start to come up with answers now!

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