Broke is the new black : Part 3 (Job Prospects)

Continuing on my earlier entry "Broke is the new black", I want to talk about what the arc of job prospects over time has been, and more importantly, what it's likely to be.

(I'm borrowing some stuff from Robert Reich, the former US Secretary of Labor, so credit is due where it is richly deserved.)

What are the large forces that are pushing job prospects in the world?

One is obviously globalization (a much misused term, as I have noted here before.)

The second is technology. For the record, technology is not new. The first wheel was technology, as was the yoke, etc. Even the Industrial Revolution is almost two hundred years old at this point. The important point about technology (which we will talk about presently,) is that there have been some recent new wrinkles in it which change things dramatically.

There is also the intertwining of the two, and that's also the part that's both new and interesting.

All modern societies are based on division of labor. A baker can bake bread but he probably didn't grow the wheat. A car mechanic can fix your car, but she probably didn't manufacture the tools.

What matters then is the additional value you add to the product -- the "value add", if you will. (terrible term!) The baker's "value add" is the ability to transform flour, water, and yeast into bread. The car mechanic's "value add" is the ability to take a broken car, and turn it into a non-broken car.

There are two components to being highly successful in the "value add chain" : education (a.k.a. knowledge), and connectedness.

The first should be fairly obvious. The baker has the knowledge to turn flour and water into bread. The car mechanic has the knowledge of the internal mechanics of a car which allows her to fix the car. (Education is just a formal mechanism of gaining knowledge. Don't confuse the two!)

The second should become obvious with a little thought. A baker can only earn as much money as the number of people that know him. Same for the car mechanic.

Now, let's look at the global prospects of these two professions.

My local grocery has fresh bread flown in daily from Lionel Poilâne's bakery in Paris. He is famous, and hence obviously "well-connected". He was only able to do this because "technology" (in this case, the airplane) allowed him to sell the fruits of his labor in fancy grocery stores around the world.

The key important part about "technology" is that for people who are educated and/or well-connected, they can increasingly sell their "value add" in the global market. Also, for certain "value add"'s, technology allows a kind of scaling (a multiplier effect) that is not possible in other professions. Naturally then, these professions then earn many multiples of what they once could.

Note the distinction between the baker, and the car mechanic (the examples were chosen quite deliberately.) There is only a limited multiplier effect for the latter using technology.

Technology can also scale the "connectedness" part of the equation. You're all reading this but none of you is sitting in front of me while I'm "talking". Again, "multiplier effect".

It is this radical scaling via technology that is new in the last two decades, not technology or globalization.

(Next time, you're at a crowded party, and someone says "globalization" and/or "technology", please smack them in the face with the above. Knowledge packs a more powerful punch than a well-placed upper cut!)

Let's repeat the argument one more time: for people who are educated and well-connected, and in professions that allow scaling via technology, globalization increasingly allows them to sell their "value add" in the global market.

That's a mouthful of words but it's the heart of the matter. Everything flows from there. Of course, like any abstraction, any number of specifics can be derived from it. (My advisor used to say, "Any fool can abstract, but it's the intelligent that can turn them into specifics.")

Every one with me so far? Deep breath, and onward we go!

Let's look at a few examples of what happens when technology displaces existing jobs: telephone switching networks replaced telephone switch operators; ATM's replaced bank tellers; e-kiosk's replaced airline agents, etc. etc.

So what happens to all the displaced people? Well, their jobs transform. You will still need someone to program the switching networks, someone to maintain the ATM's and e-kiosk's, etc.

This is the point in time, you should be going, "Hey, hey, hey! Wait a danged minute. You're pulling a fast one. If technology has this multiplier effect, doesn't that actually mean that the jobs lost are going to be greater than the new jobs gained?"

Well, yes! (but in a complicated way.)

The reason it is complicated is that it's not like there's a fixed pile of jobs in the world (like, say, there's a fixed amount of gold on this planet.) New things are created, new needs are created.

Eco-tourism, anyone?

What is true in the short-term is the pain for the displaced workers. They are pretty much screwed in the short-term but if they adapt, and live to fight another day, they will be fine.

The important point here is that you may be able to legislate away globalization (bad idea but let's not argue about that,) but you can't legislate away technology, or the multiplier effect. You can try, but you will fail, and you will fail spectacularly!

And that, amigos, is the real problem!

The day a politician or an economist comes out and says that bluntly, I promise you I will genuflect in their direction in the name of all that are intellectually honest.

Now what happens in the interim is that most of these people get tossed into the local service economy. Retail, restaurants, hotels, transportation, etc. In most of these, the "value add" is minimal so they command low wages to start with. Add to that the problem that the market is crowded, the laws of demand and supply (in this case, over supply) depress wages further.

So the gist of my argument should be clear at this point. If technology can eliminate your job, it will, and you will be tossed out on your ass. If you have enough resources to last out the retraining period, you will be fine. If not, you're screwed, and there's no way to sugarcoat this one.

Next, I'm going to talk about debt, and its role in the US economy.