Around these parts we’re spending the month of August diving into investing and the economy.
Today we’ll explore another reason that we need to be building our investment portfolio as quickly as possible: Jobs are disappearing.
Automation Job Loss
There’s a lot of dispute in the personal finance community over whether automation will lead to permanently high unemployment.
On one side, people argue that technology is undoubtedly going to kill jobs. We know for a fact that self-driving cars are coming in the near future. 2-3 million people make their living driving cars, trucks, and buses. Those 2-3 million people will be out of work soon.
This is only one example among many of automation eliminating the need for humans in the workforce. It’s hard to argue that this won’t lead to a lot of people losing their jobs.
The other side of the debate, however, argues that this will be temporary. They say that we’ve been through shifts like this before.
There was a period where most Americans made their living from farming. The introduction of all sorts of new technology made much of the manual labor on American farms redundant, putting people out of work.
We didn’t end up with a permanently high unemployment rate when this happened. Instead, the work shifted to other sectors and people worked in jobs that had not been dreamt of by prior generations.
The founding fathers could not have imagined a world where people made a living as computer scientists and telemarketers and airline workers. In the same way, these people argue, we can’t imagine what sort of jobs will exist for the next generation. But there will be jobs.
The Disappearing Middle Class
I go back and forth between these two predictions. But regardless of whether this is a long-term economic problem for the country, it is absolutely a crisis for our generation.
One of the main problems is that even if there are still enough jobs around, the good middle class jobs are disappearing.
This is not a prediction of what is to come. It is a fact about what is already happening.
Some of those who are pushed out of middle class work will make it into new high-skilled upper income jobs, especially in technology.
Most, however, will fall into lower income jobs.
The two driving forces behind this are automation eliminating jobs and wages falling so that some of the jobs that stick around no longer pay enough to sustain a middle class life.
An Intro to Automation
I’ve talked about automation before, so I won’t spend too much time on it today.
Here’s the short and dirty version:
Technology advances exponentially. Humans were mostly stuck on the ground for thousands of years before the Wright brothers’ first flight in 1903. It was only 66 years after that that humans landed on the moon in 1969. Cell phones had more computing power by 2011 than all of the NASA computers that landed those men on the moon. And if you’re still carrying around your 2011 Blackberry Curve or iPhone 4, then you know we’ve come a long way even since then.
It is hard to predict what type of technological growth we will see in the near future, but an extensive analysis out of Oxford found that 45% of American jobs are at high risk of being automated out of existence by 2033. As noted above, 2-3 million people will lose their jobs from self-driving cars alone, and this will be much sooner than 2033.
But Surely Not My Job!
Even jobs that you would expect to be immune will be affected.
I’m a lawyer and I keep being told not to worry about automation because people will always need lawyers. And maybe that’s true. But they won’t always need as many lawyers as there are now.
39% of legal work will be automated in the next 10 years. This could lead to the loss of 114,000 legal sector jobs in the next decade on top of the 31,000 that have already been lost to automation.
There will still be lawyers, but there will be far less work for them to do. This means more lawyers competing for fewer jobs, leading to lower wages and less stability.
Maybe, as the optimists predict, there will be new jobs on the other side of automation.
But that’s not necessarily great news for those of us in the middle of our careers while the technological revolution happens, though.
How many people in their 40s and 50s are really interested in needing to learn a new skill just to start at the bottom of a new career ladder making entry-level wages?
I want to keep learning and growing, but I don’t want it to be the only way for me to pay my bills. That’s a lot of stress and uncertainty to have to deal with. Throw in the fact that companies are reluctant to hire middle-aged newbies and you have a recipe for lots of unemployment and underemployment.
If we want to protect ourselves from this fate, we need to be investing.
The Decline of Unions
The other reason that middle class jobs are disappearing is lowering wages. There are a lot of different causes of this.
One is the decline in unions. Unions have become a touchy political topic, but the fact that unions lead to higher wages is inarguable.
If a group of people negotiates collectively, they have more leverage and can get a better deal. If I go to my boss and demand a raise or I’ll walk off the job, she can just fire me. There will be costs involved in finding someone else and training my replacement, but my leverage is pretty minimal.
If my entire office goes to my boss with the same demand, she has to seriously consider it and negotiate with us. If the entire office walked off the job, then all work would stop until they could find all of the new people and train them. This is a really painful option for most companies, and so they need to take their employees concerns seriously when they negotiate collectively, as they do with a union.
Unions Help the Non-Unionized
The effects go beyond this, though. Studies have found that the decline in unions in a geographic area leads to a drop in the salaries of people that weren’t in a union to begin with. This is less obvious, but makes sense when you think about it.
If the union factory in town is paying a higher wage than a non-union factory down the street, the union shop will get all of the best employees. If the non-union factory wants to compete, it needs to raise its wages to keep up. If neither are union, then there is no such pressure.
There have been numerous studies that find that when a state passes anti-union “Right to Work” laws, those states find their wages dropping below those paid for similar work in other states.
Other Wage Pressures
There are plenty of factors beyond the decline of unions that are also pushing wages down.
Deregulation is one culprit. As the government removes rules and gives companies more free rein, companies use that freedom to pay their workers less.
Deregulation has also led to an increase in monopolies, where there is only one seller in a market, and monopsonies, where there is only one buyer. Both monopoly and monopsony depress wages by limiting the competition that companies face.
Finally (for today) is globalization. With the increasingly global nature of markets, companies can locate overseas and find countries where the workers expect far less compensation than Americans.
In addition to wages declining, benefits are disappearing as well.
This is due largely to the rise of the contract worker and the gig economy. Fewer people are employees and more are independent contractors.
Robert Reich explains that employees get benefits that independent contractors do not have access to:
“These include Social Security, a 40-hour workweek with time-and-a-half for overtime, worker health and safety, worker’s compensation if injured on the job, family and medical leave, minimum wage, pension protection, unemployment insurance, protection against racial or gender discrimination, and the right to bargain collectively.”
This also means that jobs that used to offer paid vacation, annual bonuses, and tuition assistance that could be a path to higher paying jobs in the future, now come with none of that and no chance for advancement. Plus, laying off independent contractors is much more routine than laying off employees, leading to instability and uncertainty.
This Isn’t Going Away
There is no reason to expect these trends to let up. In fact, all signs point to acceleration.
Automation will certainly increase in the coming years and will likely make a huge leap forward during the next recession when companies look for new ways to cut costs.
Globalization will keep pushing forward, despite some nationalist push back in some developed countries, as technology keeps shrinking the world. While there is starting to be a small political push towards supporting unions and busting monopolies, those positions haven’t gained much mainstream traction as of yet and there’s no reason to expect imminent action on either front.
If you want to avoid getting trapped by these forces, you need to protect yourself. You need to invest.
Join the Conversation!
Do you see the same forces at work? Are you planning to protect yourself from automation and declining wages? Let us know in the comments!