Small Business Labs

The Recovery and the Polarization of Jobs

Over the last 4 years the U.S. economy has added about 7.6 million jobs.  

But as the chart below from the New York Times article Comparing Jobs in Recessions and Recoveries shows, we're still not back to where we were, jobs wise, prior to recession.  

The other issue the economy is facing is the type of jobs being created. Over the last 4 years a large chunk of the new jobs have been relatively low paying services jobs.  As another New York Times article - Where the Private Sector's Gain Are - points out:

... service industries have driven job growth in the recovery, adding 2.1 million jobs over the past year — 177,000 last month alone. In particular, the leisure and hospitality sector (establishments like restaurants, bars and hotels) has added workers at a strong clip, including 53,000 positions last month. The downside is that many of those jobs are part time and low pay. Average hourly earnings for employees in that sector are just $13.50.

Meanwhile many of the sectors that have traditionally created middle class jobs have seen substantial employment declines, especially construction and manufacturing.  

This net result of these changes is the polarization of jobs and work. By that we mean the number of higher income jobs are growing, the number of lower income jobs are growing and the number of middle income jobs are declining.

This is a major problem for the economy (and society). It's also a topic we're spending more time researching and trying to understand.  We'll be writing a lot more on this topic in the coming months. 

Rage Against the Machines

There's been a regular stream of articles about robots and automation taking jobs from humans of late. Techcrunch's Jobs, Robots, Capitalism, Inequality and You nicely sums up many of the negatives associated with the technology replacing jobs.  

This article focuses on growing income equality.  Key quote:

The strange present, we may conclude, is one in which the middle class is slowly being squeezed out of an economy that is gradually dividing into two camps, the few rich and the many poor. Furthermore, “rich” increasingly means “those working in technology.” 

A more balanced view of this issue is taken in Fast Company's Are Robots Going to Kill Your Next Job or Create It? It covers both sides of the argument and points out there will be "winners and losers" and doesn't come to a firm conclusion on the overall impact of automation on jobs.

A new study out of England (so new it's not yet available online) suggests that close to half of all current U.S. jobs will be automated over the next 20 years.

This is similar finding to a study that we covered last year in our article The Polarization of Jobs. The authors of that study also felt 40%-50% of U.S. will at risk of being replaced by automation.

A good example of the type of robots entering the market is Throwbot, a small robot being used for survelliance by SWAT teams.  Yahoo's Whoa: That Police Officer is a ... Robot does a nice job of describing how Throwbot is used.  

It has a good paragraph on the size of the robotics industry:

According to the International Federation of Robotics, 2012 was a banner year for sales. About 160,000 units were sold for $12 billion, the second highest number ever recorded. "All expectations are that the industrial robots market will continue to expand at around 9 percent to 14 percent per year for the rest of this decade," said Frank Tobe, owner and publisher of The Robot Report, which tracks the industry.

We're more optimistic than most about the ability of humans to compete with automation and robots. We were recently encouraged by what's going on in the accounting industry. When we did a series of forecast workshops 3 years with accountants they were very worried about automation hurting their business.

But as we learned in a recent workshop on the future of accounting, the industry now sees automation as an opportunity in addition to being a threat. They see automation as a way to increase productivity, creating more opportunities for the industry to add value through services.  

We also continue to believe the the New Artisan Economy will also lead to jobs for humans.

I think the Fast Company article closes with a good quote on this topic:

As we enter the Age of Robotics, the question for you may not be: “Will robots kill more jobs than they create?” But: “Am I the 2013 version of a buggy whip manufacturer?"

Will the New Artisan Economy Save the Middle Class?

How Technology Wreaks the Middle Class covers the growing concern that automation and technology is replacing many middle class jobs.  Key quote:

The multi-trillionfold decline in the cost of computing since the 1970s has created enormous incentives for employers to substitute increasingly cheap and capable computers for expensive labor.

The article goes on to discuss "job polarization", which is the idea that the growing use of computers and automation has resulted in job growth being concentrated in both the highest- and lowest-paid occupations, while jobs in the middle have declined. 

Key quote on what job polarization means:

Demand for highly educated workers who excel in abstract tasks is robust, but the middle of the labor market, where the routine task-intensive jobs lie, is sagging. Workers without college education therefore concentrate in manual task-intensive jobs — like food services, cleaning and security — which are numerous but offer low wages, precarious job security and few prospects for upward mobility. This bifurcation of job opportunities has contributed to the historic rise in income inequality.

The good news is the article's authors see growing opportunities for a new class of middle class jobs. Key quote:

... middle-skill jobs that survive will combine routine technical tasks with abstract and manual tasks in which workers have a comparative advantage — interpersonal interaction, adaptability and problem-solving.

The article calls these the "new artisans" and lists a number of new artisan job areas that will likely see growth in the coming years: 

licensed practical nurses and medical assistants; teachers, tutors and learning guides at all educational levels; kitchen designers, construction supervisors and skilled tradespeople of every variety; expert repair and support technicians; and the many people who offer personal training and assistance, like physical therapists, personal trainers, coaches and guides. These workers will adeptly combine technical skills with interpersonal interaction, flexibility and adaptability to offer services that are uniquely human.

The rise of a New Artisan Economy is something we've long covered and forecast.  Last year we discussed The Make-up of the Artisan Economy that ended with this:

New artisans are an increasingly important segment of the U.S. economy. Many of these jobs are local and/or resistant to foreign competition and automation.  Given the labor markets, becoming a new artisan will be the best employment path forward for many.

We continue to believe new artisan jobs are key to the future success of our economy.  For more on this topic, see our Artisan Economy category or the 2008 research report The New Artisan Economy.

The Polarization of Jobs

The Trend is the Cycle: Job Polarization and Jobless Recoveries is an academic paper, but very approachable and well worth reading. The key finding is the job market is becoming more polarized, with job growth becoming concentrated at the high and low wage ends of the spectrum.

The study authors crunched through a mix of government data, breaking jobs into 3 broad categories:

1. Non-routine cognitive jobs: These are managerial, professional and technical workers - in other words highly educated and skilled knowledge workers. These jobs tend to be higher paying.

2. Routine cognitive and manual jobs: These are jobs that are accomplished by following defined processes and procedures. Many clerical and manufacturing jobs fit in this category.  These jobs tend to be good paying, middle class jobs that haven't required high levels of education.

3. Non-routine manual: These are service jobs and include such things as bartenders, home health aides and others that are manual in nature, but require flexibility, problem-solving or human interaction skills. These jobs tend to be relatively low paying.

As the chart below (from the study) shows, over the last 3 decades the percent of jobs that are non-routine cognitive and manual have grown, while the percent of routine jobs have fallen.

  

The good news is the number of high paying knowledge jobs has rapidly grown over the last 3 decades, moving from 29% of jobs to 39%. The bad news is routine jobs - the backbone of the middle class - are going away due to automation and foreign competition.  Their share of jobs has fallen from 58% to 44%.

The other bit of bad news is we will likely continue to lose routine jobs. This hollowing out of middle class jobs is one reason median household incomes have fallen over the last decade.  It's also one of the reasons unemployment and under-employment are so high.

The well known VC Mark Andreesen says these shifts are resulting in two types of jobs: (1) jobs where people tell computers what to do; and (2) jobs where computers tell people what to do.  Needless to say, the jobs where computers tell people what to do are not going to be high paying.

We think the future of jobs is more nuanced than this, but it's a great sound byte.

We'll have more on this in the coming weeks. For those interested in this topic, The Polarization of Job Opportunities in the U.S. Labor Market is another approachable academic paper.