Blog

The Future of Jobs

Monday, November 28, 2011, 2:55 PM

That the American and global economies are being transformed by the forces of globalization, demographics, and over-indebtedness is self-evident. What is less self-evident is the impact this transformation will have on the future of work, earned income, and financial security.

The key question an increasingly vulnerable workforce is asking is: What skills will be in demand once this transition occurs?

In order to answer this question, it's necessary to understand the macro trends that will shape the nature of employment in this new era. In our previous look at The Future of Work, we focused on the US economy’s dependence on debt as a driver of growth and found that debt saturation was correlated with declining employment. But there are many other long-term dynamics influencing the economy, and no survey of the future job market would be complete without considering these other factors.

The Trends That Will Determine the Future of Jobs

Most cultural and economic trend changes begin on the margin and then spread slowly to the core, triggering waves of wider recognition along the way. Thus some of these long-wave trends may not yet be visible to the mainstream, and may remain on the margins for many years. Others are so mature that they may be primed for reversal.

The key here is to be aware of each of these, think on which are most likely to impact your current profession and how, and estimate when that impact is likely to be expressed so that you can position yourself wisely in advance:

  1. Automation enabled by the Web continues to eliminate or reduce the role of human labor in production and services. The low-hanging fruit may be gone, but labor-intensive industries such as health care, government, and education are ripe for software/Web automation and streamlining.
  2. The cost structure of the US economy—the system-wide cost of housing, food, energy, transport, education, health care, finance, debt, government, and defense/national security--is high and rising, even as productivity is lagging. This reflects the growth of "friction" in the economy—unproductive expenses that add neither value nor productivity. 



    This high-cost structure drives the cost of labor ever higher, even as employees’ share of compensation stagnates. For example, if health-care costs rise 10% a year, the employer must reap 10% more surplus from labor to pay the higher compensation costs, while the employees see no increase in their take-home pay.



    Rising systemic costs make employers wary of hiring more workers unless they create enough surplus value to keep ahead of the rising systemic costs and generate a return on investment. In low-productivity, high-cost basis economies like the U.S., the incentives shift from expansion to reducing labor costs by via automation and replacement of stable workforces with flexible freelance contract labor.
  3. The stress of operating a small business in a stagnant, over-indebted, high-cost basis economy is high, and owners find relief only by opting out and closing their doors. I call this exhaustion and loss of faith “when belief in the system fades.” Pundits may speak of our fraying “social contract,” but small-business owners increasingly feel betrayed by a system that constantly increases the burdens on enterprise at every level.



    Much of Main Street America is stuck in two unenviable roles: tax-donkeys saddled with ever-higher taxes and fees, and/or debt-serfs working just to service crushing debt. Many are planning for the day they escape the burdens of enterprise by shutting down their business.
  4. The Central State has been co-opted or captured by concentrations of private wealth and power to limit competition and divert the nation’s surplus to Elites within the key industries of finance, health care, education, government, and national security. The rising friction within these vast systems is distributed over the entire economy via cartels and taxes, raising costs in every sector and lowering the nation’s productivity.



    As a result of central State intervention and politically expedient controls, the prices charged for these services are “sticky,” meaning there is little to no market pressure to lower prices, as competition has been largely eliminated by collusion, cartels, and/or government control.



    At some point, these top-heavy, protected industries will experience a “stick/slip” event in which their fixed pricing and funding will collapse once the dwindling productive economy can no longer support this enormous dead weight of unproductive friction.
  5. Financialization of the economy has incentivized unproductive speculation and malinvestment at the expense of productive investment. Financialization has been driven by low interest rates and abundant credit for speculation while credit for capital investment is restricted.   In the boom years, money was effectively diverted into consumption such as luxury McMansions while the productive segments of the economy stagnated.



    The direct costs and lost opportunity costs of zero-interest rates and malinvestment have been spread over the entire economy, as income that once flowed to savers was diverted to “too big to fail” banks and speculators. Speculation creates vast profits for financial Elites and a modest number of service jobs catering to the Elite: clerks in luxury retail shops, personal trainers, dog-walkers, etc.
  6. The U.S. economy has bifurcated into a two-tiered regulatory structure. Politically powerful industries such as finance, education, health care, oil/natural gas, and defense benefit from either loophole-riddled regulation or regulation that effectively erects walls that limit smaller competitors from challenging the dominant players.



    Enterprises outside this politically protected circle are treated as adversaries by state and local government regulatory agencies.
  7. Selective globalization and political protection has created a two-tiered labor market in the US. Industries exposed to direct competition from low cost-basis economies with low labor costs must either close, automate or rely on minimum-wage immigrant labor. At the top end, global corporations are increasingly hiring talent in their offshore markets. Jobs, which remain in the US at the top tier of global companies are well-paid, but increasingly insecure.



    The domestic industries that cannot be outsourced (education, health care, government, national security) have gained political power as their share of the national income has increased, and their domestic position astride the economy has been enhanced by political protection. As a result, the pay scales in these sectors are much higher than those in globally exposed private sectors.



    These industries have thrived as Federal government spending has continued via borrowing 11% of the nation’s GDP every year. In this sense, these domestically protected industries are prospering at the expense of future taxpayers, who will be burdened with servicing this stupendous debt that has been taken on to fund these politically protected sectors.
  8. Financialization and the two-tiered labor market have led to a two-tiered wealth structure in which the top 10%'s share of the nation’s wealth has outstripped not just the stagnant income and wealth of the lower 90%, but of productivity, the ultimate driver of national wealth. This trend towards concentrated wealth also plays out in the top 10%, as the share of national income flowing to the top 1% has outstripped the wealth growth of the other 9%.



    These trends are all visible and well established. Looking farther out, there are emerging trends I call “the five Ds:” definancialization, delegitimization, deglobalization, decentralization and deceleration. Though these may not be visible to the mainstream just yet, they will slowly influence the job market and our definition of work.
  9. Definancialization. Resistance to the political dominance of banks and Wall Street is rising, and the financial industry that thrived for the past three decades may contract to a much smaller footprint in the economy.
  10. Delegitimization. The politically protected industries of government, education, health care, and national security are increasingly viewed as needlessly costly, top-heavy, inefficient, or failing. Supporting them with ever-increasing debt is widely viewed as irresponsible. Cultural faith in large-scale institutions as “solutions” is eroding, as is the confidence that a four-year college education is a key to financial security. 
  11. Deglobalization. Though it appears that globalization reigns supreme, we can anticipate protectionism will increasingly be viewed as a just and practical bulwark against high unemployment and withering domestic industries. We can also anticipate global supply chains being disrupted by political turmoil or dislocations in the global energy supply chain; domestic suppliers will be increasingly valued as more trustworthy and secure than distant suppliers.
  12. Decentralization. As faith in Federal and State policy erodes, local community institutions and enterprise will increasingly be viewed as more effective, responsive, adaptable, and less dysfunctional and parasitic than Federal and State institutions.
  13. Deceleration. As debt and financialization cease being drivers of the economy and begin contracting, the entire economy will decelerate as over-indebtedness, systemic friction, institutional resistance to contraction (“the ratchet effect”), and political disunity are “sticky” and contentious.

While these trends will cause harsh disruption to the Status Quo economy resulting in job loss and/or lost relevance for many of today's workers, there is good news here for those who remain flexible, open-minded, and adaptable. For those individuals, making the best use of the gift of having time to re-focus and re-skill professionally -- while the shock waves have yet to hit the Status Quo in earnest -- should be a top priority.

In Part II: The Skills Most Likely To Be In Demand, we explore the opportunities that this long-term transformation opens for those willing to adapt to the new realities of "work", including the business models that are likely to thrive, and what type of skills will offer the greatest job security.

Click here to access Part II of this report (free executive summary, enrollment required for full access)

Related content

12 Comments

Travlin's picture
Travlin
Status: Diamond Member (Offline)
Joined: Apr 15 2010
Posts: 1322
Well done

Charles

Your article is very good.  You have obviously thought about these issues a long time and in depth to able to present them so clearly and concisely.  There is a lot to think about in what you wrote.

Travlin 

Luke Landers's picture
Luke Landers
Status: Member (Offline)
Joined: Oct 30 2011
Posts: 2
Numbers question

Charles:

'For example, if health-care costs rise 10% a year, the employer must reap 10% more surplus from labor to pay the higher compensation costs, while the employees see no increase in their take-home pay.'

Is the math correct here?  If health-care costs are 10% of total labor compensation, and health-care costs rise 10% in a year, won't the labor productivity need to rise 1% to meet that?

Poet's picture
Poet
Status: Diamond Member (Offline)
Joined: Jan 21 2009
Posts: 1843
10% Increase In Revenue Needed To Have Profits Cover The Rise?

I would say that you are right, Luke.

On the other hand, labor productivity would need to rise 10% (i.e. employees would need to bring in 10% more revenue than before) if, say a business' net profits after other costs are one tenth of revenue, in order to cover that 10% increase in health care costs...

Poet

Luke Landers wrote:

Charles:

'For example, if health-care costs rise 10% a year, the employer must reap 10% more surplus from labor to pay the higher compensation costs, while the employees see no increase in their take-home pay.'

Is the math correct here?  If health-care costs are 10% of total labor compensation, and health-care costs rise 10% in a year, won't the labor productivity need to rise 1% to meet that?

clagr's picture
clagr
Status: Member (Offline)
Joined: Sep 23 2010
Posts: 1
boomer affect

Chris, one thing I have not seen factored into the reasons for the tenaciously high unemployment in the US is the fact that the baby boomers are not retiring like they are supposed to. Their house values are down, their 401ks have become 201ks and they are staying on the job in hundreds of thousands. This is blocking the normal upward mobility that creates so many openings.

straight's picture
straight
Status: Silver Member (Offline)
Joined: Aug 25 2008
Posts: 103
A new meme... no retirement

If Charles is even close to being right with his views of future work, and if CM is close to being right about the next 20 being a lot different to the past 20, then I think at a mimimum we can expect a totally different psychology about work and retirement to creep into our social conscience in the west.  many parts of the world dont enter into the folly of a notion of retirement.  the whole concept of investment or money working for you has to change, [money doesnt work, little people from foreign lands do the work], and will change, and with it so changes our notions of retirement, insurance and work itself.  

Charles, your writing on the future of work has been instrumental in forming a framework around which I have based my working life in the past 3 years [I dont and wont have a 'career', the notion is abhorent to me!].  I was an office bound manager, running businesses for myself and others.  Now I work out and about delivering fruit and veg for a CSA.  I do something that adds value to my local community.  A martian could look at me totally out of any cultural context and know that I am 'working', actually doing something.   

A bonus is that I weigh less, am very fit, and know many people in my community.  I feel much more connected and much more resiliant.

Great writing.

Stewart 

Brisbane

charleshughsmith's picture
charleshughsmith
Status: Gold Member (Offline)
Joined: Aug 15 2010
Posts: 250
thank you for the comments

Hi everyone:

Thank you for your comments.  Yes, I didn't do a good job with the math on the healthcare costs and labor costs.  If overhead (benefits and employer-paid costs such as FICA, FUTA, disability, vacation, healthcare, workers compensation, etc.) are roughly 30% of total compensation (wage + overhead) and healthcare costs rise 10%, then total compensation costs would rise about 3%.  If the overhead is a much lower % of total compensation, then it will be correspondingly less.

On the other hand, employers paying healthcare insurance for older workers with families might see premiums rise by 20% or even 30% as the employee ages into a new and incredibly costly price point.   So while the health insurance costs rise 10% on average, they can rise much higher for older workers with families.

Bottom line, I overstated the rise in productivity needed to fund rapidly rising healthcare costs. But since productivity averages increase of 1-2% a year, then clearly healthcare costs are outstripping productivity. That's the problem.  Non-wage compensation is generally 30%-50% of wages paid. Many of these expenses are rising significantly, for example, unemployment insurance costs. Add them all up and small-biz employers are seeing total compensation costs rise a lot even as revenues are flat.

That is an excellent point about Boomers not retiring. As other assets decline, that trend may well continue. In a different vein, we might also note that the number of new businesses being formed has stagnated.

Stewt\art, thank you for your inspiring words and actions. You are leading by example.

Bobby's picture
Bobby
Status: Member (Offline)
Joined: Nov 26 2009
Posts: 7
Its extra ordinary for me as
  • Its extra ordinary for me as a citizen of a different country [India] to refer this article since much of the mechanisms in my country function under government influence even if some are meant to serve private enterprise.
  • Luckily we may .. just may .. have hope since our cost of living despite the nagging uptrending inflation is lower than that of a first world country like USA and the domestic market is robust enough to serve the nation as a market internally and this opens opportunities for the labour to ramp up their skills to suit the resulting growth in the job market.
  • BUT it'll always be the mighty dollar that'll bring in much needed changes, vide Foreign Direct Investment, namely - employment combined with automation.
  • That means what happens in USA will affect our economy in a big way and so as a sourcing strategist .. I've been on a long sabatical and may have been waiting for an article just like this to give me that knowledge on trends to follow .. I will need to take hard look at getting skilled at automation as well..
  • I quite agree with the point on increased protectionism emanating out of this situation and am keenly following this aspect. Boeing USA shouldn't have had to move elsewhere as these are extra ordinary times and the luxury of labour rights and all things 'just' may just need to take a back seat for a while but then thats my view.
  • Lastly, I was just wondering if there is a way to fit in 'alternative energy' options at this point since we may be in the cusp of a depression too as Steve Keen put it in a recent interview to BBC. The last depression gave rise to an evil dictator but this depression can be the time for getting an engine overhaul for all economies with alternate energy options - a positive . Am a wishful thinker and I hope I get an opportunity to be part of this change if it has to occur and earn my living from this. Lets hope!!
Poet's picture
Poet
Status: Diamond Member (Offline)
Joined: Jan 21 2009
Posts: 1843
The Future Can't Pay Its Bills

Just to add a different, but not dissenting view to Charles Hugh Smith's excellent article...

...The following essay provides some good, deep, high-level insights into the future economy and the kinds of jobs that will no longer be needed, by omeone I also highly esteem, John Michael Greer.

The Future Can't Pay Its Bills (December 14, 2011)
"The result, in most industrial societies, is an economy in which only a small fraction of the labor force actually has anything directly to do with the production of goods and services, while the rest are kept busy managing the sprawling social and economic machinery that has come into being to organize, finance, manage, staff, market, advertise, sell, analyze, tax, regulate, review, praise, and denounce the production of goods and services... ...This immense superstructure all rests on the same foundation as any other economy, the use of energy to convert raw materials into goods and services."

"...Those of my readers whose plans for the future depend on holding down a job may have a very hard row to hoe. The shift under way in the economy will more than likely squeeze the current model of economic life from both ends—as it becomes harder to find, keep, and earn a decent living at an ordinary job, businesses will continue to fold, debase their products, or both, and so it will also become harder to convert the income from an ordinary job back into goods and services worth having. One of the core themes I’ve been discussing here for some time now, the need to move at least one family member out of employment into the household economy, is in part a response to that situation; what you produce yourself for your own consumption doesn’t pay a share of the costs of the economic superstructure. Beyond that, the deterioration of the official economy is accompanied, as pretty much always happens, by the growth of alternative economic networks that allow goods and services to be exchanged outside normal channels; it may be a while before those networks become solid enough to support more than a few people, but taking part in exchanges through these networks even in their early stages may be worthwhile."
http://thearchdruidreport.blogspot.com/2011/12/future-cant-pay-its-bills...

Poet

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments