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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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)