Wednesday, May 07, 2014

The Changing Nature of Middle Class Work

As a result of these profound systemic changes, new models of work are emerging.

Gordon T. Long and I recently discussed the changing nature of work--specifically, work that can support a middle class lifestyle and aspirations. This is the third of my series on the decline of the middle class:

How the Middle Class Lifestyle Became Unaffordable
The Destabilizing Truth: Only the Wealthy Can Afford a Middle Class Lifestyle

The economy is changing in structural ways that affect not just the job market but the nature of work itself. If we ask, what is work?, the conventional answer is tasks that somebody will pay us to do. This is true, but it doesn't address why someone is willing to pay us. The answer is to create value.

In general, work creates value by completing processes. The higher the value of the processes completed, the higher the premium created by labor. Low-value work cannot command a high wage; any organization paying high wages for low-value work will eventually go broke.

Processes that are programmable can be done by machines and software at much lower costs than human labor. (Programmable work is typically tradable, i.e. it can be done anywhere on the planet.) Recall from yesterday's essay that labor costs are rising for structural reasons: as robotics and software get cheaper, human labor gets more expensive.

Urbanization, Baumol's Cost Disease and demands for more government benefits push labor costs higher. Even though wages are stagnant, the labor overhead costs paid by employers--healthcare, pensions, payroll taxes, workers compensation, etc., compensation costs--are soaring.

These trends cannot be reversed by policy tweaks. They are built into the economy whether it is capitalist, socialist, communist or theocratic.

The decline of well-paid, simple-to-learn jobs is a result of technology. Though it is politically popular to blame outsourcing/offshoring for the demise of "good paying manufacturing jobs," if trade barriers were erected tomorrow that banned all imported goods, domestic manufacturers would employ robots and software to produce most goods, for the simple reason that hiring costly humans to complete processes that machines can perform faster, better and cheaper makes no financial sense.

As technology's ability to replace costly human labor moves from the factory floor to the service sector, the nature of middle class work is changing. Technology does not go away because we don't approve of the consequences: processes that are faster, better and cheaper will spread, regardless of our approval or disapproval.

Economies that limit technological innovation stagnate and become poorer.

Jobs that can be learned in a few hours are prone to being replaced by machines.If a process and its end-state can be specified, a machine or software can be programmed to do the work. Human labor that generates low market value cannot command a high wage. We can choose to subsidize higher wages, but these higher costs must be paid by someone else via higher taxes or costs.

There is always an opportunity cost to any such subsidy: what else could have been done with that money? In general, subsidies are mal-investments that siphon money from productive sectors to prop up politically powerful unproductive sectors. Economies that enforce mal-investment eventually decline, as years of under-investment hollow out the parts of the economy that are propping up all the parasitic sectors.

The protected sectors beset by soaring costs (healthcare, higher education, major weaponry programs, finance, etc.) will undergo the creative destruction of technology-based productivity gains for the reason that they are already unaffordable, not just to households but to the nation.

These low-productivity bastions of secure, high-paying middle class jobs cannot keep increasing their share of the national income. Either productivity will increase and costs fall or these sectors will implode as their costs exceed the nation's ability to fund them. Take fast-rising healthcare costs and slow-growth GDP and extend the lines on a chart: can healthcare absorb 90% of GDP? Clearly that won't happen; the sickcare system is already breaking down at 20% of GDP.

As a result of these profound systemic changes, new models of work are emerging. I have written about hybrid work for years, and recently coined the term Mobile Creatives to describe the class of workers who don't fit into traditional job categories. International Workers' Day (May 1) and the New Class: Mobile Creatives

My new book Get a Job, Build a Real Career and Defy a Bewildering Economy is in essence a how-to guide to becoming a Mobile Creative.

Here are a few of the many dynamics Gordon and I discuss in the program:

1. The cost of software and 3-D fabrication tools is declining
2. The speed of change places a premium on adaptability
3. Problem-solving increasingly depends on cross-fertilization of skills
4. The human capital value of integrity and accountability increases as the trust horizon shifts
5. New models of sharing work and revenues are emerging--these are both global and local
And much more....

YouTube link: The New Nature of Work (opens the program in a new browser window)

go to Kindle edition








Laura Y. 

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