The Jobless Economy

Vic Napier, MBA

November 2007

 

So what is a jobless economy? That sounds like a contradiction. How can an economy exist without jobs?

We are in the mist of one of the great turnings of history. We are living through the end of the Industrial Revolution. That is why manufacturing jobs are going away and jobs in services and technology are replacing them. Nothing will come to a sudden stop and you will not see any headlines about it. Instead, things will gradually change. Things like jobs.

People have been studying economics only for the last couple of hundred years – about the same length of time that the Industrial Revolution has been running its course. In many ways, economics is the study of how machines change societies. One of the fundamental concepts of economics is cycles. Economies go through good times and bad, mostly because the machines get more efficient, obsolete or new industries emerge. It is just the nature of markets. Another fundamental economic truth is that jobs are sometimes scarce, but they rebound. Sometimes unemployment levels are higher than at other times, but things always swing back to normal.

Until recently anyway. In every recovery since 1980, unemployment has lagged behind growth in every other sector. And it has lagged behind for longer and longer periods following each recession. (Check out this chart.) Fewer jobs “come back” -- they are usually gone for good. The obvious example is manufacturing jobs. They have been disappearing for three decades. Unemployment figures are a rough measure of how many jobs have been eliminated. Jobs that go unfilled for more than a few weeks are likely gone for good. The people who worked in those jobs must either find a company that has not yet eliminated those jobs or find a new kind of job.

Something else that adds to job loss is increases in efficiency. Businesses are always looking for ways to be more efficient, and usually that means replacing expensive assets with less expensive ones that do the same job. People are the most expensive asset of most businesses, so when new software or an internet connection to a less expensive worker comes along a worker is replaced. This is why outsourcing and technology upgrades are so important to business. They eliminate expensive jobs.

Of course, other kinds of jobs are created during a recovery, but there is controversy about whether these jobs are better than the jobs lost. Some of them are, but many of them are not. Read what researchers at the Bureau of Labor have to say about it here.

Several things are certain, however. Recessions are indications of fundamental changes in the economy. We are in the beginning of a Great Recession that is sure to generate big changes in the way we live and work. Recoveries that have followed past recessions have not recreated what was lost, but emerged as something new and different. This recession and the eventual recovery follows it will be no different, except for the degree of change. Because entire industries have been decimated – home construction, finance, commercial real estate, auto manufacturing – the recovery will usher an economy much different from the one we knew.

What can we expect? How should we prepare? No one knows for sure, but we can look at what is happening now, compare it to what has happened in the past and maybe get an idea of what the future holds.

Current figures indicate that jobs held by men are being eliminated at a far greater rate than jobs held by women. More than 80% of the people recently laid off have been men. Men and women are attracted to different kinds of jobs, and men were employed in industries now becoming obsolete. This has little to do with discrimination, and a lot to do with how men and women are different.  (To find out more how gender differences help determine how we choose to work read Why Men Earn More, by William Ferrell.)

In past recoveries, new kinds of work arrangements replaced lost traditional jobs. The same thing seems to be happening now, although in a different way than in the past. Three trends are changing the way we work. One is the rise of service jobs. The proliferation of service jobs in the last twenty years led to the 24/7/365 workweek – people need services all the time, and there are people willing to work the shifts to serve them.

Another recent development is a large increase in business ownership, and a related tendency to cobble together a living from several part time jobs or home businesses. A large number of people seem to be creating thier own jobs.

The third emerging change involves older men. BLS numbers show that men over the age of forty tend to be unemployed longer and have higher rates of starting their own business. [1] It seems these older men have amassed so much experience that they price themselves out of the labor market. In other words the available businesses are not sophisticated enough to need their level of expertise. There is a corresponding increase in businesses started by men over forty. (For reasons not altogether clear, this does not seem to be true of women.)

Put all this together in the light of current events and the message is clear. Industries that have traditionally employed men are going away. Construction is an obvious example. Home building is not likely to demand workers for years. (Read about it here.) As remaining businesses struggle to survive they will shed themselves of higher priced older workers. Will these men make an easy transition into service industries? Not likely. Although plenty of men work in service jobs, far more women are employed in service industries. And there is no certainty that millions of service jobs will appear to employ men.

If jobs that men work in are going away, and nothing is on the horizon to replace those jobs, what will happen? How will men make a living? Men will probably be in the position of creating their own work. As I mentioned earlier this seems to have already started. Exactly what that will look like is not clear, but it will not look like jobs in the past. While men are searching for ways to create a new living, women will likely support them as they always have with low paying service jobs.

Nobody said recovering from the Great Recession would be easy, but our grandparents and great-grandparents rebuilt their economy after a Depression and a World War. There is no reason we cannot prevail over a recession. Even a Great one.

Vic Napier, MBA

 


 


[1] See Number Of Unemployment Spells Experienced By Individuals from age 18 to age 42 in 1978-2006 by age, sex, race, and Hispanic or Latino ethnicity, available at http://www.bls.gov/nls/y79r22unempbyage.pdf for data on age and unemployment spells.

See Karoly, L. A., & Zissimopoulos, J. (2004). Self-employment among older U.S. Workers. Monthly Labor Review, Bureau of Labor Statistics, 127(7), 24., available at  http://www.bls.gov/opub/mlr/2004/07/art3full.pdf for information on trend of older workers starting businesses.