The Changing Shape of the Labor Force: A Peek into the Future

Robert Reich on the changing shape of the workforce. I'm not sure the categories he sets up make that much sense: "personal services" are extraordinarily heterogeneous. I also think he's reading the future into the present--the changes he talks about are not that far advanced, but they will be.

The New Rich-Rich Gap : Almost 15 years ago, in "The Work of Nations," I described a three-tiered work force found in most advanced economies. At the bottom were workers who offer personal service.... In the middle were production workers in factories or offices, performing simple, repetitive tasks. At the top were "symbolic analysts," like engineers or lawyers, who manipulate information... the knowledge workers of the new economy. I predicted that advances in technology, and globalization, would widen the gaps in income and opportunity between these tiers. I was, sadly, prescient.... What I didn't predict was that the three tiers would change shape so dramatically. The top and bottom tiers are growing, and the middle shrinking, much faster than I expected....

Two different groups of symbolic analysts are emerging: national and global. Most symbolic analysts still work within a national economy, manipulating various kinds of symbols with the aid of computers... accountants, engineers, lawyers, journalists.... Yet a new group is emerging at the very top. They're CEOs and CFOs of global corporations, and partners and executives in global investment banks, law firms and consultancies. Unlike most national symbolic analysts, these global symbolic analysts conduct almost all their work in English, and share with one another an increasingly similar cosmopolitan culture....

There's a good economic reason that this group of global symbolic analysts emerged. Global commerce is now occurring on a scale and with a complexity that no commercial contract can adequately cover and no single legal system can sufficiently enforce. Hence, global dealmakers must rely to an ever greater extent on an extended network of people whom they trust....

Meanwhile, the ranks of production workers have fallen... between 1995 and 2002 more than 22 million factory jobs vanished. The United States wasn't even the biggest loser. America lost about 11 percent of its manufacturing jobs, while Japan lost 16 percent and Brazil lost 20 percent. The biggest surprise: China, which is fast becoming the manufacturing capital of the world, lost 15 percent of its manufacturing jobs.

What's going on? In two words: higher productivity. Factories are becoming more efficient, with new equipment and technology, and in nations like China, market reforms are replacing old state-run plans with modern ones. As a result, even as China produces more manufactured goods than ever before, millions of its factory workers have been laid off.

Routine office jobs are disappearing almost as fast as routine factory jobs. Almost any office task—claims adjusting, mortgage processing—can be done more cheaply and accurately these days by specialized software. Jobs that can't be turned into software are heading to low-wage countries as fast as telecom systems can reach them....

Yet unless the advanced economies invest more in education and basic R&D, they could lose their global lead in science, engineering and high-value-added production within a few decades. China and India are now graduating more engineers and computer scientists than are emerging from American and European universities. At some point, national symbolic analysts in advanced economies will lose ground. Their global brethren, meanwhile, will continue to dominate global commerce. The income and wealth gap between them will widen into a chasm. They will live, literally, in different cultures.

Comments

[save_the_rustbelt]

Reich has always been very good at the diagnosis phase, but not prescription and treatment.

So if the US is to maintain a middle class, how is that going to happen?

Certainly not when we are all selling cheeseburgers and paint brushes to each other.

Oh, but Wall Street profits are at record levels.

We know the diagnosis, how about the cure? Or is there no cure in the near term (say 30 years)?

[kharris]

Though I am opposed to giving up on a good life for my children, we might want to consider that, if Reich is correct in his diagnosis, there is neither prescription nor treatment.

On the other hand, the break-down in the US of the post-war compact is certainly making the split between super-haves and not-so-haves wider. In turning our worry to what may be an inevitable shift of some kinds of economic activity outside the US, we are distracted from shifts within the US.

One of the common hand-wave solutions to the fact of losers from trade is that overall gains are sufficient to pay off the losers and still leave the rest better off. The international managerial class that Reich describes is among the biggest beneficiaries from trade. Share holders, in some firms anyhow, are winners as well. Rather than undertaking the hand-wave solution, we have instead been doing just the opposite. We have been allowing productivity gains and international competition to destroy jobs, and then shifting benefits toward the beneficiaries. Meanwhile, politicians supported by the winners are creating another distraction claiming that it is shifting in policy toward benefiting winners that has encouraged growth, that somehow piling benefit on top of benefit is "fair".

[Tim]

I, for one, would like to welcome our new plutocrat overlords. Watch out for the guillotines.

[nate]

http://www.findarticles.com/p/articles/mi_qn4155/is_20050921/ai_n15706740#continue

excerpt from article above:

"Marshall Field's survived the Chicago Fire, the Great Depression and even the bizarre Loop flood, but it won't survive cut-throat consolidation in the retail industry."

shorter URL for same Sun-Times article:
http://simurl.com/jostiv

[bakho]

We are too slow to move into the future of manufacturing alternative energy devices and rebuilding our infrastructure for energy efficiency. We have a failure of vision that pours money down the rat hole of Big Oil corporate welfare and propping the dinosaur manufacturing and not enough money going into building more efficient transportation systems, wireless networks in Urban areas and schools and renewal of our dilapidated sewer and water systems.

The US came to greatness after WWII because of government investment in education (GI Bill, NSF NIH Student Loans, Pell Grants and other grant programs), investment in transporation infrastructure (interstates and airports) and investment in hospitals and a medical infrastructure, investment in the elderly with SS pensions and Medicare and investments in lifting people out of poverty.

Unfortunately, the era of investment ended with the wealthy dropping out of the social contract to live in their gate communities. We have been underinvesting in infrastructure and eventually, the chickens come home to roost. The proper investments in infrastructure and workforce training would be creating good jobs for Americans because they really cannot be exported.

[nate]

http://peoriapundit.com/blogpeoria/?p=5215#comments

Mr. Pryor spent some time in Berkeley around age 30 according to wikipedia.

http://en.wikipedia.org/wiki/Richard_Pryor

[Jim Satterfield]

There is no cure within our existing political/economic system. The writer Mack Reynolds speculated on this kind of situation in some of his fiction. He wrote of a society in which automation had succeeded so well that there was an employment rate of 10%. Yes, a 10% employment rate. The "solution" was a Negative Income Tax. I think we currently call it welfare. Jobs were largely filled by a draft. There was also in the academic arena a degree beyond the doctorate that was called Academician. While Reynolds' society is obviously an exaggeration (For a while, at least.) it does seem impossible to get a serious discussion going about what we might do if automation did produce a mixture of a high permanent unemployment and underemployment rate combined with pay for many of the employed that doesn't approach the poverty level.

[nate]

How To Survive A Robot Uprising
(Tips On Defending Yourself Against The Coming Rebellion)

a book by Daniel H. Wilson

my input:

Kind of reminds me of Marshall McLuhan.

[whenwego]

The gap that is referred to, it is an "inverse gap", right? viz. China salaries are significantly lower than US, not the other way. So the gap will get lesser, not greater...

[A. Zarkov]

“China and India are now graduating more engineers and computer scientists than are emerging from American and European universities.”

That might be true, but it’s irrelevant since our current economy can’t (or won’t) employ the engineering and computer scientists we already produce. It’s even truer in the sciences, like physics. Most of the PhD physicists I know (and I know a lot) don’t work in physics.

[ken melvin]

All the current economic models are premised on the industrial age. There's never, ever again going to be enough jobs to facilitate any workable distribution of wealth. Ladies and gentlemen, your job, should you accept it, is to come up with a new economic model; one that requires very few people involved in the production of goods

[nate]

ken

does your message self-destruct in 5 seconds as i shut my pc down just in time

[Hal Varian]

So what's wrong with consuming more leisure? Where is it written that people should work a 40 hour week, with 2 weeks vacation? (In fact, I don't think that sentence can even be translated into French...)

Seriously, it really isn't a bad thing if the the economy becomes more productive. The only challenge is to figure out how to fill up all that leisure time....

[dsquared]

[personal services" are extraordinarily heterogeneous]

although surprisingly, if you look in the "Personal Services" section of your local newspaper's classified ads, you will find that more or less all the advertisers are offering the same thing.

[Movie Guy]

U.S. Trade Policy at 37,000 Feet

Robert Reich -- (from his article)

"It used to be that about a third of the work forces in advanced economies were in person-to-person jobs; now, close to half are. Today, more Americans work in laundries and dry cleaners than in steel mills; more in hospitals and nursing homes than in banks and insurance companies. More work for Wal-Mart than for the entire U.S. automobile industry."

"More of the jobs of national symbolic analysts in advanced economies—including software programmers and engineers, designers and researchers—are heading to national symbolic analysts in China, India and locations in Southeast Asia. Already Siemens, Nokia and General Electric are conducting manufacturing-related R&D in China."

Right. And these numbers will grow.

We're pursuing a course whereby the U.S. economy will be driven principally by the service and construction industries with residual specialized manufacturing and limited selection of crops (in terms of domestic mass farming input) food production.

Simply stated, though, this economic path will not balance the economic books. Nothing of significance is underway to serve as a counterbalance to offset the present or future trade deficits.

Export of services will never fill the trade gap. NEVER.

We're missing an $700- 800 billion counterweight.

Next year, we could be talking a $1 trillion trade deficit.

This economic model didn't come with a warranty. So, as people fly off the ride at various speeds and altitudes, the personal injuries suffered may be severe. And only limited hospital (social) coverage is included. So, get well soon... (retrain/relocate/rethink one's future and that of the family).

Or one could start her/his own business. One that can't be offshored, of course.

[kharris]

Professor Varian is right that more fun time is a good thing. It is not true, though, that the "only challenge is to figure out how to fill up all that leisure time...."

That backward bending labor supply curve depends on a trade-off between leisure and income. Too low an income and "leisure" is spent looking for a second job, comparing prices at 3 groceries, figuring out how to get by. It is those who are well off who can best afford more leisure. As the gap in domestic incomes and wealth grows wider, those who have leisure are those who can lease afford it.

[Barry]

kharris: "One of the common hand-wave solutions to the fact of losers from trade is that overall gains are sufficient to pay off the losers and still leave the rest better off."

IMHO, it's now fair to accuse anybody who serously puts forth that argument (not you, I know that you're criticizing it also) of deliberate fraud.

Hal Varian: "So what's wrong with consuming more leisure? Where is it written that people should work a 40 hour week, with 2 weeks vacation? (In fact, I don't think that sentence can even be translated into French...)

Seriously, it really isn't a bad thing if the the economy becomes more productive. The only challenge is to figure out how to fill up all that leisure time...."

Productivity of the economy only matters to people if they can get a cut. IIRC, the media wage has been flat or declining for the past 30 years, except for the late 1990's. How much of the productivity revolution have they received?

Also, as has been pointed out above, unemployment shouldn't be confused with leisure.

[nate]

"The only challenge is to figure out how to fill up all that leisure time...."

Professor DeLong posted a link to an academic paper a while ago somewhat related to this. It talked about something akin to network effectsm and how leisure time may be more valuable when there are other people who also have leisure time. It may have been a paper by Glaeser on Europe labor markets - not sure.

So what to do? Here are some ideas. Spend it on a tropical island reading books, snorkeling and bicycling. Spend more time with kids. Volunteer a little bit more. Read a bunch of books, and discuss the books with other people who also have time to read the books. Run for political office. Write a book. Make a movie. Blog.

[save_the_rustbelt]

"So what's wrong with consuming more leisure?"

In Ohio and MIchigan, workers are using their new found leisure time to prepare personal bankruptcy petitions and to pack before the house is sold in foreclosure.

[anne]

"So what's wrong with consuming more leisure? Where is it written that people should work a 40 hour week, with 2 weeks vacation? (In fact, I don't think that sentence can even be translated into French...)"

There is nothing wrong with working fewer hours, for Americans work comparatively long hours now, but then we must have salaries and benefits that are comparable to the French or Germans or Swedes or Japanese or Australians.

[anne]

http://economistsview.typepad.com/

December 14, 2005

Paul Krugman: Costco versus Wal-Mart
By Mark Thoma

Paul Krugman is asked about the comparison between Costco and Wal-Mart:

Putting Pressure on Wal-Mart, by Paul Krugman, Money Talks: David Gross, Palo Alto, Calif.: I agree with you completely ['Big Box Balderdash']. In addition, you could cite Costco, as a comparison, as a competing high-volume, deep-discount retailer which pays its employees well, with good benefits. In addition, its social posture is excellent, and quite unique in corporate America...

Paul Krugman: I didn't have space to get into comparisons between Wal-Mart and other big box employers. The contrast with Costco ... is telling. There is ... a counter-argument from Wal-Mart's defenders. Costco caters to a much higher-income clientele ..., so that Costco's customers may place a higher value on the intangible benefits ... from a workforce that is relatively content, and also more experienced because of lower turnover. It's probably true, given the relatively low income of its customers, ... that Wal-Mart's most profitable strategy is the one it has chosen: low wages, high turnover, and low prices at the expense of service.

But there are tradeoffs: if Wal-Mart were pressured into paying its workers better, the cost to the company would be much less than the added wages, because of all the factors that make treating workers decently profitable for Costco. What this means is that the corporate profitability case for low wages at Wal-Mart is true, but less compelling than ... the raw numbers might suggest. The message I take from this is that a pressure campaign against Wal-Mart has a good chance of succeeding. If public pressure makes a low-wage policy less attractive, Wal-Mart might well be persuaded to shift toward a more Costco-like wage structure.

[Rik]

At the same time people live longer, and (one hopes) healthier. Reich talks about routine tasks disappearing, but it's very likely that'll stay at that. Who knows, even prof. DeLong's job might be automated...
I seriously hope by the time robots enter the workforce, we'll have good fablabs - desktop production; by giving them away people will be able to make a living, but the downside is yet more disruption. And of course anyone who thinks this development won't come to China & India is an idiot. So, all in all, if you're employed or not, we'r gonna see some interestin' times, yesirree....

[Martin James]

Why do people think that there is not as much wage variation WITHIN service industries as there is ACROSS industry sectors.

Take health care. There are 6.4 million health care practitioners and technical workers averaging $58,310 in wages. There are another $3.3 million health care support workers averaging $23,510.

There are low wage jobs, middle income jobs and high paying jobs in health care. In Reich's terms there are "symbolic jobs" and bed pan jobs, but the distribution does have a very substantial middle class. tis not just the docs and janitors.

There are 10 million jobs in production averaging $29,480 in wages. There are 13.7 million in sales averaging $32,280 and 22.6 million in office and administrative support averaging $29,390.

That's 3.6 middle class "clerks" for every middle class production employee.

Manufacturing is not a significant driver of wage inequality. Wage inequality is driven by the return to skill in wages together with the distribution of skills.

As to the trade deficit, there are two different paths that could close the gap.
The one most discussed is an increase in the price of imports, that reduces imports. The other is a fall in the price of imports relative to exports.

What if the price of imported goods falls 90%? Will we import sufficient volume to keep the trade deficit high?

One reason the trade deficit is high is that the wages of the service sector in the exporting countries is lower relative to the goods sector than they are in this country.

[Tim]

I just noticed this:

"There's a good economic reason that this group of global symbolic analysts emerged. Global commerce is now occurring on a scale and with a complexity that no commercial contract can adequately cover and no single legal system can sufficiently enforce. Hence, global dealmakers must rely to an ever greater extent on an extended network of people whom they trust...."

Cronyism as the wave of the future. No wonder most CEOs are Republicans.

[Lord]

Those national symbolic analysts already see the writing on the wall as the global symbolic analysts move their work abroad. It is just that global symbolic analysts are a tough club to break into and there won't be enough room for all those national symbolic analysts. Leisure looks great to those who have none. It can be dreadful to those who have too much for the income they have to spend.

[Michael McIntyre]

I noticed the same quote as Tim:

"Yet a new group is emerging at the very top. They're CEOs and CFOs of global corporations, and partners and executives in global investment banks, law firms and consultancies. Unlike most national symbolic analysts, these global symbolic analysts conduct almost all their work in English, and share with one another an increasingly similar cosmopolitan culture...."

Reich is channeling Robert Cox's work from almost twenty years ago! Maybe he just ran across Bill Robinson's more recent version. This, of course, raises the question - does it just take liberal Democrats 15 years or so to catch up with a Red? What if Brad DeLong had been as sympathetic to single-payer in 1993 as he seems to be today?

[otto]

"This is happening because busy households are "outsourcing" more housework, because populations of advanced economies are aging, raising demand for elder care, and because the richest 10th have so much discretionary income they can afford lots of pampering. They're hiring coaches, masseurs, drivers, gardeners, cooks and therapists of all kinds."

The personal trainer is the new butler.

[dearieme]

"The personal trainer is the new butler": or perhaps the new gamekeeper?

[BIRDZILLA]

In the future they will have robots and then the robats join the workers on the strike lines

[Sandwichman]

I don't get it. Isn't there supposed to be some anti-lump-of-labor law of economics about how the amount of work to be done is not fixed? How can there be a problem? Won't the lower costs of the outsourced services create more demand for those services and the invention of new, never-heard-of-before services? I'm being facetious, of course.

[Martin James]

Sandwichman,

Since 1970, total employment in the USA has increased from 78,678,000 to 137,736,000 for an increase of 59,058,000.

During that same period, the number of jobs in agriculture, mining, manufacturing changed from 24,725,000 to 19,702,000 with most of the drop coming in manufacturing.

There in the last 35 years there have been 12 new jobs created for every job lost in the production sectors.

It is really bizarre the manufacturing job fetish that people have.

[Sandwichman]

Martin,

If anyone here has a manufacturing job fetish, it ain't me. I'm actually concerned about something entirely different. That is the channelling of an ever greater proportion of civic life into and through the medium of economic exchange.

To my way of thinking, a large proportion of those 59,000,000 new jobs are doing things that we would be better off doing for ourselves, freely. Not because we could necessarily do them better or as cheaply as the market but because in doing them we acquire, inhabit and sustain a civic culture.

A similar complaint was made about factory work in the nineteenth century. That was the argument that factory work was "alienating". That is to say that the nature of the work required the workers to suppress and distort, rather than to fully engage and extend their physical, psychic and intellectual capabilities.

I, for one, don't mourn the loss of those 5,000,000 agriculture, mining and manufacturing jobs. Nor do I laud the creation of the 59,000,000 other ones.