What Happened To The Jobless Future – Are Employment Numbers Reliable?


The Fed just put out employment numbers for June 2018. They look spectacular, with 218,000 new jobs and low inflation! Just one negative… wages are not rising. Experts have pointed out that even with just 4% unemployment, we haven’t reached full employment. Otherwise, wages would have risen. Are classic economics wrong? Are these “good numbers” just a milestone along the way to a jobless future?

Automation and outsourcing changed America’s job market. It’s not just about lost jobs. Experts say that new technologies will wipe out half or more of American employment. Tech will replace old jobs AND kill new jobs before they are created. That’s something new, that old economics didn’t allow for. Normal unemployment could rise to 50% or 60%, or even higher.

But our current 4% unemployment may not be true. When he was still a candidate, Donald Trump said that the calculation (that we still use) for unemployment was wrong. There was a huge new phenomenon… discouraged workers.
In the old economy of the last century, workers were primarily full-time, male, and often unionized. When the economy slowed, union workers were laid off (or hours were cut) in steel, agriculture, automobiles and other key industries. This happened annually for some unions. But, when the economy picked up, laid-off union workers were rehired. If they had seniority, they picked up where they left off, took their old seats, and continued working. 

Today a lay off is very different for most workers. You are fired. If you are a manager or higher, you might get some financial compensation, but ever fewer get anything when they are fired. Due to negative tax and legal implications, rather than rehiring laid-off workers in a good economy, corporations avoid re-hiring.

Now, laid-off workers may choose an early retirement. Or they just may not be able to find a job. When a corporation closes in a smaller city, your occupation may no longer anywhere near you. These discouraged workers are left out of unemployment calculations.

This is part of what Trump referred to. And not just Trump. Respectable economists point to this new, invisible population, and say real unemployment may be twice the official number. But there is more to consider…

Gig Workers: Musicians and photographers always had “gigs”, temporary work. Concert musicians often have a gig for one season. The rest of the year they need to work out for themselves. A concert musician, who is part of the musician’s union, might have benefits, but few (very, very few) gig workers have health care, paid days off, or overtime.

Big corporations now hire far more “permanent” temporary workers or sub-contract work to third parties. Third parties keep costs down by workers who don’t qualify for benefits (i.e. more part-timers). Today, part-time workers are 34% of the entire workforce and will rise to 43% by 2020.

Benefits:  Benefits… time off, healthcare, overtime… are worth 20% to 30% on top of pay. Health benefits can be worth more to large families or families with a severe illness. Overtime pays 50% more hours over the first 40 per week, and (sometimes) 100% more for weekends and late night. Part-time, gig, temp, self-employed, and contract workers rarely don’t qualify for overtime.

Federal salary reports ignore benefits, even though 60% of workers report that benefits are a major factor in accepting a job offer (80% chose benefits over a pay raise). For many American families, a decline in benefits is a decline in salary.

Immigration:  Seasonal occupations… agriculture, food service, hotels, cleaning services, tourism, travel… are often temporary, and filled by (legal and otherwise) immigrants. Our service economy needs unskilled labor, from immigrants.

In the 1960’s and 1970’s, immigrant labor just applied to agriculture jobs in border states. But when America moved from a factory to a service economy, we also switched from cooking at home to eating out (and having someone else trim our lawns, clean our house, etc.). We now needed a lot of low paid immigrants. However, regularly injecting immigrant labor into our labor market reduces the need to raise wages.

Offshoring: Can’t bring immigrants to America? Send work offshore! Offshoring has become a very common, low risk, and quick strategy to address a rise in domestic labor costs. Every corporation has an offshoring program or works with a third-party outsourcer. Even when there is enough work for everyone, outsourcing acts like a pressure valve, reducing the temperature of a hot economy, and suppressing wages. This too is unaccounted for.

Automation: While offshoring replaced and devalued jobs, automation has eliminated far more jobs. Old style automation was expensive and inflexible, solutions specific to just one situation or one factory. A new factory requires new implementation and new costs. A small change in process and everything stops working. New automation uses artificial intelligence, costs less and is quickly implemented. If changes occur, Artificial Intelligence (AI) can self-correct. AI’s are now even identifying and planning new projects.

Automation once just happened in factories. New automation has been applied to Wall Street, law firms, hospitals, and other places with high paying, highly skilled positions. Factory workers, service workers (especially fast food), and jobs that require MBA degrees are all being replaced by robots and machine intelligence.

Reshoring: Work is returning to America… however, returning work does not mean returning jobs. A factory that offshored work and then reshored will return few jobs. Every new factory is more automated and more advanced than the last factory. New factories will soon be completely automated, with no human workers.

Pensions: While not part of the employment or salary data, pensions are vital for retired workers. In the 1990s, 60% of full-time workers in medium and large corporations had pensions. Today, it is just 24% Some pensions have been slashed or created a two-tier system that provides less (or nothing) for younger workers. With few jobs providing pensions, retirees get most of their income from social security, resulting in rising poverty among senior citizens.

Much has changed in the 21st Century, and government unemployment, salary, and wealth data has become less accurate. The PEW Research Center found that real wages… except for those most highly paid… froze in 1964. Buy a house or have a medical procedure and you will see how little your wages are really worth!

America’s economy will continue to evolve. If the pundits are right, and the new normal for unemployment is radically different, we need an equally radical change in how we look at our economy.