Saturday, July 9, 2011

New Demand, Old Workforce, Not Enough Jobs Ever Again

There is an ugly truth about the job market that economists and politicians will not speak. The United States and the world will never need as many workers as it has in the past to supply more than we could ever buy or consume and with almost everyone in the modern workforce, this is a huge problem. The solution is a global lower standard of living.

Automation has enabled a far smaller workforce to produce huge quantities of goods and services that called for multiples more workers in the past. Everything from automatic teller machines, automatic car washes to personal computers remove job positions from the workforce. One example is a sales division of a company that 15 years ago had an administrative assistant for each sales team that would prepare proposals, presentation materials and take messages. Now sales people use software tools like Microsoft PowerPoint, Microsoft Word and connect their laptop to a projector to do a presentation. An automated voice response answering system takes messages and the need for the administrative assistant is gone.

Many offices now have an empty desk in their lobby where a receptionist once sat. Often a sign with a list of extensions to call if you need assistance sits alongside a telephone. The combination of personal computer software and automated answering technology has eliminated a huge number of jobs forever. The same thing can be said of factory automation where robots do almost everything with humans often connecting subassemblies built by machines and performing final quality inspections. Millions of jobs have been permanently eliminated by industrial automation.

The other issue is the size of our workforce. Almost everyone is seeking employment. Most suburban neighborhoods are ghost towns during the day because everyone leaves to go to work. There was a time when a married couple would have a stay at home parent if one of them earned enough to support the family and provide a comfortable lifestyle. There have always been situations where both the husband and wife worked out of economic necessity and that was the norm. Something changed and the workforce ballooned when the norm became that the earning capability of a husband or wife was not the determinate of whether both worked. The expectation was for both members of a marriage to get jobs and work.

Social factors like a low rate of marriage and huge divorce rates create social insecurities that drives everyone to work because the thought of being suddenly alone without marketable job skills is too big of a risk.

The expectations of career goals, earning’s growth and enhanced lifestyle changed the definition of what a comfortable lifestyle entailed. Increased consumption from dual high income households combined with the use of credit by everyone fueled an outsized demand for everything from electronics to homes. This inflated demand masked the fact that normal demand could not support our work force.

The financial crisis ripped the scab off the real issue of the workforce and demand imbalance. Many consumers retreated back to an earlier model regarding buying goods and services. We had been on a “just get it if you want it” economic model and suddenly switched to a get it if you absolutely need it mentality. The days of replace it if it’s broken have replaced getting the hot new feature such as a 3D television when your current television will still last for years.

At the same time demand crashed, people ready to exit the workforce through retirement came back in because many had their retirement savings gutted by the stock market crash during the last part of 2008. The combination of low demand and swollen workforce creates a nightmare scenario that unfortunately may be solved by a painful descent into a generally lower standard of living for millions of Americans. We are now dealing with something closer to the real economy, but it happened so suddenly that there was no adjustment period, just pain for many.

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