Last weekend I wrote a post about what is happening with employment. The gist was that employment in the US in agriculture and manufacturing has collapsed as a percentage of total employment and declined even in absolute terms mostly as a result of increased productivity and globalization. All employment growth has been concentrated in services. Today I want to take a deeper dive on services, but before doing so I should point out that I am optimistic about technology in the long run. My point is not at all that we can’t get to a better place eventually — it is that we are being naive about the degree of the dislocation that’s ahead of us and what it will take to get to a better place.
In the previous post my primary goal was to show that entire sectors of the economy can decline in employment. There I treated all of services as one big bucket labeled “other.” Now here is a breakdown of service employment over the last 10 years based on data from the Bureau of Labor Statistics:
The chart shows that the total number of employees has been flat or has even declined somewhat in most categories other than Education & Health, Professional & Business Services and Leisure & Hospitality. Again, keep in mind that over the same time period the US population grew by almost 10%!
One way to gauge how robust the increased demand for labor is in these three areas is to look at what has happened to wages in these three sub sectors (data also from the BLS):
Leisure and hospitality has been relatively flat and isn’t much above minimum wage to begin with. Wage growth in professional and business services started to level of in 2009 and even in education and health services which had the strongest employment growth wages started to level off last year. The pressure on wages even in these areas of growing employment comes from the high supply of labor (as people cannot find jobs elsewhere) but also because even here technology is becoming an even strong substitute for labor.
So what exactly are the mechanics by which increased productivity operates in these services sectors? Here are five different scenarios
Elimination of jobs: these are not being done by a machine, instead the task has disappeared entirely, such as filing papers (when there are no more papers to be filed).
- Complete replacement: examples here are wide ranging from the bank teller being replaced by an ATM machine to the dental technician replaced by a 3D printer.
- Increased human effectiveness: a car mechanic using computer diagnostics can determine in minutes what’s wrong with a car or an executive assistant with email and and Internet can schedule meetings faster.
- Distribution of work to the consumer: for instance with online travel booking the task of picking a flight is shifted to individual end users, reducing the number of travel agents that are required.
- Shifting overseas: many information based jobs from low end data validation to high end engineering can now be carried out anywhere in the world.
- Insufficient seller rents: this last one is a bit tricky but the idea here is that especially with digitally delivered goods the price is dropping to zero so that fewer people can earn a living (at least for now, more on how that might change in the future in a subsequent post) — eg regional newspapers would each employ a sports writer but on the Internet one sports writer can reach the entire nation.
For many of these mechanisms we are just at the beginning of what technology can do. For instance, in legal services computer programs are rapidly replacing humans during the discovery phase in scanning and summarizing documents. We now have driverless cars and in some big open pit mines the trucks are self driving already. Each of these are currently available only at the high end but as the cost of the technology declines will become more pervasive. Education is another example where we have just started a potentially massive transformation. Previously a single teacher could at best teach a few hundred students in a large lecture course. Now someone like Sal Khan has millions of students and large MOOCs have hundreds of thousands of students.
The bottom line here is that it would be foolish to count on continued growth in the services economy to fill the widening employment gap. Already today many of the components of services have either stopped to grow or even started to shrink and the remaining areas of growth are under pressure. And we are only in the early stages of what technology can do in these areas.
In the next post in this little mini series I will talk about how these changes are the leading cause of the massive growth in income and wealth inequality in the United States. I will also come back to the point that we have been using government and consumer debt as a way to try to counteract these changes. That is unsustainable and will set the stage for a subsequent post about the emerging “peer economy” (think Etsy, Uber, airbnb and more) together with thoughts on a more radical view of the future.