Hurricane Harvey: Good News for Jobs; Bad News for Wealth

SOURCES

Harvey to be costliest natural disaster in U.S. history, with an estimated cost of $160 billion

USAToday Headline, August 30, 2017.

COMMENTS

The massive destruction of property caused by hurricane Harvey will certainly increase demand for goods and services – for building materials, machinery, and appliances for countless construction projects; for health care services and disaster related government services; and for countless personal items that have been lost.  Even though the disruption of Gulf Coast businesses and industries has idled workers in that area, the longer term impact on job growth will be large and positive.  The U.S. might finally see wage growth and more people coming back into the labor force.

Yet, there is a catch.  Massive destruction like we have seen with hurricanes Katrina, Sandy, and Harvey reduces the total wealth in the U.S.  On average, the quality of life in the U.S. declines.  That means that most if not all of the added jobs will only only contribute to replacing lost wealth, not adding to the total stock of wealth.  (It is also worth adding that many of the goods that go into restoring the lost wealth will be imported, so some disaster induced job growth will be exported to low wage parts of the world.)

The bigger point is that we have to see Harvey’s impact on job growth as part of an epochal change in  job growth for the U.S. and for the world economy.  Three forces are coming together to accelerate the destruction of existing wealth in the world economy: climate change, which is producing more extreme weather events and putting negative pressures on the world’s agricultural industries; increasing civil strife and wars, which are destroying massive amounts of existing wealth in some places and forcing up the costs of protecting existing wealth everywhere on the planet; and the aging of the massive amount of wealth items produced and put in place over the course of the 20th century, which is accelerating the rates at which those items of existing wealth must be repaired and replaced.  These forces are transforming global employment.

In these historical circumstances, there will be plenty of jobs for the world’s people, but they will all be devoted to protecting existing wealth (military and policing forces, home security services, property insurance services, etc.) and to replacing wealth that is being lost.  Plenty of jobs, but a very big social justice question is emerging in this era of no net wealth growth: how do we fairly allocate jobs and income when trickle down wealth growth has come to an end?

The Trump Administration’s Apprenticeship Strategy Leads to a Dead End

The idea that apprenticeship programs, especially for industries that hire people with skills in science, technology, engineering, and math (STEM skills), is widely accepted and promoted, so the Trump proposal is not out of the mainstream of thinking about barriers to employment and wage growth.  However, expecting much of an impact on employment and wage growth from the Trump administration’s turn of attention to apprenticeship programs will only hand you disappointment.

Over the last several decades, American business and government support for workforce training has declined dramatically, as shown by declining funding levels.

At a time when employers are struggling to find the skilled workers they need to fill available jobs, funding to train workers has dropped dramatically. Since just 2010, federal education and training programs have been cut by more than $1 billion.

Federal funding webpage, National Skills Coalition.  Accessed June 15, 2017.

The incidence of training in the previous 12 months fell roughly 28 percent overall during the period between 2001 and 2009. The results show that the decline in employer-paid training was wide-spread, affecting most industries, occupations, and demographic groups.

Jeff Waddoups, Did Employers in the United States Back Away from Skills Training during the Early 2000s? Seminar Invitation, Center for Work, Organization, and Wellbeing, Griffith University.  Accessed June 15, 2017.

The Trump administration’s proposal does not restore former levels of funding, much less move America to a new level of support for apprenticeship programs.  The reason is in plain sight, but studiously “undiscovered” by political and business leaders: American businesses are no longer dependent on a skilled American workforce; dozens of high and middle affluence nations are training skilled workers who then seek work through globally organized recruiting institutions, and then either migrate across national boundaries to workplaces or work across national boundaries without physically moving.  In most cases, American businesses can offer these globally available skilled workers more of what they want than can businesses in most other nations, so American businesses generally get the workers they really need.

In addition to sourcing skilled workers from a rapidly growing global pool of skilled workers, American businesses are turning to a rapidly growing supply of robots that are becoming increasing skilled with each passing month and decreasingly costly to own.  Robots may not yet be able to take over all skill intensive activities of workers, but competent management teams can (and do) orchestrate teams of human workers and robots so as to hold human staffing steady or even reduce it while still increasing output.

These are the stubborn 21st century realities that no feasible set of U.S. policies can undo or overcome.  Despite the widely held belief to the contrary, we are actually living in a world economy weighed down by an oversupply of skilled labor.  Fortunately, this fact becomes more apparent with every passing day, but, unfortunately, for a very disturbing reason.  As skilled workers around the world are pushed out into the cold because of oversupply with no employment prospects that match the expectations they were told to have, more and more are turning their talents to cyber crime, to designing murderous weapons on an ad hoc basis, and to building terrorist organizations.

A Background Note

The use of apprenticeships and recognizing the value in them goes back thousands of years.  More relevantly, U.S. states have long recognized the value of apprenticeship programs and supported and promoted them through legislation; the federal government has done so since 1937.

Since time immemorial, people have been transferring skills from one generation to another in some form of apprenticeship. Four thousand years ago, the Babylonian Code of Hammurabi provided that artisans teach their crafts to youth.

History of Apprenticeship, Washington State Department of Industries.  Accessed June 15, 2017.

Since 1937, the Bureau of Apprenticeship and Training has worked closely with employer and labor groups, vocational schools, state apprenticeship agencies, and others concerned with apprenticeship programs in U.S. industry. It has field representatives in the 50 States.

History of Apprenticeship, Washington State Department of Industries.  Accessed June 15, 2017.

The point, of course, is that there is nothing new and noteworthy in the Trump administration’s apprenticeship proposal.  They are just trotting out old ideas that seem new because they have been pushed aside long enough for many American’s to think they are seeing something new and untried.

My Book on the Future of Work is now Available for Your Enjoyment

The Future of Work in the Inclusive World Economy is posted to my website.  Click this link to view and print the book in PDF format: https://iweworkfutures.org/book-download/.

The timing for posting my book is not bad.  Gallup just published a major study of the slowdown in economic growth in the U.S., “U.S. Economy: No Recovery”,  and Robert J. Gordon’s book, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War, has been getting lots of attention.  Yet, Donald Trump is vowing to buck the U.S. economic growth slowdown and a lot of economists will try to help him do it.  Elsewhere in the world, new leaders are making the same promises.  We have not had such a real world battle of economic policy ideas in a very long time.

Name Change and Book Coming Soon

The website and blog, U.S. Jobs Going Down, will be changed to IWE Work Futures in the next day or two.  This change is to reflect the shift to a more comprehensive perspective on changes in the world of work I refer to as the Inclusive World Economy.

At the time of the name change, the first draft of my new book, The Future of Work in the Inclusive World Economy, will be posted as a PDF file.  You will be able to view and print it for your own use. 

Jim

Paradigm Premises and Insights into Stagnating Global Economic Growth

SOURCE ITEMS

Why does political instability afflict Europe and the United States? The answer is that just as the great transformation of the world economy between 1850 and 1890 generated political instability, so too does the globalization of the present era. In addition, the second great transformation of the world economy is larger than the first, and thus, not surprisingly, generates greater churn. … Those countries able to keep unemployment and inequality within bounds will be more stable. The greater the levels of inequality and unemployment, the greater the political instability and the smaller the chance of achieving stable economic growth.

David W. Brady, Globalization and Political Instability, The American Interest, March 8 2016. Accessed March 24, 2016.

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Political instability reduces the likelihood of defining and implementing a reasonably comprehensive, coherent, and sustained economic-policy agenda. The resulting persistence of low growth, high unemployment, and rising inequality fuels continued political instability and fragmentation, which further undermines officials’ capacity to implement effective economic policies.

Michael Spence and David Brady, Economics in a Time of Political Instability, Project Syndicate, March 23, 2016. Accessed March 24, 2016.

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We tend to focus on the problem of the moment — the subprime crisis, the euro crisis, the China slowdown, the oil bust. But surely these events are connected. What threads link them? I’ve been collecting possible story lines for a while now. … Put these all together, and what do you get? A Great Muddle, perhaps. Some stories overlap. At least two of them contradict each other. They don’t all add up to any kind of consistent narrative.

Justin Fox, Eight Story Lines Explain the Global Economic Crisis, BloombergView, March 10, 2016, Accessed March 24, 2016.

COMMENTS

Statements about what can be done and should be done in a particular arena of human activity rest on foundation premises about how that part of our world works. These premises establish a paradigm for gathering and interpreting data about the world. They pull certain things into view and push other things out of view.

Professor Brady says we are in an era of transformation in the world economy.   Everyone knows that things are changing rapidly and in big ways and Brady is far from alone in concluding that a transformation is underway. This is an important development because the term transformation connotes change that reaches past surface phenomena, change that runs deep into the machinery of a system.

Such deep-running change often exposes weaknesses in a paradigm that worked well in the past. This is the case for theories of economic growth.

The field of economics is in turmoil because of the unpredicted crisis of 2008 and the persisting economic growth stagnation. In the search for answers, the paradigmatic premise that humans act rationally is now widely questioned. But, other premises should be getting more attention.

One premise worth questioning is that systemic continuity is a given. This premise is embraced across the fields of economics and politics. It is reflected in two assertions that are widely made and widely accepted.

The first is that this time is really not different. Although a few economists have argued that the financial crisis of 2008 is unusual, the dominant view is that it is not fundamentally different from numerous other financial crises in the history of capitalism. Brady affirms this view by comparing the transformation of the world economy in our time to the transformation in the 19th century. He sees it as more destabilizing, but not fundamentally different. After the transformation has played itself out, life can return to what we call normal.

The second assertion is that government policy interventions can restore world economic growth. In the past, economic growth has stagnated and stalled, but in every case it was sooner or later restored. Now is no different. By adopting the appropriate economic policies, governments can restore economic growth to levels that restore full employment and steadily increase human wealth and well-being.

The concepts of transformation and systemic continuity do not sit together well. This is a telling juxtaposition to which economists should be giving more attention. Perhaps as I have been arguing in this blog, it isn’t bad policies that are limiting global economic growth; perhaps it is existential limits to economic growth that make all policy interventions fall short.

Perhaps economists, including Brady himself, should set aside the premise of continuity and explore all the implications of applying the concept of transformation to our current circumstances.

A Return to Full Employment With Mixed Signals: This Time is Different for the World of Employment

SOURCE ITEMS

Chart-Employed Full Time Trend

St. Louis Federal Reserve, Accessed December 13, 2015.

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The Netherlands seems to be undergoing a sort of industrial revolution in reverse, with jobs moving from factories to homes. The Dutch labor market has the highest concentration of part-time and freelance workers in Europe, with nearly 50% of all Dutch workers, and 62% of young workers, engaged in part-time employment – a luxury afforded to them by the country’s relatively high hourly wages.

Sami Mahroum and Elif Bascavusoglu-Moreau, Is Jobless Growth Inevitable? Project Syndicate, March 25, 2015. Accessed December 13, 2015.

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Inequality, exclusion, and duality became more marked in countries where skills were poorly distributed and many services approximated the textbook “ideal” of spot markets. The United States, where many workers are forced to hold multiple jobs in order to make an adequate living, remains the canonical example of this model.

Dani Rodrik, The Evolution of Work, Project Syndicate, December 9, 2015. Accessed December 13, 2015.

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Forced labor permeates supply chains that stretch across the globe, from remote farms in Africa and the seas off Southeast Asia to supermarkets in America and Europe. Almost 21 million people are enslaved for profit worldwide, the UN says, providing $150 billion in illicit revenue every year.

Erik Larson, These Lawyers Want Slave Labor Warnings on Your Cat Food, Bloomberg, December 10, 2015. Accessed December 13, 2015.

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Over all, the Labor Department data painted a picture of an economy that is growing steadily and creating jobs at a healthy pace, even as wage gains remain subdued and many Americans are still stuck on the sidelines of the recovery.

Nelson D. Schwartz, Robust Jobs Report All but Guarantees Fed Will Raise Rates, New York Times, December 4, 2015. Accessed December 13, 2015.

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In reality, the 35-hour workweek has become mostly symbolic, because a multitude of loopholes allow companies to work around the law. French employees work an average of 40.5 hours a week — more than the 40-hour average in the European Union — and have high productivity.

Liz Alderman, Smart Car Standoff Pits Social Progress Against Global Competition, New York Times, December 12, 2015. Accessed December 13, 2015.

COMMENTS

A question emerged after 2008 that unsettled the field of economics and is still unanswered: is this time different? Was the financial crisis of 2008 an economic crisis of a unique kind in the history of capitalism; or was it just a very severe version of a routine kind of economic crisis?

This phrase gained currency from the publication of the book, This Time is Different: Eight Centuries of Financial Folly, by Carmen Reinhart Kenneth Rogoff.[1] They argue that the financial crisis of 2008 is not different. But others disagree.

In a 2012 article, Lawrence King et al make the argument that this time is different because it is the result of a level of financial liberalization and a degree of free market economics that did not exist before the 1970s.[2]

A few of our world’s best and brightest economists expressed their uncertainty and sense that this time is different in this way:

“As a world economic crisis developed in 2008 and lasted longer than most economists predicted, it became increasingly clear that beliefs about macroeconomics and macroeconomic policy needed to be thoroughly examined. … we knew that we had entered a brave new world…”[3]

Different Seems More Likely Than the Same

After 2008 optimism about a return to robust economic growth has been the rule. But actual economic growth has not rewarded that optimism. A few economists have been trying to explain this poor record.

Robert J. Gordon, professor of economics at Northwestern University, recently asserted that “It is time to raise basic questions about the process of economic growth, especially the assumption – nearly universal since Solow’s seminal contributions of the 1950s (Solow 1956) – that economic growth is a continuous process that will persist forever.” He went on to propose that U.S. economic growth may grind to a halt because the kinds of technological innovations that drove rapid U.S. economic growth are not on the horizon.[4]

Professor Gordon was speaking only about the U.S., but the logic would apply to all of the world’s affluent nations.  Moreover, the World Bank and other global institutions have repeatedly warned of below par levels of global economic growth, in some cases for years to come.

Weighing anecdotal evidence, some discernible trends, and expert opinion, it seems reasonable to conclude that this time is different for economic growth.

That means this time is almost certainly different for the world of employment.

A Different World of Employment

In mainstream theories of economic development, the future of work is directly tied to the future of economic growth. Economic growth is the engine that pushes us toward the ever expanding prosperity goals that make for widespread affluence: high profits, high wages, and full employment. When economic growth slows down something has to give in the world of employment.  We are trapped in a long period of slow economic growth, so the employment trends of the past cannot continue.

We can be fairly certain that workers in the U.S. and other affluent nations will not experience the kind of return to full employment with high wage conditions we have known in the past. In the context of global competition and slow economic growth,  the world’s economic and political leaders are pressing hard to cap and reduce wage bills at all levels of employment. We have entered into an era of global degradation of employment.

In affluent nations they  are forcing working people to choose between fewer jobs and fewer hours at higher compensation levels or more jobs and more hours with lower wages and less valuable benefits.  In the rest of the world, where such a choice has seldom existed in any meaningful sense,  global competition and slow economic growth mean an end to the dream of jobs that will deliver better lives.  Everywhere, employment rights and workplace protections are falling away.

What we don’t know quite yet is how the ongoing degradation of the world of employment will play out in national and global politics. At the moment it appears that the world’s political and economic leaders have chosen to promote a free-for-all battle struggle among working people by defining rights to crumbs from the capitalist table using the old reactionary lines of difference – race, ethnicity, gender, religion, and nation. And, at the moment, too many workers in affluent nations are falling into this trap, as shown by the rise of Trumpism in the U.S., the growth of reactionary movements across Europe, and the destruction of governing institutions that embody common interests, and the rise of militaristic movements intent on redrawing national boundaries.

Intentionally engendering antagonisms can’t solve the fundamental problems for global economic growth, so the right wing policies can have only one ultimate outcome – a global catastrophe in multiple forms. Hopefully, this  will become clear to the world’s working people well before such a catastrophe becomes unavoidable.

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[1] Carmen M. Reinhart and Kenneth Rogoff, This Time is Different: Eight Centuries of Financial Folly, Princeton University Press, 2009.

[2] Lawrence King, Michael Kitson, Sue Konzelmann and Frank Wilkinson Making the same mistake again—or is this time different? Cambridge Journal of Economics 2012, 36, 1–15 doi:10.1093/cje/ber045.

[3] From the Preface: Olivier J. Blanchard, David Romer, A. Michael Spence and Joseph E. Stiglitz, In the Wake of the Crisis: Leading Economists Reassess Economic Policy, MIT Press, 2012.

[4] Robert J. Gordon, Is US economic growth over? Faltering innovation confronts the six headwinds, VOX, September 11, 2012. http://www.voxeu.org/article/us-economic-growth-over.

Crisis and Recovery Work: the Future of Jobs in the World Economy

 

SOURCE ITEMS

Pipes carrying Flint River water are opened; the Detroit supply is shut off. The switch was made as a cost-saving measure for the struggling, black-majority city. Soon after, residents begin to complain about the water’s color, taste and odor, and report rashes and concerns about bacteria. … Flint urges residents to stop drinking water after government epidemiologists validate Dr. Hanna-Attisha’s finding of high lead levels. Mr. Snyder orders the distribution of filters, the testing of water in schools, and the expansion of water and blood testing.

Jeremy C.F. Lin, Jean Rutter and Haeyoun Park, Events That Led to Flint’s Water Crisis., New York Times, January 21, 2016. Accessed January 22, 2016.

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Health care employment expanded by 475,000 in 2015, compared with a gain of 309,000 in 2014.Chart-Job Growth by Sector 2015

 

Source: Current Employment Statistics Highlights, December 2015, Bureau of Labor Statistics, January 8, 2016. Accessed January 22, 2016.

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Air, sea and land transport networks continue to expand in reach, speed of travel and volume of passengers and goods carried. Pathogens and their vectors can now move further, faster and in greater numbers than ever before. Three important consequences of global transport network expansion are infectious disease pandemics, vector invasion events and vector-borne pathogen importation.

Tatem, A.J., D.J. Rogers, and S.I. Hay. Global Transport Networks and Infectious Disease Spread. Advances in parasitology 62 (2006): 293–343. PMC. Web. 22 Jan. 2016.

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Thus, the net gain in jobs in New Jersey over the four year period would be 270,000 (281,000 construction-related jobs less 11,000 Travel and Tourism-related jobs). Of the 281,000 construction-related jobs, about 218,000 will be direct construction jobs. …

If all of this money is spent on reconstruction, the influx of new spending will generate $53.1 billion in new total output in those 13 counties and about 352,000 new jobs. About 299,000 jobs will be construction jobs.

Economic Impact of Hurricane Sandy, Economics and Statistics Administration, U.S. Department of Commerce, September 2013

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Future warming will bring a more volatile, dangerous world, even if the world manages to keep temperature rises within a 2C limit to which governments have committed, Fischer’s research found. On average, any given place on Earth will experience 60% more extreme rain events and 27 extremely hot days.

Karl Mathiesen, Extreme weather already on increase due to climate change, study finds, The Guardian, U.S. Edition, April 27, 2015.

COMMENTS

Safe water is one of those items of wealth that comes to us as both natural wealth and fabricated wealth. We sip water purified by nature from natural springs and we sip water purified by factories from our water taps.

The water crisis in Flint Michigan illustrates the extent to which we humans have damaged the natural production of many forms of wealth and been forced to replace natural wealth with fabricated wealth. Therein lies the story of job growth in the 21st century.

During the expansive years of capitalism (roughly the 16th century through the first half of the 20th century), we increasingly used fossil fuels to transform natural wealth into fabricated wealth. We had our eyes on the growing stock of fabricated wealth and failed to see the costs in natural wealth. Now we are beginning to see that there is no free lunch. The notion that humans figured out how to add to the total stock of wealth on the planet (the notion of creating fabricated wealth at no cost to natural wealth) has turned out to be an accounting sleight of hand.

We have never been able to increase net total wealth (natural wealth + fabricated wealth). By defining nations as economies, we externalized all costs to other nations and to nature and counted only what we wanted to: fabricated wealth. Our riches seemed to grow without end. Now we can no longer expand the stock of fabricated wealth fast enough to stay ahead of normal wear and tear and a rising tide of social, geopolitical, and ecological disasters.

The work we want to do is steadily being replaced by the work we must do. Steadily, our working hands and minds are being turned to the task of fixing damage inflicted on our fabricated wealth by domestic conflicts, wars, climate events, and just plain old wear and tear; and to the task of fixing the damages we have inflicted and continue to inflict on natural wealth.

The rate at which the world’s fabricated and natural wealth are being damaged is growing fast, so more and more our jobs will be in industries that repair our bodies (and replace body parts), that repair and replace our essential fabricated items of wealth (e.g., homes, tools, transportation equipment, educational facilities, health care technologies) and that repair the planetary systems we have damaged. The proportion of jobs that produce goods and services that can be counted as net new fabricated wealth will go down.

Into the 20th century, job growth was associated with expanding the production of net new fabricated wealth. That era is over. Job growth is now becoming associated with survival goals in place of greater affluence goals.