Submitted by: Tyler Durden
While many hope that every low-skill person can become a high-skilled worker, training people doesn’t create jobs for them.
One of the most appealing beliefs about technology–that it will always create more jobs than it destroys–is no longer true. It was true in the first and second industrial revolutions, for one simple reason: the new industrial revolution created vast numbers of low-skill jobs that offered displaced workers abundant opportunities for work that did not require more than entry-level skills.
It only took a few minutes to learn one’s job on an assembly line in the first industrial revolution, and many workers recoiled from the sheer boredom and physical repetitiveness of this work. This is one reason why Henry Ford famously raised his workers’ wages to the then-princely sum of $5/day: the high turnover of people quitting was killing him.
I covered this in The Alienation of Work (April 15, 2014):
After the success of the moving assembly line, Henry Ford had another transformative idea: in January 1914, he startled the world by announcing that Ford Motor Company would pay $5 a day to its workers. The pay increase would also be accompanied by a shorter workday (from nine to eight hours). While this rate didn’t automatically apply to every worker, it more than doubled the average autoworker’s wage.
While Henry’s primary objective was to reduce worker attrition–labor turnover from monotonous assembly line work was high–newspapers from all over the world reported the story as an extraordinary gesture of goodwill.
In other words, labor had scarcity value. This is no longer true, as we shall see.
The second industrial revolution (telephony, radio, consumer marketing) required more training, but there were tens of millions of relatively well-paying entry-level sales and paperwork positions created for people who were automated out of factories. For example, my father made enough selling appliances at Sears in the 1950s to buy a house, support a wife and four kids and pay for luxuries such as modest family camping vacations.
This is simply not true in the third industrial/Digital Revolution: the jobs being created are not entry level or low-skill, except for informal menial jobs like running into Target to do some shopping for a highly-paid person who will pick up their items from you on the curb.
These menial service jobs are often awarded to the lowest bidder, while the enterprise that operates the auction skims a significant chunk of the revenues.
Believers in “technology always creates more jobs than it destroys” also overlook the work of Immanuel Wallerstein (and others) who identified the job-killing trend that cannot be reversed: the cost of labor is rising for systemic reasons that supercede supply and demand of labor.
In other words, the total compensation costs of labor rise even when labor is abundant or in over-supply.
Wallerstein identifies three long-term forces that are undermining capitalism’s key function, the accumulation of more capital:
1. Urbanization, which has increased the cost of labor.
2. Externalized costs (dumping private waste into the Commons, environmental damage and depletion, etc.) are finally having to be paid.
3. Rising taxes as the Central State responds to unlimited demands by citizens for more services (education, healthcare, etc.) and economic security (pensions, welfare).
I explain these in more detail in Is This the Terminal Phase of Global Capitalism 1.0? (February 8, 2013).
In other words, the costs of labor paid by the employer are rising for structural reasons, even while supply and demand is reducing the wages paid to employees. This is why labor costs have tripled in China, while take-home pay hasn’t tripled.
Labor overhead is all the labor-related expenses paid by employers: the vast majority of pundits, most of whom have never hired a single employee with their own money, tend to overlook the overhead costs paid by employers: workers compensation insurance (soaring), healthcare insurance (soaring), disability insurance, unemployment insurance, 401K or pension contributions, etc.
The “solution” in the Digital Revolution is to eliminate all labor overhead and transfer all these risks and expenses onto the free-lancer. As a free-lancer/self-employed worker, I am well-acquainted with these overhead costs: it costs $15,300 annually to purchase stripped-down healthcare insurance for my self-employed wife and I.
This is $7.66 per hour for a 2,000-hour work year. The total value of the labor overhead paid by employers for someone of my age and experience exceeds the $15/hour being trumpeted as a minimum wage.
In other words, it would cost an employer $30/hour to pay me $15/hour.
The net result of reducing labor to auctioned-off surplus is that the state, and thus ultimately the taxpayer, is paying the overhead costs. The person being paid $5 to shop at Target (or $50/day to deliver whatever the high-earners didn’t order through Amazon) for a top 5% earner can’t possibly afford $15,000 a year for healthcare insurance, much less all the other benefits paid by employers.
So they end up getting social welfare benefits for low-income people such as Medicaid, food stamps, Section 8 housing subsidies, etc. In other words, this form of menial labor is ultimately subsidized by taxpayers.
The person paying someone a menial sum to perform some service may think they’re “hiring” that person, but in reality the taxpayer is footing the majority of the costs–the real “employer” is the taxpayer.
In other words, this informal “work” is a simulacrum of paid employment. All the costs being offloaded onto the informal worker end up in the taxpayer’s lap.
How can this be lauded as a functioning system of employment? It can’t, because it isn’t.
Those who believe the Digital Revolution will create more work also overlook the realities of risk when it comes to employing people. Once again, I wonder how many of these people have ever hired a single person on their own dime, i.e. with their own money, paid the overhead costs of an employer and took the risks of hiring employees.
Here’s one example from real life: you hire a fellow cash-only (informally or through some sort of labor auction exchange) to clean the roof gutters on your house. He falls off your roof and is seriously injured. You may think your insurance will cover you, or the labor auction exchange’s claim of coverage will protect you, but guess again: you could be on the hook for a huge settlement/judgment that will not be paid by your homeowner’s insurance or the labor exchange.
Labor laws don’t disappear just because you’ve hired someone informally. Anyone violating labor laws is also exposed to lawsuits and claims, exploratory “fishing” or otherwise. How about claims of ethnic, religious or gender discrimination? Those don’t disappear just because you’re an informal employer.
Many people seem unaware that a $10,000 claim for violating labor statutes may cost $10,000 or more to defend in court (or in pre-trial legal expenses). You’re out $10,000 either way.
Few pundits seem to put themselves in the shoes of those performing menial tasks for their “betters” for minimal compensation. What are the risks and rewards for managing an injury (real or faked) for those auctioning off their labor for a few dollars?
Those within the insurance industry know that there is an entire class of people who claim injuries in department stores, etc. so they can settle for $5,000 each “incident”– and they get the settlement because it will cost the corporation far more than $5,000 to contest, investigate, go to court, etc.
How good a job will you get when the worker bid so little to get the work? Once again, few pundits seem to put themselves in the shoes of those performing menial tasks for their “betters” for minimal compensation. You want to supervise people who are rushing to finish the task so they can hurry to their next low-paying gig? No thanks; be my guest. From my experience, it will cost me more time/money to re-do the work that was done poorly than it would to have done the work myself and forget hiring someone for the lowest bid.
This is why I will never hire anyone again, no matter how low the wage or cash payment: the risks are way too high and the rewards far too modest. Anyone who’s been a “real” employer like I have knows the realities, risks and costs. Those who’ve never hired a single employee with their own money are ignoring the realities.
When I need some real work done, I hire licensed contractors who pay all the labor overhead costs and pay for liability and disability coverage. These are very costly, so the service is costly. But you get what you pay for.
As for hiring someone myself–I can’t afford the true costs or risks. It literally makes no financial sense to hire someone if you pay the full freight. I will hire formal enterprises that pay the full costs of their employees, but only when I can’t do the work myself.
Setting aside these issues, the ultimate killer of jobs is scarcity and surplus.
The reality of capitalism is that profits and high wages only flow to what’s scarce, and as Michael Spence et al. explain in Our New Robot Overlords & The Third Type of Capital (October 18, 2014), conventional labor and capital are no longer scarce.
Conventional low-skill labor has no scarcity value in the Digital Revolution, and its value is heading to zero, regardless of what we may believe or hope. The same is true of conventional financial capital, which is why the superwealthy are buying existing income streams rather than investing in new (and risky) production.
Believers in “technology always creates more jobs than it destroys” never address the knotty issues of taxpayer subsidies, secular trends of higher labor costs, the eradication of low-skill jobs that pay enough to live on without taxpayer subsidies, or the structural surplus of conventional labor and capital–the scarcity value of both are dropping to zero.
While many hope that every low-skill person can become a high-skilled worker, training people doesn’t create jobs for them. As I have often noted, churning out 100,000 PhDs in chemistry doesn’t automatically create jobs for these experts. Indeed, there is already a surplus of highly educated/trained workers in a great many fields.
The truth is we need a new system–one that deals with the realities of labor, capital, scarcity and surplus head-on. The need for a social economy rather than a merely financial one is why I wrote my new book.
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This entry is based on my new book A Radically Beneficial World: Automation, Technology and Creating Jobs for All.