14 October 2015

The Disgruntled Masses

Since the global financial crisis erupted more than seven years ago, the global economy has undergone some fundamental changes that have left many entire sectors of the economy in a much worse shape than they were prior to the crisis.  For many developed economies, this crisis has never really ended, with the economic output of a large number of the world’s developed economies remaining below pre-crisis levels.  Meanwhile, the labor forces of the world’s developed economies have undergone a massive transformation in recent years, a transformation that was accelerated by the recent crisis.  No change has had, or will have, a greater impact on the global labor force than the decline and fall of many traditional low-skilled manufacturing job sectors that accounted for much of the developed world’s growth in the 19th and 20th centuries.

There is ample evidence that there is a fundamental shift in the developed world’s labor forces away from blue-collar jobs, much as there was once a major decline in number of people who worked in the agricultural sector prior to the Industrial Revolution.  For example, the number of manufacturing jobs in the United States has declined by two million since 2007, and when you factor out the growth in high-tech manufacturing sectors from this number, the scale of the decline in manufacturing jobs in the US is staggering.  Moreover, wage levels in the manufacturing sector have declined for a long period of time in the United States when they are adjusted for inflation.  This is not just the case in the US, as similar job and wage losses in the manufacturing sector have been recorded in most of the world’s developed economies in recent years, many of which do not have the level of high-tech manufacturing jobs found in the US. 

The causes of this decline in blue-collar employment across the developed world are many.  First, as was the case with the once-dominant agricultural labor sector, rising productivity levels eliminated the need for more basic forms of human labor, resulting in massive job losses at the lower end of this sector.  Second, automation continues to become more prevalent in factories around the world, particularly in those countries that can afford it.  Third, disruptive technologies such as 3-D printing are further eliminating the need for much non-skilled labor, reducing entire job categories to just a shell of their former selves.  Finally, the simple fact that the size of the working-age populations of most developed economies are shrinking, particularly those in Europe and East Asia, is squeezing the number of potential workers for the manufacturing sector, making it more appealing for manufacturing companies to automate or relocate to cheaper manufacturing sectors.  What is clear is the fact that each of these factors will remain in place in the coming years and decades, further reducing the need for lower-skilled manufacturing labor in the developed world.

The impact of this massive shift in the composition of the labor force of developed countries is likely to prove highly disruptive.  For example, the tremendous shift from a labor force dominated by agricultural jobs to one driven by manufacturing jobs in the 19th and early 20th centuries led to urbanization, the development of socialist political and economic policies, and to the dramatic expansion of the middle class across the developed world.  However, this time around, there does not appear to be a sector of the economy that can meet the demand for jobs for the huge numbers of lower-skilled workers that are losing their jobs in the manufacturing sector, as there was when the demand for agricultural labor began to shrink.  As a result, there is a large and growing sector of society (mostly unskilled males) that is struggling to find employment and purpose in the changing 21st century economy.  This is leading to the rise of populist politics across the developed world as these disaffected and jobless masses are looking for politicians that are quick to spread the blame for these shifts in the labor market.  Moreover, these changes are leading to widening wealth gaps across the developed world, apart from where governments spend huge amounts of capital to redistribute wealth.  With the middle class in jeopardy and with little future for unskilled workers, the developed world is about to face a crisis that could tear many countries apart.