Is the Next Jobs Crisis Just Ahead?

SUMMING UP A looming service sector jobs crisis would dwarf anything we’ve seen in manufacturing, many of Jim Heskett's readers agree. But what can be done about it?
by James Heskett

Summing Up: Should We Be Addressing the Next Jobs Crisis Now?

An unusual proportion of respondents to this month’s column agreed either explicitly or implicitly on one thing: a looming service sector jobs crisis would dwarf anything we’ve seen in manufacturing. There were several solutions advanced for how to deal with it.

Deaver Brown saw the future (and the jobs crisis) most succinctly: “Better quicker results due to fewer people between a customer and the solution.” Fizzinnf said, “Robotics and artificial intelligence will cut a swath through the service sector,” (presumably just as they have in manufacturing). Joan, while commenting that “the issue is multi-dimensional and complex,” observed that: “Things seem to be changing faster than we as humans can adapt …” Paul injected some humor into an ominous-sounding comment when he said: “I liked the idea that at least some opportunities won’t be lost such as highly personalized services such as child care … until I considered that my 2 year-old grandson can operate iPhones, computers, and other electronic devices … which means he’ll soon have access to HBX and electronic educational opportunities … which means fewer educational positions for beginning teachers … So, is there any hope?” Roy Damary summed up his thoughts this way: “And we all thought that the service industry was the salvation of countries facing industrial decline!”

Although the challenge was framed in terms of effects in the United States, several respondents widened the perspective. Sandeep offered that one of the key factors to be considered global demographics. “You have an aging population in the West, which when coupled with increased barriers on cross border immigration would … result in acceleration of automation and elimination of jobs across the board.” Ramesh Vemuganti commented, “Mind boggling innovations & rapid technological advancements (are) retaking the world into an undesirable no man’s land… the worst hit will be India … & China …”

A number of proposals were advanced for dealing with the situation. Rakesh recommended “skills development for the sectors where jobs are being created.” Dolembo suggested a multi-faceted response: “Fund student loans, stop punishing those who get the training at community colleges … and share in the investment for these poor kids who went broke training for this new economy, (and) support we business people who train at our expense.” His final volley was, “Labor cost is not what makes us noncompetitive, stupidity is.” Perhaps the most striking suggestion came from a representative of the Independent Workers Party of Chicago: “The solution is simple: … The length of the working week needs to be cut in half, with no loss in pay to the workers.”

David F. in Arizona reminded us that “Markets may be efficient, but they’re not always quick to reach equilibrium.” As a result, some businesses will invest in training their own employees, “but most will just wait for fully trained candidates to apply for jobs… if government doesn’t invest in the forthcoming change, change will be painfully slow if at all.”

Should we be addressing the next jobs crisis now? What do you think?

Original Column

It’s clear that the focus of the new United States government administration, at least in its early days, will be on jawboning corporations to keep their manufacturing jobs inside the country or penalizing those that “export jobs” by taxing their imports. This is part of a program to create 25 million US jobs in the next 10 years.

Whether or not you agree with the goal or the strategies, the question here is whether these efforts overlook a much larger job crisis ahead, one involving the service sector.

The focus of attention is on a sector of the American economy that employs 12.3 million people, down from about 17.3 million in 2000, a 29 percent decline. According to recent US Bureau of Labor Statistics survey of job loss among workers with three or more years of tenure in 2013 through 2015, about 37 percent of lost jobs was due to plant closings or relocations, some portion of which represents jobs that left the country. But there were just as many jobs that were simply eliminated.

Many of these were undoubtedly victims of increased productivity, in part due to introduction of new technology. Note that these percentages pertain to all jobs, not just those in manufacturing. In fact, just 17 percent of jobs lost were in manufacturing. Jobs in every sector have been subject to international competition as well as technological innovation.

Now consider these facts:

  • In the US, there are 10 non-governmental jobs in the service sector for every manufacturing job.
  • The ratio is roughly comparable in Western Europe and is even 3 to 1 in a country often thought to be dominated by manufacturing, China.
  • The average rate of pay in services is higher than that in manufacturing in the US in spite of the low-paying leisure and hospitality jobs that are often cited incorrectly as characteristic of service jobs.
  • The loss of US service jobs to international competition and technology is accelerating, even though at one time the vast majority of these jobs were thought to be relatively safe from globalization.

Productivity in the global service sector is increasing as well, some of it with the introduction of new technologies. It will slow job growth as well. Consider just one example: the self-driving vehicle combined with information technology designed to make driving more productive, drivers less essential, and the utilization of vehicles more and more efficient.

Let’s agree that it is important that a minimum base of manufacturing capability be maintained for purposes of innovation and national security. But while we are concentrating our attention on manufacturing jobs, what is the likelihood that cross-border competition and the introduction of new technology will have the same effect on services as on manufacturing? What’s the possibility that forces might be in place to produce just a 10 percent reduction in service jobs? That number would be greater than what the entire US manufacturing sector can muster today.

Would such a decline be gradual and therefore manageable, or would it have the same effect the displacement of manufacturing jobs has had on individuals and communities? What are feasible responses to this eventuality? Whether or not they are political, should we be considering them now?

Is the real jobs crisis ahead of us? What do you think?

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