Tags: wages | work | price | productivity

What Does the Future Hold for the US Workforce?

By    |   Thursday, 26 March 2015 08:34 AM

In the face of the labor market conundrum, the answer that many on the left have hit upon is to force employers to raise the wages — to turn the protected sectors into a simulacrum of the old manufacturing base. If garment workers can't compete with Vietnamese and Bangladeshi seamstresses, then jack up the wages of the new jobs they get selling foreign-made garments at Target.

There's a problem with this, however, which is that the service jobs have their own sort of competition from "not using that service." I could pay $10 for a Big Mac, but I could also just go home and fry up a hamburger, or heat up an industrially processed meal in the microwave. I could pay triple the price for all my T-shirts, or I could just buy a third as many T- shirts, reducing the need (and the available funds) for store clerks.

That's always been the case, of course, but the differences in degree were often so large as to almost be differences in kind — the choice between buying a car and walking is a lot more difficult than the choice between buying that T-shirt in three colors or settling on one.

Perhaps more important, the dramatic mid-century wage increase came alongside a dramatic mid-century increase in productivity. There's a big difference between raising wages in that context and raising it in ours, because in the context of the 1950s, people were actually producing dramatically more stuff, not just raising the price of the stuff they consumed. That meant wages were expanding even as output was expanding — everyone was getting richer at the same time. Raising wages on low-productivity work means paying more and getting less.

Leave aside the hard feelings this will cause among the payers, potentially undercutting political support for your mandate, and just think about what this will mean at the cash register: people buying less. Yes, some people, the folks whose wages go up, will be able to buy more. But they will only be able to do so because someone else is spending less — and whoever sells to that person is going to have to scale back their operations. Because you are often competing with home production of meals and fun, that scale-back could be quite dramatic.

Here's another problem: No matter what you mandate, some people simply may not be able to generate $10 or $15 worth of output even for an employer whose business will generally support higher wages. As I said before, the price is the price is the price: Unless there is a business that makes more than the minimum wage off your efforts, then there is no good way to force the market to employ you at that sort of wage. (There are some bad ways, but all I'll say is that the countries that have tried them are not, in general, places where you'd want to be looking for a job.)

In the old high-productivity, trade-shielded manufacturing sectors, that wasn't a problem; everyone was comfortably above the threshold anyway, and if not, they would be after you increased prices a bit. In highly competitive sectors with lower productivity, it is a real issue. And as I have noted many times before, in many places, that kind of disemployment is really terrible for the people who are left out. Prolonged unemployment is worse than working in a low-wage job; in fact, it's worse than almost everything else that a modern American goes through. It is anguishing.

Who are the most likely to be affected? Young people, who don't get the experience they need to go onto other jobs, and people with limited educational attainment. So college graduates can support themselves as baristas, and high school dropouts cannot find any sort of legal work.

I'm not claiming that we will see exactly zero jobs for lower-skilled workers. On the margins, however, I'd expect to see a growing gap between the lower-middle and the bottom — between the people who get the higher-paid jobs, and see their incomes increase, and the folks who have to work off the books for below minimum wages, or see their incomes fall to zero.

No, wait, don't reach for the antidepressants yet. It's true that the old days aren't coming back. But like the song says, the good old days weren't always good, and tomorrow ain't as bad as it seems.

For one thing, eventually, trade will stop being such a powerful force pressing down wages. The last two decades have seen an absolutely astonishing pace of development in China, in which literally hundreds of millions of low-skilled farm workers — what you might call the reserve army of the underemployed — were moved into the cities to take manufacturing jobs. Those workers were much less productive than workers at U.S. firms, but the wage differentials were so huge that it was still cheaper to employ them than to employ Americans manufacturing things.

But this movement will run its natural course — wages in China are already rising — and eventually, as China's economy matures, the competitive pressure from all those low-wage workers will ebb. Of course, there are billions more low-skilled workers in the world, but we are unlikely to see such a mass movement again in our lifetimes; the competitive pressures will be more sporadic, and therefore have less dramatic effects on U.S. wages. As developing countries develop, their wages will move toward ours, and our lower-margin manufacturing operations will become more competitive.

Add to this demographic change, which is happening all over the world. This demographic change is going to cause all sorts of problems, especially in budgets. But it will increase demand for prime-age labor, even if the robots continue to take over more and more jobs.

Now, we'll still have to contend with the robots. But there are many things that robots just aren't good at, and aren't necessarily likely to become good at, such as being nice to you and persuading you to buy stuff you didn't even know you wanted.
Meanwhile, these forces will be producing lots of things — more time, more stuff, more available labor — that we can enjoy. It's fashionable to pooh-pooh the availability of mere flat-screen televisions and plenteous clothes when rent and college are so dear, but people really enjoy those things. Moreover, the high price of rent and college is not some sort of natural law; it is the product of decisions we have made about things such as zoning, accreditation and occupational licensing that we could start changing right now without creating a single new manufacturing job.

Moreover, what the automation revolution taketh away, it also giveth. The old manufacturing jobs are now so productive that we barely need to use people in many spots. On the other hand, many sectors have barely been touched by the automation revolution — and as they are, the productivity in those sectors will rise. Who is to say that automation will not do for services in the 21st century what it did for manufacturing in the 21st: enable us to increase productivity so fast that output and wages can both rise rapidly. I'm not promising that this will happen — but there's no particular reason to think that it won't. And if it does, American consumers and American workers can join hands with all their foreign counterparts, and all of us can laugh all the way to the bank.

Megan McArdle is a Bloomberg View columnist who writes on economics, business and public policy.

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In the face of the labor market conundrum, the answer that many on the left have hit upon is to force employers to raise the wages — to turn the protected sectors into a simulacrum of the old manufacturing base.
wages, work, price, productivity
Thursday, 26 March 2015 08:34 AM
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