This is The Real Economic Problem Nobody is Discussing

Economics

Jul 25

Part II. Read Part I here

This is The Real Economic Problem Nobody is Discussing, Scott MacDonald, Saving Investa

As politicians seek to blame others for intractable economic problems, they are overlooking the real problem. Donald Trump is ignoring it; so is Hillary Clinton. Bernie Sanders never discussed it. They choose not to address the problem because they don’t know how to deal with it.

What Is The REAL Problem?

By way of background, the U.S. Gross Domestic Product has risen every year but one in the past 30 years. On average, U.S. GDP increased about 5.7% annually. GDP measures output, so the country has produced more and generated more income annually for the past three decades.

Surprisingly, wages have not increased much, especially lower and middle-income wage earners. In the same period of time when the economy was expanding (except for 2008), wages of middle wage earners were up an average of .2% a year. Over the thirty-year period, the economy grew by almost 200% while middle-income workers only earned an added 6%. Lower wage workers actually lost 5.0% in average wages during the same timeframe.

So production goes up, the economy expands, and workers’ wages stagnate or decline. Senior managers’ and executives’ pay has increased significantly, by contrast. This trend of no wage growth except for managers and executives extends for decades with no relief in sight.

There are many reasons for wage stagnation, but the biggest one is automation. The big three automakers previously hired about 1.2 million employees. Today, they produce about the same number of cars employing only about 137,000 workers. Those high paying blue-collar jobs that did not require a college education or specialized skills are gone, largely replaced by robots.

In 1980, there were 228,000 coal miners in the U.S., including related transportation workers producing about 830,000 tons of coal. In 2013, there were only 80,000 comparable coal miners producing 983,000 tons. Since 2013, the number of coal related jobs have likely decreased further. There are now more workers installing solar panels that there are coal workers. The drop in coal industry employment is largely due to automation.

The number of non-supervisory employees in manufacturing as measured by the U.S. Bureau of Labor Statistics has declined by almost 40% over the past three decades. Good factory jobs have been replaced by a combination of automation and off shoring.

Amazon had about 3,000 robots in their highly automated factories three years ago. Today they have 30,000 robots searching to fulfill customer orders. With the greater reliance on automation, Amazon has reduced its average time from receipt of an order to warehouse exit from 1.5 hours to 13 minutes.

A recent study by the World Economic Forum predicted 57% of current occupations are at risk of being replaced by automation. By 2020, the WEF predicts robots will replace 7.1 million jobs, and 2.0 million new jobs will be created for a net job loss of 5.1 million.

The Fourth Industrial Revolution: Automation 

The World Economic Forum has termed the increasing use of automation as the Fourth Industrial Revolution in world history. The prior economic revolutions, which dramatically changed the way of life, were:

  • The Industrial Revolution (c.1784)
  • Introduction of electricity and mass production (c.1870)
  • Digital Revolution with technology (c.1969)

The new economic revolution with its introduction and application of artificial intelligence and automation will likely reorder the nature and character of the global workforce. The new revolution will affect white collar and blue-collar jobs including any tasks that are typically repetitive or can be learned. A radiologist physician may be replaced by a computer trained to scan and interpret X-rays, for example.

How Will This Economic Problem Affect us? 

Certain service jobs such as teachers, physicians and nurses, care givers, robotic technicians, reporters, CEO’s, and many other positions will need to design, deploy, maintain and direct automated equipment as well as relate to human needs. That is the 43% of occupations that will probably not be replaced.

My fear is as automation increases its grip on productive society, politicians will focus blame and demagoguery on immigrants or off shore production. Unions will rail against employers and policies. Businesses will squeeze short-term profits to secure corporate bonuses.

And no one will address the critical societal issues of education, retraining, and worker flexibility, which will be needed to survive.

 

photo courtesy of pixabay
Watch for a new book, by Scott MacDonald, Think Like a Dog, due out in 2017. Scott’s book, Saving Investa, is available for pre-order at Amazon.com and more widely available November 1, 2016.

 

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