A Note on Jobs & Unemployment – revised

A Note on Jobs & Unemployment

Original publication date – 12/27/2016; Revised – 12/31/2017

As the presidential campaign of 2016 fades away and the Trump Era begins, we find a national scene without any real discussion of the facts of jobs and unemployment and what the future might bring. Trump and others talk about bringing manufacturing back to the US. No plan, plausible or otherwise, has ever been mentioned for how to accomplish this. The Democrat are hardly better. Much has been made and continues to be made of the role various trade agreements have had in the loss of manufacturing jobs. Even Bernie Sanders can do no better than talking about creating millions of good paying jobs through a national infrastructure program. It is laudable to fix the infrastructure that has become third world, but that is not a long-term jobs strategy.

There are structural changes in the capitalist economy that must be understood and accepted as fact. Lets begin with a few examples from the manufacturing sector. US steel production, one of those lost American industries, is now as high as it was at the beginning of the 1960s.1 But, the industry shed 75% of its workforce, 400,000 jobs, due to changes in manufacturing processes.2 This process of wringing more production from fewer workers is not new. It is in fact a central process to all capitalist enterprises. Driving costs down, chiefly labor and materials, is a key capitalist strategy to increase profits.  And, as such, it does not obey national boundaries. Take a current example from China, Foxconn, famous for manufacturing iPhones, recently announced a major overhaul in just one of its factories, replacing 60,000 jobs out of 110,000 through automation.3

US manufacturing out vs employment 1947 - 2011
Perry, Mark. Phenomenal Gains in Manufacturing Productivity. 27 Apr. 2012, https://www.aei.org/publication/phenomenal-gains-in-manufacturing-productivity
Perry, Mark. Phenomenal Gains in Manufacturing Productivity. 27 Apr. 2012, https://www.aei.org/publication/phenomenal-gains-in-manufacturing-productivity

To take a larger perspective total US manufacturing output in real terms has risen 14% in the last 18 years while over this same period manufacturing employment has fallen by almost 35%.  This drove the enormous increases in labor productivity. This longterm increase in productivity will likely accelerate as the deployment of information technologies continues. In the next ten years autonomous trucks, for example, will displace the 1.5 million long-haul truck drivers in the US. Self-checkout technology is commonplace in groceries with Amazon going one better by experimenting with stores without any checkout lines. 4

Or watch this video below about the robots in Amazon’s distribution centers. The changes in order fulfillment cycle times and the increase in the density of storage are amazing. Don’t be taken in by the declaration by the VP towards the end that this is not resulting in fewer employees. When you look at the whole retail system in the US (and world, since Amazon is very nearly everywhere) a company like Amazon that has sales of $1,092,000 per employee, and rising fast, is crushing smaller competitors everywhere.5

Those jobs are disappearing. Ask Radio Shack.

In earlier phases of capitalism, the demise of one business sector, and the jobs with it, generally occurred in the context of an overall surge of economic activity. So when the buggy whip industry died, many many jobs were available, mostly at higher wages to soak up the newly unemployed whip makers. This happened over and over throughout the the history of capitalism from the 1820s through the 1960s. It is built into the mythology of capitalism that each bit of creative destruction leads to more and better jobs. This is not happening now and there is reason to believe that we have entered a new phase where increasingly human labor will be a declining factor.

Think about jobs as belonging to one of four groups:

  • (1) routine manual – production, craft, repair and operative occupations,
  • (2) non-routine manual – service occupations
  • (3) routine cognitive – clerical, administrative, sales occupations
  • (4) non-routine cognitive – professional, managerial & engineering/technical occupations

You can readily see that both routine-manual and routine-cognitive jobs are rapidly being replaced by robots and other automation technologies.6 Unfortunately the non-routine manual jobs are universally low paying –  cleaning hotel rooms or houses, nursing aides, etc. It is only the non-routine cognitive jobs that command high pay and are growing in numbers, but not enough to employ all of the people available. This leaves aside whether these people have the skills and education required for non-routine cognitive jobs.

These changes in the structure of work are not being driven by advances in technology. Technology is an enabler of the real driver. Rather, the process is at the heart of capitalism. Every enterprise must continuously reduce its costs because every other enterprise is also reducing its costs to gain profits and competitive advantage. This is an inexorable consequence of the very structure of the capitalist system. It is one of the sources of its productivity that has brought tremendous economic growth.

Some noisily point to unfair trade agreements and globalization as the source of our troubles. Some of that may be true. But the longer term view has to be that once the world recovered from WWII’s annihilation of our competitors and new ones arrived on the scene, beginning with Japan, South Korea and Taiwan, for example in the late 1970s, it was inevitable that the US economy and its workers would be challenged by wage competition. Innovations in shipping and communications, namely containerization, long-haul jets and the internet, accelerated this competition. Again, capitalism requires expansion, growing markets, so nothing was going to prevent the emergence of low labor cost centers of capitalism.Just as shoe, furniture, and cotton fabric manufacturing fled the high cost Northeast for the low-wage, anti-union South in the 1930s, the drive to reduce costs is a persistent driver for all businesses.

So now we are facing a future in which the longterm trends will be towards a continuation in falling rates of participation in the economy, under-employment, and unemployment. Wages will remain stuck permanently in neutral. The much lauded “gig” economy is a further intensification of the drive to reduce labor costs. Corporations and economists cheer it for furthering flexibility and entrepreneurial activity. The real driver is cost. Gig workers are not even employees. They do not require any of the standard benefits. They are entirely expendable. They have no power to demand changes in working conditions because they almost universally stand alone waiting for their 1099 Form at the end of the year as the only formal sign that they are part of the economy. With such a large mass of available workers and the collapse of countervailing political forces from unions and progressive political parties the capitalist system will continue to drive costs down. Even the vaunted non-routine cognitive job sector is already showing signs that the combination of over-production of highly educated people and the forces of cost reduction are in play.

These trends and the underlying dynamics of the capitalist economy raise the likelihood that those who are permanently under-employed or entirely unemployed will come to encompass significant parts of the educated middle-class well beyond the traditional boundaries of the urban and rural poor. The consequences of these trends are not simply economic. The role of work in life cannot be overstated. It is a key element of our self-identity and our sense of place in the world. Humans are, despite the neoliberal fantasy of the free market as the central source of self-development and achievement, social beings. It is how we are nurtured and grow up. It is the source of our greatest accomplishments. Each of us builds on the achievements of generations before us and non significant problems are solved by individuals alone.

We are thus confronted with a capitalist economy that is driving us towards a jobless future with no policies or value systems in sight to keep bread on the table and social isolation at bay. We need to recognize our situation for what it is and work towards changes in government policy and action to create a different end to the story.

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  1. To be sure the US rank amongst steel producers has declined significantly with most of the world’s steel now being produced in Asia
  2. Allan Collard-Wexler and Jan De Loecker, “Reallocation and Technology: Evidence from the U.S. Steel Industry,” Working Paper National Bureau of Economic Research, January 2013, http://www.nber.org/papers/w18739.
  3. Jane Wakefield, “Foxconn Replaces ‘60,000 Factory Workers with Robots,’ BBC News, May 25, 2016, sec. Technology, http://www.bbc.com/news/technology-36376966
  4. Angel Gonzalez, “Amazon Unveils Smart Convenience Store sans Checkouts, Cashiers,” The Seattle Times, December 5, 2016, http://www.seattletimes.com/business/amazon/amazoncom-unveils-self-driving-brick-and-mortar-convenience-store/
  5. Brick and mortar retail stores have sales per employee between a 1/4 and a 1/3 of Amazon’s performance.
  6. Thanks to Elizabeth Kolbert, “Our Automated Future,” The New Yorkerhttp://www.newyorker.com/magazine/2016/12/19/our-automated-future and Daron Acemoglu and David Autor, “Skills, Tasks and Technologies: Implications for Employment and Earnings,” Working Paper (National Bureau of Economic Research, June 2010), http://www.nber.org/papers/w16082.