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IntelDigest
LAW – POLICY – FINANCE – MARKETS
INFORMATION FOR THE ENTERPRISE AND INVESTOR
JUNE 14 , 2017
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In this issue of IntelDigest, we finish a series on the subject of “Work in America.”
Politics and American Jobs
The problem of “Work in America” played a very large role in the 2016 election results. In his campaign, Donald Trump focused his message at a segment of the electorate which has been under economic stress and pressure. Many middle-class Americans have felt “The American Dream” slipping away. Trump leveraged this discontent and resentment, and he garnered just enough support to win the Presidency.
Lack of Work in America
The heart of the problem in U.S. Employment is that many American jobs, especially in manufacturing, have been contracting for decades.
Trump became President by speaking to a large group of voters … millions of Americans who were unemployed or underemployed … who were virtually ignored by other candidates. However, he did so by deflecting the causes on foreigners … blaming competition from Chinese workers and undocumented Mexicans for the loss of jobs in the American heartland. Actually, there is little truth to either claim. But, these were Americans whose fathers had had much better jobs than they could obtain. They wanted a “better deal.” And, Trump promised to make a better deal for them.
But, foreign workers have played a very small part in the contraction of jobs in the U.S. In reality, better efficiency and productivity have much more to do with the change in American manufacturing. Some researchers have estimated that over 85% of manufacturing job losses in recent years are attributable to growth in productivity in U.S. factories, while closer to 13% can be traced to foreign imports.
Headwinds for the American Middle Class
Economic growth rates have been trending down for 40 years. The number of people with “breadwinner” jobs … as a percentage of the working-age population … is at a 40-year low.
The primary factor in this trend, as mentioned above, has been efficiency and productivity (directly related to Technology, which we discuss later in this letter). However, two other factors have had a significant effect on American Jobs: Trade Policy and Tax Policy.
We have written about the North American Free Trade Agreement (NAFTA), which was negotiated in 1993. One effect of NAFTA was to curb price inflation in the U.S. The American consumer economy was able to expand … and our consumers received the benefit of low prices … by accessing cheaper labor in other countries.
However, American Manufacturing was already shrinking because of advances in efficiency and productivity. The influx of cheaper goods from foreign countries only added to the distress of U.S. workers in manufacturing.
In the November 16 issue of IntelDigest, we highlighted a paper by Dani Rodrik, a professor of economics at the John F. Kennedy School of Government at Harvard University. He argued that “unmanaged globalization” is undermining democracy.
“The promise of free trade is undeniable: Everybody likes those everyday low prices. But the consequences of the differential distribution of the benefits of globalization are becoming disturbingly clear: For the upper classes, the world is their oyster. For the lower classes, the world is their competitor.”
Those who can take advantage of the global economy can benefit from Globalization, while those who don’t have the resources and skills are left behind.
Tax Policy also affects American jobs. For example, the U.S. is the only industrial country in the world with “global income taxation,” which makes an American Citizen’s earned income subject to U.S. federal income tax, no matter where in the world that the citizen lives or works. Also, unlike other industrialized countries, the American tax system has no “value-added tax.”
This means that our tax policy unduly burdens wage earners, while rewarding individuals and corporations who use overseas labor. This has contributed to a decline in real, after-tax wages over the last 40 years. No wonder that the Middle Class has suffered.
We have discussed Tax Policy in IntelDigest on several occasions, and will continue to return to the subject, as it is a vital factor in the “Future of Work” and “Economic Growth in America.”
How Will Our Economy Grow?
Growth of the U.S. Economy rests on continual increases in Productivity along with expansion of the Workforce. Our leaders … both government and business …
must find ways to increase Work Opportunities for our citizens. Increased Gross Domestic Product (GDP) … and the ability to “grow” out of our National Debt headache … depends on solutions to the problems of Work in America.
We have to reverse or counteract recent trends in U.S. Labor Participation in order to fill new jobs. As we have discussed in recent issues, large numbers of American men in their prime have left the workforce. This situation has developed over several decades, but has reached crisis levels. If the trends continue, nearly a quarter of all men between the ages of 25–54 will be jobless by mid-century.
Coupled with the retirement/slowing of the millions of members of the Baby Boom Generation, we are simply not going to get the increase in GDP that normally comes from growth in the workforce. The next generation of American workers, both male and female, must step up to keep the engine of the American Economy running.
If the “Lost Generation” of working males does not make its way back into the workforce to offset the retirement of the Boomers, the only option for American Business is to encourage Immigration, in contravention of the prevailing ideology of the Ruling Party.
Thinking About Solutions
An encouraging sign from the Congress and Administration has been a willingness to suggest some new ways of doing business. Although we are far from the point of actual legislation … it is unlikely that we will see serious action on important matters such as Tax Reform and Jobs until next Winter, at the earliest … there has been talk of lowering business income taxes and adopting a value-added tax to discourage foreign production of goods for U.S. markets.
Technology and Its Effect on Work
Technological innovations are always at the forefront of advances in Productivity. However, they seem to work at cross-purposes to the livelihood of the American Worker. Although new technologies are constantly creating new jobs in new fields, Technology aggravates the problems of Work in America to the extent that such advances make it cost-effective for machines to replace human workers.
As machines do more and more entry-level tasks, an American Worker who lacks the skills and training to rise above such work will fall to the bottom of the jobs ladder, and eventually drop out of the workforce. The only chance to stay ahead of the machines is to obtain the education and training to work in new fields, often jobs which didn’t even exist a decade earlier.
The Future of Work: Automation, Information Technology, Artificial Intelligence
Where will Automation take us next?
Certainly, more robust Information Technology … Cloud computing and storage, faster computing speeds, more widespread application of digital technology to the analog world … will continue to transform our world, with inevitable impact on both manufacturing and non-manufacturing jobs.
The only “Sure Thing” about the coming decades is that Work in America will be constantly changing, adapting to new technologies. For the American Worker, the catchphrase “Adapt or Die” will be words-to-live-by.
In our lifetimes, we have seen the invention and development of products, industries, and technologies which we couldn’t even imagine just a few years earlier. This trend will surely continue inexorably in the coming decades. Beyond new products and services, perhaps we will see entirely new standards for measuring Work and Productivity, and compensating workers for their labor. Perhaps the very idea or Work will be redefined.
We will likely see, over the next 20 years, greater use of machines which can work on their own, with little supervision. This certainly includes self-driving vehicles, which have already driven over One Million Miles in research programs on the streets of several U.S. cities. Fleets of autonomous trucks will be criss-crossing the country within that time frame.
Meanwhile, the development and expansion of Artificial Intelligence (AI) could have a major impact on employment in many sectors, not just manufacturing. Some researchers believe that human and machine reasoning will converge over the next 15 years or so.
There are many more questions about the Future of Work. So, we will come back to this subject periodically to discuss advancements-to-date and Bright Ideas for the Future.