Tag Archives: employment

Automation And Social Welfare

Last weekend, I read about a robot developed in Japan that can assemble furniture from IKEA.  Over the past couple of years, intermittent reports demonstrating the features of three-dimensional copiers have suggested we may not be that far off from the “replicators” on Star Trek’s Enterprise. And despite some setbacks, self-driving cars and trucks seem all-but-certain to displace drivers in the not very distant future.

Meanwhile, the “gig economy” continues to replace traditional employment arrangements.

While the American public is transfixed–and distracted–by the antics of the self-satirizing buffoon currently occupying the Oval Office, technology marches along, prompting major social challenges that very few people are addressing.

A recent paper from The Brookings Institution focuses upon the effect of these changes for social insurance–the government programs intended to provide a modicum of financial security to the elderly, disabled and/or unemployed.

The nature of work is being increasingly and suddenly altered by technological change, growing cross-border mobility, declining birth rates, and rising life expectancy. A growing share of work is done either under contracts that are shorter-term and less predictable, or without any contracts at all.  Social insurance systems financed by payroll taxes created for times of stable employment with one formal employer and a substantial surplus of contributors over beneficiaries have become fiscally and socially unsustainable. Often, their rules leave the workers of the new economy without even a basic layer of social protection.

The authors suggest three major changes in the way the United States approaches social insurance: decoupling these programs from employment (payroll taxes provide the funding for these programs); for the elderly, establish a general-revenue financed basic pension for all; and set up a complementary pillar of privately-owned accounts for unemployment, health insurance, and old-age pensions, funded by tax-free private contributions.

I am insufficiently informed to weigh in on the latter two proposals, but it has been obvious for a long time that providing health insurance through employers–never optimal–has become increasingly unsustainable. It burdens larger employers, whose HR offices expend enormous time and resources navigating health insurance markets. It disadvantages small businesses and start-ups that cannot afford to offer competitive benefits and thus are less able to compete for quality employees. With the growth of the “gig” economy, increasing numbers of Americans are unable to access affordable plans (something Obamacare would ameliorate if the current Administration wasn’t determinedly sabotaging the program.)

These disadvantages aren’t limited to health insurance. As the Brookings report notes, providing social insurance through employers will only become more unsustainable, as automation displaces more workers and the number of independent contractors grows.

The solution is two-fold. The first is to eliminate the link between social insurance and employment status and provide a basic and affordable layer of social protection to all citizens, financed by general revenues…. The second is to supplement this insurance by a wider set of individually owned and financed insurance offerings.

Whatever the merits of these proposals or others, they are at least addressing important issues–issues with which a competent government would be dealing.

Unfortunately, we don’t have a competent government. We have deranged (and misspelled) tweet-storms from the White House and partisan game-playing from Congress.

Where are the adults when you need them?

Bread and Circuses

“Bread and circuses” used to be a fairly common reference to the Roman government’s practice of distracting the masses by providing food (bread) and circuses (contests between lions and Christians, etc.) in order to keep them occupied. The term–used far less frequently these days– is a reference to superficial perks used to appease popular passions, a tactic to generate public approval through diversion and distraction.

I’ve been thinking about that tactic in connection with the GOP’s “middle class tax cut.” (I love GOP titles–remember George W. Bush’s “Clear Skies” moniker for a bill permitting more pollution? This time it’s a “middle class tax cut” for a measure that is anything but.) My specific question goes beyond the dishonesty of the bill’s title, however: I wonder whether the lower withholding requirements, which will initially allow workers to take home a somewhat larger portion of their paychecks, will be enough to distract Americans from the other, less pleasant and less immediate consequences of that bill.

Will it obscure the fact that tax “reform” will further enrich the already wealthy without stemming the job losses that are accelerating as companies increasingly automate, and as retailing faces enormous challenges? After all, this tax “reform” was hyped as a (trickle-down) measure that would incentivize those “job creators” to do their thing–to create jobs and raise the pay of their workers.

How’s that working out so far?

Harley-Davidson just closed a plant in Kansas City, laying off 800 workers. Managers blamed both a provision of the tax bill and Trump’s decision to pull out of the Trans-Pacific Partnership.

Passage of the tax bill didn’t affect or delay the decision of Toys-R-Us to close 180 stores–nor the closing of 63 Sears locations. Kmart has closed 45 stores; Macy’s has closed 68. Walmart made a big deal out of its response to passage of the tax bill, announcing $1000 bonuses (the company made less noise about the fact that only employees who’d been with the company for 20 years would actually get a thousand dollars), and immediately followed up that PR blitz by closing 63 of its Sam’s Club stores and throwing thousands of people out of work. (Given Walmart’s turnover rate, I’d guess there weren’t a lot of 20-year veterans getting the full bonus amount, either.)

Industry publications are filled with layoff announcements: Pfizer announced it will eliminate 300 research jobs in New England; another 4,000 are expected to lose their jobs with AT&T. Kimberly-Clark is using its tax windfall to reward shareholders, while laying off between 5,000 and 5,500 workers. Comcast said the $1,000 bonus it splashed across the news would serve as severance for 500 terminated employees. Microsoft, Coca-Cola and a host of lesser-known brands have also fired hundreds of workers.

The tax cut didn’t change any of these decisions, and other policies of the Trump Administration are only accelerating the job losses.

Those of us in Indiana know that Carrier has now completed its move to Mexico, despite Trump’s much-hyped “intervention.”

Meanwhile, the President’s love affair with coal led him to impose stiff tariffs on solar panels–a move that will not only depress sales and increase prices for environmentally-conscious consumers, but will cost a predicted 23,000 workers their jobs. Meanwhile, although coal is not coming back, the tariffs will slow the replacement of fossil fuels with clean energy–further enriching the Koch brothers, who demonstrated their gratitude to Paul Ryan for passage of tax “reform” by giving him $500,000 a mere two weeks after the bill was signed. (Estimates are it will save them a cool billion a year, so they could afford a paltry half-million to their House puppet. Quid Pro Quo much?)

American workers aren’t even getting bread and circuses–unless you count the circus that is Washington, D.C. And that one isn’t entertaining; it’s terrifying.

File Under: We Ain’t Seen Nuthin’ Yet…

A business school colleague of mine recently drew my attention to an article predicting how our lives will change in the next twenty years.

The changes that are predicted are all consequences of technology–mostly existing technology– and they are entirely plausible. If even half of them come to pass, however, we are likely to experience an economic and social upheaval that will far surpass the dislocations of the industrial revolution.

A few of those predictions:

  • Software will disrupt most traditional industries within the next 5-10 years. (We already see this with retailing.)
  •  Online legal advice (already widely available on the internet) will reduce the number of lawyers by 90%–only specialists will remain.
  • Self driving cars will be available in 2018;  by 2020, the entire auto industry will begin to be disrupted. People won’t own personal vehicles; they’ll call a car on the phone, it will show up and drive to the specified destination. (“You will not need to park it, you only pay for the driven distance and can be productive while driving. Our kids will never get a driver’s licence and will never own a car.”) The implications are enormous: fewer accidents will reduce the need for insurance–and the companies that sell it; many car companies will go bankrupt, millions of jobs (truck drivers, taxi drivers, etc.) will disappear. Land used for parking will be redeveloped. There’s much more.
  • Electricity will become incredibly cheap and clean: We will see the true impact of solar production, which has “been on an exponential curve for 30 years.”
  • Companies will introduce a medical device (called the “Tricorder” from Star Trek) that works with your phone, takes your retina scan and your blood sample and analyzes your breath.  It will then analyze 54 biomarkers that identify nearly any disease. It will be inexpensive enough to give everyone on the planet access to world-class medical analysis, nearly for free.
  • 3D printing will be ubiquitous. The price of the cheapest 3D printer went from $18,000 to $400 within 10 years, and over that same timeframe it became 100 times faster. Major shoe companies have already started 3D printing shoes; spare airplane parts are already 3D printed in remote airports, and the space station now has a printer that eliminates the need to stockpile large amount of spare parts as before. The Chinese have already 3D printed/built a 6-story office building.  By 2027, 10% of everything that’s being produced will be 3D printed.

These are just a few of the changes the article lists–there are many more.

It is difficult to envision the combined impact of these technologies; the author predicts that 70-80% of today’s jobs will disappear in the next 20 years. There will be new ones, of course, but it is unlikely that there will be enough new jobs to replace those going the way of the dinosaurs.

During my own lifetime, the pace of change has steadily accelerated. Much of the social and economic dysfunction we are currently experiencing is a direct outgrowth of that change–not just the economic stresses involved, but the disorientation people suffer as cultural attitudes shift and expectations about their future lives are upended.

If there is one thing that’s clear, it is that our current political system is not capable of meeting the challenges we will face. How will ideologues like Paul Ryan and those like him–lawmakers who think unemployed folks can just “pull themselves up by their own bootstraps”– react to massive joblessness? What about the “alt-right” bigots who justify their anti-immigrant rhetoric with the claim that the newcomers are taking American jobs? What will those on the left do when they can no longer blame job losses on outsourcing and trade? Where will all these culture warriors turn without their overly-simplified, convenient culprits? And who will they turn on?

And a far, far more important question: how will the fortunate remnant–the still-employed, highly skilled specialists–respond to the needs of the suddenly un- and under-employed? What policy interventions will they support? What sort of social contract will they recognize?

Twenty years isn’t a long time. It’s practically tomorrow.

Sauce for the Goose

Evidently, sauce for the goose is not sauce for the gander.

We’ve become accustomed to the breast-beating and recriminations that accompany decisions by American businesses to manufacture goods in other countries, or to move existing operations overseas. In the latter case, the loss of jobs is a genuine “hit” and efforts to retain them are understandable–although, as we’ve seen with Trump’s Carrier deal, often costly and counterproductive.

We almost never hear about the other side of the equation, however. Indiana, in particular, has benefited mightily from outsourcing decisions made by foreign companies. According to the Indiana Business Research Center at Indiana University, in 2015, Indiana had 152,700 workers employed by foreign-owned firms. (Think of the Honda plant in Greensburg, the Isuzu plant in Lafayette, etc.) Of the jobs created by foreign companies located in Indiana, 97,900 were manufacturing jobs that accounted for 3.1 percent of the state’s private employment.

Similarly, automation–not trade– accounts for most of the job losses in the United States. Trade actually creates jobs (although often the jobs created are different from those that are lost, and that does make for winners and losers). According to a January 2010 report from the Business Roundtable, at that time, 761,500 jobs in Indiana depended on trade.

In 2008, 20.5 percent of jobs in Indiana depended on trade, up from 10.0 percent in 1992. Indiana’s trade-related employment grew more than five times faster than total employment from 2004 to 2008.

This is not to minimize the issues raised by job losses; the impact on workers who find themselves unemployed–and often, due to age or lack of other marketable skills, unemployable–is very real. The impact on communities when a major employer closes or downsizes are equally real, and challenging. But addressing the consequences requires an accurate understanding of the causes.

To use a medical analogy, prescribing the proper remedy requires a correct diagnosis of the disease being treated.

The globalization of the economy has proceeded too far to be undone, even if we wanted to mount a retreat. History teaches us–or should teach us–that erecting trade barriers, punishing companies with tariffs on their foreign operations, and the other measures Trump has threatened–simply invite retaliation that hurts everyone.

It’s comforting to have a target for our economic frustrations, a “bumper sticker” solution to a problem. Unfortunately, modern life is more complicated than such “solutions” recognize. Automation has multiple virtues, but it does cause troubling job losses. There are good trade agreements and bad ones. Losing jobs as a result of American outsourcing is painful; gaining jobs as a result of Japanese or Canadian or British outsourcing is gratifying.

The world is a complicated place.



Connecting More Dots

I’ve often argued that universal healthcare–Medicare for All–would spark an outpouring of entrepreneurship. If you want to open a shop, or go into the widget-making business, one significant barrier to doing so is the need to offer (very expensive) health insurance to your employees. Of course, you could decide not to provide that benefit, but you wouldn’t be very competitive in the market for good workers.

I understand, dimly, the historical reasons why the U.S. linked employment to health care, but it has always seemed to be a bad idea. What about people who don’t/can’t work? What about independent contractors? Why should an employer have to assume the costs–and risks–of employees’ health? Other countries do not couple jobs and insurance in this way–health insurance is provided as part of the social safety net, and the costs are spread much more widely.

Yesterday, in a Facebook post, a friend of mine explained why medical insurance provided through government–decoupled from employment–would boost the economy and make American businesses more competitive.

As he noted in his post, when you buy a product, all the costs of creating that product are reflected in the price: production, workers’ wages and benefits, materials. Most of the nations with whom we trade big-ticket items have had government-sponsored health care for decades, and at far lower cost. As a result, Saab and Mercedes, among others, are able to compete unfairly with American-made autos whose prices include a hefty private-sector health care premium. (I’ve seen numbers suggesting that this was one of the reasons GM and Chrysler went bankrupt; healthcare coverage for current and retired employees added over 2000 to the average price of their cars.)

If we really cared about keeping U.S. businesses competitive–and the health insurance system comprehensible–we’d have Medicare for All, or at least for anyone who wanted it.  Given our political environment, and the lobbying clout of Big Insurance and Big Pharma, that was never in the cards.

Obamacare was (barely) politically feasible because it was originally the Republican alternative. With all its warts, it’s a step in the right direction, but if we want America to remain competitive,  we will eventually need to separate access to health insurance from the vagaries of employment.