Is technology a job-gobbler? Many think so. The protracted under-performance of the job market in the post-recession period has policymakers, analysts and the general public casting blame on digitization, robotics, artificial intelligence and the like for hollowing out the job market and robbing millennials of the hope their forbears had at the same age and stage of life. There is no doubt that a lot of this is true. But is it completely true, or are our fears perhaps a bit exaggerated?
At first glance, the stories about a new industrial revolution, complete with all of its negative effects, are compelling. Peel the key arguments back a bit, though, and its plain to see that many have stopped talking about economic cycles; suddenly, every ill we have is due to structural changes of one kind or another. Sadly, the analytical community is incentivized to raise, create new buzz-words for, and at the limit even magnify the role of these structural factors. This can, and I believe has, masked the critical role of the cycle in our current circumstances. It is clear that a good chunk of today’s labour market woes are related to ups and downs in the economy that this time around are maybe somewhat more protracted than usual.
Not convinced? Consider that not so long ago, following an explosion of technology, unemployment rates hit lows we had not seen for decades. Rates that economists believed were impossible to achieve without runaway wage growth, yet labour costs remained contained. And consider that it wasn’t so long ago – 2001 and 2008 – that these milestones were achieved.
Scan current data, and it looks like we are back in the same space. The US boasts a 3.9 per cent unemployment rate, close to an all-time low, and wages are still pretty tame. Europe is on the same path, fast closing in on recent lows for its pan-regional unemployment rate. Unlike the other recent lows, though, this time around labour force participation is far lower than normal, as are employment-to-population ratios. Roll these in, and ‘effective’ unemployment rates – a measure agreed and used by the Fed – are a lot higher. What’s more worrisome is that this isn’t just due to the aging population; participation by young people – the millennial generation – is also alarmingly low. Here’s where the ‘structural’ advocates claim victory. Are they right?
Not entirely. Canada saw all of this one cycle earlier. In the 1990s, draconian federal and provincial budget cuts created a jobless recovery, and the young – at that time, Generation X – were bypassed in huge numbers. Predictably, many came out with stories of permanent structural change, only to be proven almost completely wrong when the cutting phase was over. Some of the changes truly were structural, but for the most part, things got back to normal. Is it the same story this time around?
Technology is indeed displacing many positions, so fears are founded in reality. But a reality check is found in the construction sector. Here’s an industry that was pummelled – on both sides of the Atlantic – by the worst global downturn since the Great Depression. It’s a sector that never really recovered. But it is making a comeback. It was down so long that a lot of the jobs simply disappeared. Now, the market is suggesting that the jobs need to come back, and it has compelling mechanisms to lure them back to work: the need is up, putting pressure on existing capacity. Contract prices then rise, creating the ability to increase hiring. By our estimation, pent-up demand is strong enough to keep the pressure on for years. It’s a time-tested story, playing out in plain view once again.
It all sounds a bit too simple, but if the bean counters are right, there is a layer of mid-skilled folks out there that are the prime concern of the technology worry-warts. And for the first time in a long while, there is a groundswell of demand for them. A key question is, will the economy actually realize it, or shy away from the opportunity because it finds the structural messages too compelling? Time alone will tell – but the current trajectory suggests a growing uptake.
There is indeed an industrial revolution going on. We need to keep a diligent eye on its negative effects. But there is also a world of rising demands out there, in developed and emerging markets alike, that we are running out of capacity to serve. Building up that capacity will help gobble up the jobless.
