While many hope that every low-skill person can become a high-skilled worker, training people doesn’t create jobs for them.
One of the most appealing beliefs about technology–that it will always create more jobs than it destroys–is no longer true. It was true in the first and second industrial revolutions, for one simple reason: the new industrial revolution created vast numbers of low-skill jobs that offered displaced workers abundant opportunities for work that did not require more than entry-level skills.
It only took a few minutes to learn one’s job on an assembly line in the first industrial revolution, and many workers recoiled from the sheer boredom and physical repetitiveness of this work. This is one reason why Henry Ford famously raised his workers’ wages to the then-princely sum of $5/day: the high turnover of people quitting was killing him.
I covered this in The Alienation of Work (April 15, 2014):
After the success of the moving assembly line, Henry Ford had another transformative idea: in January 1914, he startled the world by announcing that Ford Motor Company would pay $5 a day to its workers. The pay increase would also be accompanied by a shorter workday (from nine to eight hours). While this rate didn’t automatically apply to every worker, it more than doubled the average autoworker’s wage.While Henry’s primary objective was to reduce worker attrition–labor turnover from monotonous assembly line work was high–newspapers from all over the world reported the story as an extraordinary gesture of goodwill.
In other words, labor had scarcity value. This is no longer true, as we shall see.
The second industrial revolution (telephony, radio, consumer marketing) required more training, but there were tens of millions of relatively well-paying entry-level sales and paperwork positions created for people who were automated out of factories. For example, my father made enough selling appliances at Sears in the 1950s to buy a house, support a wife and four kids and pay for luxuries such as modest family camping vacations.
This is simply not true in the third industrial/Digital Revolution: the jobs being created are not entry level or low-skill, except for informal menial jobs like running into Target to do some shopping for a highly-paid person who will pick up their items from you on the curb.
These menial service jobs are often awarded to the lowest bidder, while the enterprise that operates the auction skims a significant chunk of the revenues.
Believers in “technology always creates more jobs than it destroys” also overlook the work of Immanuel Wallerstein (and others) who identified the job-killing trend that cannot be reversed: the cost of labor is rising for systemic reasons that supercede supply and demand of labor.
In other words, the total compensation costs of labor rise even when labor is abundant or in over-supply.
Wallerstein identifies three long-term forces that are undermining capitalism’s key function, the accumulation of more capital:
1. Urbanization, which has increased the cost of labor.
2. Externalized costs (dumping private waste into the Commons, environmental damage and depletion, etc.) are finally having to be paid.
3. Rising taxes as the Central State responds to unlimited demands by citizens for more services (education, healthcare, etc.) and economic security (pensions, welfare).
I explain these in more detail in Is This the Terminal Phase of Global Capitalism 1.0?(February 8, 2013).
In other words, the costs of labor paid by the employer are rising for structural reasons, even while supply and demand is reducing the wages paid to employees. This is why labor costs have tripled in China, while take-home pay hasn’t tripled.
Labor overhead is all the labor-related expenses paid by employers: the vast majority of pundits, most of whom have never hired a single employee with their own money, tend to overlook the overhead costs paid by employers: workers compensation insurance (soaring), healthcare insurance (soaring), disability insurance, unemployment insurance, 401K or pension contributions, etc.