All work and no gain

Workers may need to battle for more than just their jobs

It is one of the big truths in economic theory – there will always be plenty of jobs to go around. Even if some workplaces disappear, businesses are expected to come up with ways of putting any excess labour to good use. As long as people can earn wages and have money to spend, there will be employment options to via for this cash. But this insight was based on how the economy had been operating in the past when workers could move so as to use more technology at their new employers. With the job market increasingly offering up less scope for wage gains, more work may not be the solution.

Labour is like any other resource in the economy in that it needs to be able to move around to be put to the best use. Losing one’s job (which even the Free Range Economist has experienced) may put the individual in a tight spot but would be good for the economy as it would help get workers to where they are most needed. This process is easier for workers to stomach if there are lots of other employment options available and especially if decent wages were on offer elsewhere. Manufacturing was a bonus in this regard as workers could be made more productive compared to other forms of employment through greater use of machinery.

Yet, this trend seems to have gone into reverse as factories have been moved offshore and automation often means that workers need fewer skills and are more interchangeable. Along with the demise of manufacturing, the transition from producing stuff to offering up services has exacerbated the deterioration in job prospects with the service sector notorious for low productivity. The changes have not hurt everyone but a lucky minority have benefited through being able to provide specialist skills over a global market. As such, the productive capacity of those at the high end have shot up while work options for many other continue to dry up.

Amid these changes, the economy continues to grow with average output among workers edging upwards. Yet, stripping out the extremes in the earners of global highflyers would likely show that most workers are suffering from a tapering off in productivity (and hence wages). This trend would be worrying not only for workers shifting to jobs that are lower in pay (and likely less fulfilling) but also that there might be mechanisms at play in which a decline in the spending capacity of the bulk of consumers could make the situation worse.

Smaller pay packets for many people would see more money being spent on cheaper goods which are more likely to be mass produced with high levels of automation. Such a feedback loop could see falls in spending power bolstering businesses that pay out less in wages. The income of the middle class which had been the bulwark of the modern economy would be eroded with only a minority being able to generate higher earnings.  Even if a few high earners have even more cash to splash around, such free spending would unlikely be enough to replace the drop in incomes elsewhere.

The overall result could be a splitting of the economy to either use mass production at low costs to serve people with little to spend or provide high-value products in small batches for the affluent minority. This outcome would be markedly different to the first few decades of the postwar era when inequality was less prevalent and people would shop at the same places irrespective of their income. The current state of affairs is, in some ways, a return to the past in terms of the opening up of a large gulf within society, similar to but not as extreme as that between princes and peasants.

Economist have not raised much concern about such an eventuality as it is more the quantity of jobs rather than the quality that has been given priority. But this rationale in economic theory has been backed by the tendency for wages to rise over time which has been a feature of modern economies since workers left farms to work in factories. People could be put to use with higher levels of technology but this trend may have gone into reverse as automation picks up more of the slack in the workplace. The deteriorating prospects for workers with fewer specialist skills means that business has the upper hand in setting the rules as shown by the way in which companies can sidestep labour regulations in the gig economy.

Companies have been given the freedom to go about their business with government policies often aiming to offer support with the ultimate goal of providing people with employment. Despite business and workers often being promoted by different sides of the political spectrum, there is common interest in finding a balance in which both sides prosper. As such, any decline in the fortunes of workers will ultimately hurt their employers if lower wages feed through to drag down revenues due to the economy getting trapped in a loop whereby lower wages mean less spending.

If this trend persists, any changes in the economy will likely come with increasing levels of hardship as the loss of work will also tend to come with a pay cut. The skills required to rise up the pay scales have also become harder to come by as technology can accomplish more of the tasks required in workplaces. Making sure that everyone has a job may not be enough if workers are facing deteriorating prospects. The politics of self sufficiency and individual responsibility may become less palatable if hard work on the job no longer provides a route to prosperity. Putting in the hours will not be enough if more work does not make up for less pay.