Labor Saving Technologies and the Demise of the Working Class

Introduction

The US economy is growing at a healthy pace and unemployment is low. But behind these healthy signs, a large portion of the working class is not doing well. These problems are highlighted in a new study co-authored by the “conservative” American Enterprise Institute and the “progressive” Brookings Institution (AEI/BRI). In what follows, the findings of this study are presented along with earlier work on labor saving automation.

What Has Happened to the Working Class?

Perhaps the most important point registered by the study is how the working class has lost out in recent years. I quote from the study:

Our definition of working class: people with at least a high school diploma but less than a four-year college degree living in households between the 20th and 50th income percentiles—roughly $30,000 to $69,000 a year for a household with two adults and one child.

Since the late 1970s and still today, working-class America is bearing the brunt of automation and globalization: entire industries are disappearing, and wages have been flat since the 1970s. Marriage has declined faster among the working class than in any other group, richer or poorer. Civic institutions that once sustained blue-collar enclaves—churches, union halls, neighborhood associations, the local VFW or Lions Club—are closing their doors or moving elsewhere. And as the social fabric frays, a host of new problems are arising, from Opioid addiction to what Anne Case and Angus Deaton have called “deaths of despair” caused by drugs, alcohol or suicide and correlated with distress and social dysfunction.

Job Losses

Since 1995, US employment has grown 24% to almost 126 million. However, as Table 1 indicates, 4.8 million jobs have been lost in the manufacturing sector with 1.4 million of these losses occurring since 2007. And as I have noted earlier, most of these losses were the results of labor saving technologies and not cheaper foreign producers. Other job losses occurred in the information industry and department store employment as online technologies took hold. Job growth has occurred primarily in the service sectors with professional services and health leading the way.

Table 1. – Job Changes by Sector (in thousands)

Source: Bureau of Labor Statistics

Income Growth

Wage and salary income is an important indicator of economic well-being. Table 2 traces what has happened since 1979. Income of the top 50% grew at a compounded annual rate of 1.14%. Working class income grew at only a 0.32% rate with the bottom 20% growing at 0.91%. This means that the incomes of working people have barely grown over this period. And since real GDP grew at a compounded annual rate of 2.65%, one can conclude that non-wage income grew far more rapidly than wage and salary income.

Table 2. – Average Wage and Salary Income by Bracket (In 2016 Dollars)

Source: BRI/AEI Study

Education

The BRI/AEI study finds that workers without a college education have been hit hardest. The good news is that since 1992, the share of working class members with a college degree has increased from 33% to 46%. The authors believe low-income and working class students should be able to use grant money and student loans for non-credit occupational instruction at community colleges and other locales.

But there are real problems. I quote again from the study:

Critics—both researchers and policymakers—have been decrying the failures of federal job training for more than 30 years. Multiple agencies run scores of programs with little regard for administrative efficiency or client outcomes. Some of the most expensive initiatives—Job Corps is a telling example—consistently fail to improve trainees’ job prospects or wages. In theory, the system serves two constituencies—disadvantaged workers and employers. But detractors have long complained that it’s badly out of touch with employers, and the harshest critics say it offers scant benefits for either group—that in fact it’s mostly self-serving, a government bureaucracy focused above all on perpetuating itself. Even the soberest research suggests that results are mixed—with one of the strongest complaints being that rigorous evaluation is often lacking.

One would hope that companies needing workers would link up with the local community colleges and other education institutions to provide the type of training businesses need. This has not happened as often as it should, in part because teachers don’t know what companies really need. And incentives are partially lacking: the BRI/AEI study points out that government grant money is based on enrollments and not performance. The study suggests the government could withhold payment from programs that don’t deliver results.

Conservative researchers and policymakers have been decrying the failures of federal job training for more than 30 years. Some of the most expensive initiatives—Job Corps is a telling example—consistently fail to improve trainees’ job prospects or wages.

Breakdown of Civic Structures

The study points out that the working families’ plight is more than just economic. Blue collar families used to be stable, cohesive, and self-reliant. This is no longer the case. Over the last four decades, the working class has come to look less like the middle class and more like the poor—struggling families, crumbling communities and, most recently, Opioid addiction. Nonmarital births, about 60% of which are unintended, occur disproportionately to poor and working-class families. Among children less than one a year old, 64% of those living in a poor household were born outside marriage; 36% living in working-class households were born outside marriage; and only 13% percent living in middle- or upper-class households were born outside marriage.

The BRI/AEI Solution – Get People Back to Work

There is one theme running through the BRI/AEI’s list of policy recommendations – get people back to work. These themes are highlighted in the policy recommendations that follow:

  • Make work pay by expanding the earned income tax credit to cover childless workers and experimenting with a new work subsidy.
  • Require state and local agencies that administer government benefits to make a priority of getting recipients back to work.
  • Reform unemployment and disability insurance to promote work.
  • Reform federal education spending to fund programs that teach students, college-age and older, the skills they need for the jobs of the future.
  • Mobilize communities to make the most of the job-creating investment we expect to be unleashed by the Opportunity Zone provision of the 2017 tax bill.
  • Limit Opioid prescriptions government benefits to make a priority of getting recipients back to work.

A major problem with these recommendations is that they will increase the US labor supply just at a time when labor saving technologies are eliminating huge numbers of jobs. And it appears that jobs will continue to be eliminated for the foreseeable future.

The study also recommends that steps be taken to integrate those left behind into the social fabric by getting them to attend church and other social institutions where they live. It recommends that adolescents and young adults from working-class communities should be encouraged to follow a variant of the Haskins/Sawhill “success sequence:

  • Get an education that prepares you for a decent-paying job by completing a four-year college degree or obtaining an occupational credential.
  • Start working full-time by the time you have reached your early twenties.
  • Marry before having children.

Lessons from the Berkshires – Lasting Damage

I live in Lenox MA, part of a well-off cultural region that includes Great Barrington, Stockbridge, and West Stockbridge. To the north are North Adams and Pittsfield. To the south is Hudson, NY. If the “free market” is working properly, people will leave to find new jobs when there is a downturn in any particular area. Evidence from the Berkshires suggests the free market is not working perfectly.

1. North Adams

North Adams started as a mill town. Manufacturing began before the Revolutionary War. By the late 1700s/ early 1800s, businesses included wholesale shoe manufacturers, a brick yard, a saw mill and an ironworks, which provided the pig iron for armor plates on Civil War ships. Industrialization continued until the 1990s. And then it disappeared.

2. Pittsfield

Pittsfield is just north of Lenox. Like other Berkshire towns, it had textile mills along rivers. General Electric opened in Pittsfield in 1903, buying an existing electric machinery plant from William Stanley. GE came to dominate employment in Pittsfield in the 1920s and the 1930s as the textile industry declined. The federal government financed a GE ordnance plant there during World War II. At its peak during the 1940s, the GE plant employed 13,000 people – in a city of just about 50,000. GE started moving out in 1986. Pittsfield has not recovered.

3. Hudson

Just south of the Berkshires is Hudson New York. The City of Hudson was chartered in 1785 and by 1840 it was one of the most important whaling centers in the country. It also was a leading leather tanning site. No longer.

What can we learn from the rise and decline of these cities? When the jobs leave, so do most people in search of other jobs. Those remaining include members of the “working class” described in the BRI/AEI report as without hope. They give up and in the process become alcoholics and addicted to drugs. Crime follows to pay for their addiction problems.

And what is the most important lesson from these histories? These problems last for a long time: there are no simple fixes. And attempting to “sweep them under the rug” does not work.”

Conclusions

The BRI/AEI report is useful in documenting the decline of the working class and inefficiencies in US trainings systems to meet the changing employment needs of the economy. It is amazing that there is not better coordination between what corporations need and what US education systems provide. Education appears to work for those going for advanced degrees but not for the working class.

Most of the BRI/AEI proposals will add more laborers to the job market, and this at a time when labor saving automation is eliminating jobs. The study has little to say about the effects of labor saving technologies in sectors outside of manufacturing. It is permeating the entire economy.

Should getting people back into the workforce be the primary objective? If so, a lot more work will be needed.

The content above was saved on the old Morss Global Finance website, just in case anyone was looking for it (with the help of archive.org):
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