The Jobs Quandary

5 December 2013

A recent essay posted to this blog introduced four Change Drivers[1] that affect manufactures now as well as in the foreseeable future. That essay began:

“This blog focuses on smaller manufacturing business units that intend to thrive in perpetuity.[2] Doing so entails successfully confronting the complex and rapidly changing global business environment in which that business unit exists.

“In the past, manufacturing managers could spend most of their time zoomed in,[3]  working within the business. Then, zoomed out meant attending to immediate stakeholders — customers, local neighbors, suppliers, the bank and so on. The 21st century extends zoomed out from a relatively static local perspective to a quite dynamic multi-dimensional global perspective.”

This essay, The Jobs Quandary, looks at one of the most immediate aspects of that “dynamic multi-dimensional global perspective”.

 
Jobs in America

 Unemployment Graph - BLS
As of this writing, the official Bureau of Labor Statistics unemployment rate in America stands at 7.3%. Over the last 10 years, that rate bottomed at 4.4% in October and December 2006, then peaked at 10.0% in October 2009. The peak at 10.0% can be readily explained by the Great Recession. The slow recovery from that peak — now four years and counting, never mind massive Government stimulus — isn’t so readily explained. Further, the official rate doesn’t reflect those who have no job but are no longer searching for one through audited channels, nor does the official rate reflect those who have settled for part-time work, or work outside their field of preference.


There are reasons to believe that the slow recovery in the jobless rate reflects systemic factors, rather than just those of the business cycle. Here are some things to think about:

>> An Era of Oversupply: When Hu Jintao, then President of the Peoples Republic of China, visited President Bush in 2007, Bush asked Hu what kept him awake at night. Hu replied something like “how am I going to create another 25 million jobs next year”. To put this into perspective, the U.S. economy is creating about 2 million additional jobs a year. China has been creating something like 25 million jobs each year for well over a decade. And it’s not just China — India and other developing countries are also creating millions of jobs every year. In essence, they are exporting cheap labor in the form of low priced goods.[4]

 
>> Disruptive Technologies: The McKinsey Global Institute, part of global consulting firm McKinsey & Company, published a report on technological advances and their projected effects.[5] Perhaps the most striking of those technological advances concerns the automation of knowledge work.[6] The report projects that application of emerging computer and communications technologies to the work of knowledge workers — specifically “professionals, managers, engineers, scientists, teachers, analysts and administrative support staff” — could “take on tasks that would be equal to the output of 110 million to 140 million full-time equivalents” by 2025. In other words, employment opportunities in the areas mentioned could decline substantially over the next decade or so.


This is certainly disruptive. Hopefully, it will turn out to be Schumpeterian “creative disruption”,[7] creating more new jobs in new areas than the 110 – 140 million jobs McKinsey forecasts as at risk in this train wreck.


>> Employment in Manufacturing: American manufacturers know that employment in the manufacturing sector has been in persistent decline since the 1970’s. However, there is no corresponding decrease in total industrial output in the U.S., due to dramatic increases in labor productivity.

Graph - Productivity gap
Increases in labor productivity occur when automation (capital) supplements or replaces manual effort. In America, this results in a yawning productivity gap between manufacturers that have extensive access to capital and those who have less access. Practically speaking, that gap exists between large manufacturers and small manufacturers.


For Smaller Manufacturers


The systemic reduction in manufacturing employment in this country reflects two primary factors: competition from developing countries that are exporting excess labor in the form of low cost goods; and from increasing labor productivity, due to application of constantly improving technologies. Here are some things that smaller manufacturers should do:


>> The role of senior management in smaller manufacturing firms is increasingly zoomed out, to include assessing monitoring global competition; constantly improving competitiveness vis-à-vis larger firms; seeking opportunities for new (or increased) revenues from new product offerings and from new markets (including exporting); and developing additional access to capital and technology. A zoomed out perspective almost always requires systematic input from outside the firm.


>> Personnel requirements will increasingly favor talent over numbers. Professional sports provide some insight into this. All professional athletes are good at their sport. A few are good enough to compete at the highest level of their sport. Fewer still can make a consistent difference between a winning team and a losing team. With advances in productivity, increases in throughput trump reductions in cost. Improvements in productivity need emphasize increasing the numerator, rather than on decreasing the denominator. Hire to improve the talent level in the firm.


Chuck - VancouverThoughtful comments and experience reports are always appreciated.


…  Chuck Harrington
(Chuck@JeraSustainableDevelopment.com)


P.S
: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.


[1] See Four Change Drivers, this blog, http://blog.jerasustainabledevelopment.com/2013/11/06/four-change-drivers/

 

[2] Adam Werbach, Strategy for Sustainability, Harvard Business Press (2009), page 9.

 

[3] For more on zooming in and out, see Green and the Zoom Lens Mind, this blog: http://blog.jerasustainabledevelopment.com/2012/02/22/green-and-the-zoom-lens-mind/

 

[4] A new book — Daniel Alpert’s The Age of Oversupply, Penguin Group (2013) — argues that global oversupply of both capital and labor, due to exports from rapidly developing countries has significantly affected the world economic environment, especially in developed countries. Alpert’s ideas are perceptive. However, he frequently allows his political biases to get in the way of his narrative.

 

[5] Disruptive Technologies: Advances that will transform life, business and the global economy, James Manyika et al (May 2013) is available for free download from the McKinsey Global Institute website:  http://www.mckinsey.com/insights/business_technology/disruptive_technologies

 

[6] An earlier essay posted to this blog looks at two other disruptive technologies from the McKinsey report cited above. See Disruptive Innovation, this blog, http://blog.jerasustainabledevelopment.com/2013/06/05/disruptive-innovation/

 

[7] For more on Joseph Schumpeter and “creative destruction”, see Schumpeter’s Capitalism, Socialism and Democracy, or the Wikipedia wiki on creative destruction: http://en.wikipedia.org/wiki/Creative_destruction