Why Aren’t There Better Jobs?

Richard Florida advises American companies that America’s future depends not just on more jobs but on better jobs:

When my father came back from the second world war, his poorly paid factory job had been transformed. He was able to buy a house, put his two sons through college and participate fully in the American dream. Some of this was due to the power of unions. Most of it was because of the enormous improvements in productivity wrought by improved technologies and management techniques.

The same thing can and must happen in the service sector. It is starting already. Companies such as Wegmans, Whole Foods, the Container Store, Best Buy and Zappos already account for a fifth of the top 100 best places to work in America. A typical hourly worker at the Container Store earns about $30,000 a year, not nearly as much as a GM factory worker but about 50 per cent more than the average for hourly-wage retail workers. Retail outlet Trader Joe’s mandates that full-time workers earn at least their community’s median household income, while its “store captains” can make six-figure salaries. These companies recognise that better conditions lead to better customer experiences – and an improved bottom line.

to which Yves Smith adds:

When I lived in Australia, the minimum wage there (A$13 an hour) was a living wage. Frankly, it produced a much more pleasant society to live in, and workers at low-end retail jobs seemed much happier about their work. And prices were not out of line either in local currency terms (except for technology, don’t get me started on that, but that was largely a function of a cheap Australian dollar then). So this isn’t as crazy an idea as it sounds, but investing in productivity and improved business operation will make it far more viable to blaze a path to higher quality jobs.

There are several inter-related points to make here. Both Florida and Smith are preaching a gospel I’ve been evangelizing for twenty years.

I gather that neither of them has ever sat in a meeting at a large company that decided that, even if there were a strong case that capital investment would lower costs of production, their employment strategy would continue to emphasize the lowest paid workers possible even at the expense of increased productivity to “preserve management flexibility”. I have. Many times. Many different companies.

Businesses operate under assumptions with operational strategies based on those assumptions. That’s called a “business model”. Many companies operate today under a business model that assumes a continuing supply of unskilled workers. Examples of such businesses include the companies that Mr. Florida is writing about in his op-ed. Fast food. Commodity retail.

That’s been a good assumption for forty years. Forty years ago many of the companies that depend on entry-level workers go their start by employing the young Baby Boomers who were coming into the labor market, particularly the part time market in a seemingly endless supply. When that supply dried up it was supplanted by entry-level workers from other countries, particularly Mexico but now frequently from South Asia as well.

As long as that assumption holds true convincing many managers to invest in technology is going to be a hard sell.

As to Yves Smith’s observation, I can only note that Australia is an island. It does not have a long land border with a country with a per capita income a quarter its own and the ocean that delayed its settlement by Europeans for so long now protects the descendants of those European settlers from labor competition from poorer immigrants.

The companies enumerated in Mr. Florida’s article aren’t the leaders in their industries. They’ve created niches within their industries as corporate good citizens. We won’t see the kind of behavior from most companies that we’re seeing from the few mentioned until the leaders adopt a different business model and the leaders won’t adopt a different business model as long as their assumptions hold true.

Basically, we can either have open borders or we can have good jobs for average people in the United States. We can’t have both.

19 comments… add one
  • Michael Reynolds Link

    If I’m reading you correctly you’ve been pushing a business model which does not rely on the supply of cheap Mexican labor. Which assumes that business could choose that path. So there are two ways to make progress: we could close the borders or businesses could adopt a different approach. Is it not the case that unions would help to push businesses onto this preferable path?

  • Is it not the case that unions would help to push businesses onto this preferable path?

    Only if they agreed to limit membership.

    Contra lots of commenters, e.g. Mark Thoma, unions only encouraged increased productivity via technology very indirectly. The simplest example of this is the railroad workers unions which blocked automation for decades and insisted on redundant workers, workers who literally did nothing, on railroads for nearly a half century.

    I’ve been doing technology consulting, advising companies on how and why to use technology to increase productivity, (among other things) for much of the last 40 years. IMO unionization as a means of spurring increased adoption of technology only works in a closed labor market. We don’t have that even if we close the borders (although it would help). Jobs will just get moved to China or Viet Nam.

    BTW I have nothing against Mexican workers. I’m not sure that importing them here is the most efficient way of bolstering Mexico’s economy.

  • Basically, we can either have open borders or we can have good jobs for average people in the United States. We can’t have both.

    By this line of reasoning we should not have “open borders” between states. Constraining the flow of goods is not usually considered the route to prosperity.

    Technology by the way is the single largest destroyer of jobs. We should limit that too to promote “good jobs”.

    Sorry Dave, this is probably one of the few times I (probably) disagree entirely with you.

  • Technology by the way is the single largest destroyer of jobs. We should limit that too to promote “good jobs”.

    Technology destroys entry-level jobs and jobs requiring few or no skills in favor of jobs that require more skills. In a globalized world I see no prospect whatever for entry-level job or jobs that require few or no skills that also pay well here in the United States. That’s with or without increased unionization.

    I think a better future for this country would be one in which more of the jobs require a somewhat higher level of skills and provide a commensurately higher level of pay. That’s inconsistent with current policies.

  • Technology destroys jobs across the spectrum Dave. When the train, automobile and airplane became primary modes of transportation old non-entry level jobs were destroyed. The advent of the internet has decimated the ranks of secretaries, not necessarily and entry level job.

    This is not a new concept, in fact it is at least 60 years old with the work of Joseph Schumpeter,

    Schumpeter and the economists who adopt his succinct summary of the free market’s ceaseless churning echo capitalism’s critics in acknowledging that lost jobs, ruined companies, and vanishing industries are inherent parts of the growth system. The saving grace comes from recognizing the good that comes from the turmoil. Over time, societies that allow creative destruction to operate grow more productive and richer; their citizens see the benefits of new and better products, shorter work weeks, better jobs, and higher living standards.

    Herein lies the paradox of progress. A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. At the same time, attempts to soften the harsher aspects of creative destruction by trying to preserve jobs or protect industries will lead to stagnation and decline, short-circuiting the march of progress. Schumpeter’s enduring term reminds us that capitalism’s pain and gain are inextricably linked. The process of creating new industries does not go forward without sweeping away the preexisting order.

    […]

    Americans benefited as horses and mules gave way to cars and airplanes, but all this creation did not come without destruction. Each new mode of transportation took a toll on existing jobs and industries. In 1900, the peak year for the occupation, the country employed 109,000 carriage and harness makers. In 1910, 238,000 Americans worked as blacksmiths. Today, those jobs are largely obsolete. After eclipsing canals and other forms of transport, railroads lost out in competition with cars, long-haul trucks, and airplanes. In 1920, 2.1 million Americans earned their paychecks working for railroads, compared with fewer than 200,000 today.

    […]

    Technology roils job markets, as Schumpeter conveyed in coining the phrase “technological unemployment” (Table 1). E-mail, word processors, answering machines, and other modern office technology have cut the number of secretaries but raised the ranks of programmers. The birth of the Internet spawned a need for hundreds of thousands of webmasters, an occupation that did not exist as recently as 1990. LASIK surgery often lets consumers throw away their glasses, reducing visits to optometrists and opticians but increasing the need for ophthalmologists. Digital cameras translate to fewer photo clerks.

    Companies show the same pattern of destruction and rebirth. Only five of today’s hundred largest public companies were among the top hundred in 1917. Half of the top hundred of 1970 had been replaced in the rankings by 2000.

    “The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process,” Schumpeter wrote (p. 82).

    Link

    If 95 of the top 100 public firms are no longer in the top 100 from 1917 are no longer in the top 100, and 50 of the top 100 from 1970 have been replaced, I’d argue that alot more than unskilled/entry level labor is being replaced.

    Policy to try and stop this is foolhardy and counter productive. Policy to try and make the downsides less painful might be reasonable assuming incentives are properly aligned (and good luck with that!). It really is like trying to stop evolution. I’ve beens studying economics for over 20 years, and in the past 12 I’ve become quite interested in evolutionary theory as well, and I have to say that economic processes have more in common with the latter than engineering which is how many economists, policy makers and lay people think of the economy.

  • Eppur si muove.

    Over the last century or so we’ve undergone a transition from a largely agrarian society to a largely manufacturing society to an increasingly service-oriented society. Today many, many more people are employed than were 100 years ago and, miraculously, lots more people are paid better in real terms than they were a century ago. How did this happen?

    My interpretation is that, largely as a result of technology, there are fewer farmers and factory workers who do rather different things that require more skills than farmers and factory workers of a century ago and the relatively unproductive labor resources tied up first in farming and then in manufacturing have been freed up for more productive (and higher compensated) use, creating more jobs along the way in areas that weren’t imagined a hundred years ago. Maybe you’ve got a different explanation for what we’ve seen in the United States since 1900. I’d certainly like to hear it.

    Today, the buggy whip manufacturers, having learned their lesson, are effectively preventing that transition from taking place. Maybe there is no transition to take place. Maybe the best we’ll be able to manage is patricians and plebeians forever and ever, amen. I don’t relish the idea of that sort of country.

    If you’ve got another plan, trot it out.

  • One more thing. I’m increasingly concerned that we’ve got so much resource tied up in relatively unproductive areas that there’s no where to go but down. That’s what I was trying to trace in my Foundation of Sand post.

  • Today, the buggy whip manufacturers, having learned their lesson, are effectively preventing that transition from taking place. Maybe there is no transition to take place. Maybe the best we’ll be able to manage is patricians and plebeians forever and ever, amen. I don’t relish the idea of that sort of country.

    If you’ve got another plan, trot it out.

    I have no plan. Having a plan isn’t the answer because the economy will find a way or we will stagnate. Those are your two choices.

    However, I will note that prosperity has tended to increase right along as the economy changes…evolves. The great fear is of the unknown and change. People have always feared this and probably with good reason back when things were very primative. There was little to no network if you broke your leg 100,000 years ago. Chances are the group you were with would be sad, but would leave you to die. So you were fearful of going places where you couldn’t see well (i.e. into a cave or wandering around at night) even if it meant decent shelter or some other benefit was passed up.

    However, I’m not sure that a winning evolutionary strategy that worked back when men barely had more than sticks and stones as means of gathering food and warding off dangers, and skins for protection against the elements is going to work today. In fact, we can look at the data and see, “Yeah there was a rough transitionary patch, but over all those changes were for the better.” We need to think and not be ruled by that part of our brain that I like to refer to as the lizard brain.

    The fact is that yes, technology has destroyed lots of jobs. We don’t see computers (the human variant), blacksmiths, drovers, teamsters, wainwrights, typists, telegraph operators, and canalmen much anymore. However, we also don’t have the reserve army of the unemployed either. Why? Techonology also creates new jobs. We have mechanics, petrochemists, pilots, programmers, software designers, webmasters, electrical engineers, optical engineers, and network operators now.

    As you’ve pointed out we’ve gone from agrarian to manufacturing to…retail/services? And we haven’t seen mass starvation, wtf? Why not? Things haven’t gotten worse, they’ve gotten better. We live longer, have more toys, and so forth.

    Might we end up with patricians and plebeians? Maybe, but not because of technology or market processes. If we do get there, I think the most likely culprit is the government and someone with a plan.

  • Michael Reynolds Link

    God forbid, but I think I agree with Verdon. People always fear what’s next, but so far (knock wood) what’s next has worked out pretty well.

    My own little bailiwick in the economy: digital books kill dead tree books. The dead tree model is far less efficient, which means it can’t compete with digital on price, so eventually dead tree becomes a niche and e-books are the standard.

    Of course everyone is terrified it will mean losing printers, truckers, store clerks, editorial and so on. Rightly so. It will destroy those jobs.

    But I’ve been arguing that changing the product, from simple text to enhanced e-books (text with pix, music, video, interviews, links) will create new jobs (people who produce or gain rights to pix, music, video etc…) and help keep the price up at the same time by creating two separate markets: cheaper text-only and pricier enhanced.

    You’d think publishing would be thrilled to see that there is a way forward. Neither of you will be surprised to learn that no, no they aren’t thrilled. In fact I’m pretty sure 90% of them have no intention of making any serious effort to get ahead of the steamroller coming their way.

  • Drew Link

    I’ve always thought that immigration/cheap labor / technology debates are really moot. The fact of the matter is that corporations find efficient production opportunities. And why? Because if Company A won’t, Company B will. And predominantly, the CONSUMER will force Company A’s hand, or they go out of business.

    In a past thread I pointed out that there really are only a handful of pure business models. One is the high quality niche model; another is low cost production. The commercial implications of each? The high quality model has limited TAM – theoretically accessible market. Low cost production has high TAM.

    Real world examples?

    Look at Whole Foods. Obscenely expensive, because of their business model, which may support some noble notions. But I love their high quality produce. I’ll pay. So will some others. But many won’t/can’t. Limited TAM.

    WalMart? Whine all you want, but the consumer has spoken. In the high volume market, if a retailer can’t match their pricing, enabled by their low cost model, that retailer is dead.

    If you conducted a man on the street interview in a Walmart parking lot there is no doubt in my mind that if asked the consumer would support “living wages,” “fair labor practices,” “‘Merican Jobs,” “environmental responsibility,” etc. However, if the interviewer grabbed the receipt and said “I see you paid $150 bucks for the stuff in your cart today……..without Walmart would you be willing to pay $225 for that cart in the name of living wages…..etc.” So would endeth the man on the street interview. Immediately. I gaur-own-tee.

    These conversations are always cool bull sessions until you consider the predominant buying decision.

  • But I’ve been arguing that changing the product, from simple text to enhanced e-books (text with pix, music, video, interviews, links) will create new jobs (people who produce or gain rights to pix, music, video etc…) and help keep the price up at the same time by creating two separate markets: cheaper text-only and pricier enhanced.

    I have to say, an e-book with a music score…definitely an intriguing idea. Music can be so useful at setting the tone….

    However, if the interviewer grabbed the receipt and said “I see you paid $150 bucks for the stuff in your cart today……..without Walmart would you be willing to pay $225 for that cart in the name of living wages…..etc.” So would endeth the man on the street interview. Immediately. I gaur-own-tee.

    This, which is why John “How’s my Hair” Edwards was such a horrible presidential candidate last time around…well that and the whole love child thing, but yeah Drew is right. People like WalMart for the savings. To the extent that there are public policies that WalMart piggy backs on and gets to lower their costs that competitors don’t that is policy failure…that man from the government with a plan thing again.

  • steve Link

    Douthat and Salam suggested in their book, IIRC, that there was a conscious attempt to manipulate wages so that a single worker could support a family. Unions were part of the deal.

    I think that Drew is correct, which implies that the problem lies beyond Mexico. If WalMart can get cheaper stuff from Indonesia, they will, so the jobs are just leaving. There are only so many people who can buy from Whole Foods.

    I also like Verdon’s idea about evolution. I think that we are in a between state. There has been a decided lack of innovation recently. As Mandel has been writing, we have not been investing enough in research, especially non-health care research.

    I liked this from Gregor MacDonald.

    ” economics is a social science, not a science. In other words, economists are working down here, alongside the rest of us humanists. History, literature, psychology, and anthropology to mention a few disciplines are all equally competitive fields of knowledge to understand the system of behavior known as an economy”

    Steve

  • Brett Link

    As Mandel has been writing, we have not been investing enough in research, especially non-health care research.

    But what are the other major avenues for research? Aerospace is enormously expensive, and firmly embedded with the government in many ways. Alternative energy seems to have a similar problem – dependence on tax credits (although oil and gas have these, and they had them decades ago to help the industry grow big) and other subsidies.

    That leaves . . . what, in addition to medicine and health care research? Materials science? Electronics?

    To be honest, I don’t think we’ll ever have another technological revolution with the same scale and effect on living standards as the previous revolution coinciding with industrialization did without something truly radical being discovered. *

    *Like an immortality drug, artificial intelligence, or the like.

  • Michael Reynolds Link

    I’ve wondered about what Brett is asking about. Is there reason to believe that innovation comes from investment? Or does investment follow innovation?

    Was there a huge investment that led to world-altering innovations like the steam engine, light bulb, telegraph, refrigeration, telephone, internal combustion engine, etc?

    Once you’ve made your light bulb I can well see how investors would flock to invest. But was Edison’s success the result of some fantastic surge of investment? The Wright Brothers? Steve Jobs?

    I’m just not sure that innovation is a sort of insert-money-here-get-idea-there kind of machine. Google started with two kids at Stanford. Granted there was huge investment after the fact, but the initial investment was tuition and Sergei Brin’s father’s decision to move to the US.

    Isn’t it possible that the human race just doesn’t have any particularly clever ideas right at the moment? Not to make demands, here, (since it’s not like we pay you) but I’d love to see a post on this at some point.

  • Michael Reynolds Link

    By the way, I second the desire for an immorality drug.

    I’m sorry, what? Oh. Never mind.

  • Was there a huge investment that led to world-altering innovations like the steam engine, light bulb, telegraph, refrigeration, telephone, internal combustion engine, etc?

    Once you’ve made your light bulb I can well see how investors would flock to invest. But was Edison’s success the result of some fantastic surge of investment? The Wright Brothers? Steve Jobs?

    I imagine this is something of a chicken-and-egg argument. Obviously there has to be some initial investment otherwise the its unlikely much if any innovation would be done. My guess is that the big ideas lead to a secondary and larger round of invesment. For example, the steam engine lead to railroads which opened up markets that were hard to reach, especially in terms of bulk shipments. So the follow on investments were probably much larger and more diversified.

    Problem is nobody knows what the next “big thing” will be. If I did I wouldn’t tell any of you folks, no offense. I’d be quietly investing as much money as I could scrap together. If I had to describe this overall process I’d say it is random. Several people, firms, universities, etc. are working on the next potential “big things” and which one hits and when is quite uncertain.

    Will there be another “big thing” probably. Why do I say this, well looking back at history we can see that there are plenty of examples of big things. Will it get us out of the recession, put people back to work, and return us to “better days”? Don’t be silly. If that is how you think we should design policy you should be kept as far away from policy making as possible…and preferable prohibitted from voting.

  • Michael Reynolds Link

    Steve:

    The reason I asked is that it seems almost as if Dave is making an argument that the “next big thing” can be forced if we throw enough money at investment. (I’m sure that’s not what he meant.)

    I’m pretty sure if there was a NBT out there we’d find plenty of investors. I wonder if we’re just in a fallow period.

  • I’m pretty sure if there was a NBT out there we’d find plenty of investors. I wonder if we’re just in a fallow period.

    Could be, I haven’t studied this kind of thing much, I’m just going off of intuition and what I know of economics. Throwing money around could work….or not. If not then that could result in large amounts of wasted spending.

  • Was there a huge investment that led to world-altering innovations like the steam engine, light bulb, telegraph, refrigeration, telephone, internal combustion engine, etc?

    With the exception of the steam engine the entire list you’ve got there are arguably products of the enormous investment in railroads and telegraphy of the 19th century. Edison didn’t just happen along. He, specifically, was a product of railroads and telegraphy. Look at his earliest patents, the foundation he built his labs on.

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