The Jobless Century

Statistics indicate that the slow, uneven recovery of the global economy is not being accompanied by significant growth in wages. That was to be expected, and is in line with recent economic history. The long post-WWII trend of economic growth overwhelmingly improved incomes for the most wealthy and for a fast-growing global group of working poor/lower middle class. The gradual integration of the Third World into a world economy to which they contributed not only raw materials but also manufacturing capabilities and even some services, together with much improved logistical and transport systems, has had a negative effect on middle class income in many economies across the world.

This was not a foregone conclusion. Although the addition of more workers to the global economy had perforce to lower wages, not all work is equivalent, and it was theoretically possible for more advanced economies to retrain no longer competitive workers for higher-productivity fields. Nonetheless, for reasons perhaps different for every country, but including in some too expensive or sub-par educational systems, this in general did not happen. The last decades have seen large educational improvements in some developing countries, but no equivalent progress in most developed economies.

Integration is well underway in India and China, but there is no reason to think that it couldn’t be replicated in other areas. Often ignored by investors — as most of the Chinese population was until relatively recently — there are large populations in Indonesia, some African countries, and, indeed, China, India, and Brazil outside the relatively prosperous urban cores, that aren’t well integrated into the global economy, yet could eventually be. The Chinese and Indian experiences show that countries not traditionally considered welcoming to economic development can ‘turn around’ in a generation or less, and, as shown also by the stagnation of the Japanese economy, cultural constraints and advantages might not be as definitive as they were often thought to be.

The same phenomenon can be seen in the hard-hit American middle class. Although their consumption has been sustained by a growing credit infrastructure, their actual income and prospects have deteriorated, partly due to external pressures, but mostly because to structural characteristics of the American economy developed during the last few decades. This is creating a large supply of relatively well educated (and culturally well integrated) low-wage workers, which are fast becoming an integral feature of many business models in the United States.

As a whole, it seems likely that labor costs in all but the top income brackets will continue to be a decreasing component of total costs. This is probably bad news for robotic companies; for the foreseeable future, and except in particular contexts like Japan, there will be little economic incentive to replace human workers.

From the point of view of demand, it implies that products and services for mass consumption, and the highest-level luxury ones, will tend to do better than more expensive ones. What is a mass consumption product, of course, changes over time — e.g., as seen by the explosive worldwide growth of cellphone use.

Unless the post-oil energy transition fails catastrophically or ecological deterioration happens at an unmanageable level, we fully expect the global economy to growth significantly during the next decades. But this growth will probably have the largest impact on the newly-employed poor and the highest-paid specialists (or well-connected insiders). For everyone else, as long as the current tendencies remain unchanged, the next generation might not be one of much economic progress.

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