Because of m recovery from an operation, this Labor Day I need to run a repeat from 2016. It’s dated, yes, but rather than update it I’d like this to stand as a prediction which we only now see coming true.
Labor Day. For most of us, it’s one last picnic as the seasons change over. It’s one last chance to look back over the hot, lazy summer to reflect on where we’ve been and where we are going.
What it’s really for is Labor. Rather than give workers a May Day holiday, the deep suspicions and fear lingering after the Haymarket Riot made politicians wary enough to put the official day clear on the other side of Summer. The US, and later Canada, decided to go it alone in our celebration. Some things never change.
The two of these facts have a lot in common this year as we look back from what is clearly a turning point in the economy. The glass is indeed half-full for Labor – or, if you’re not so optimistic, half-empty. Jobs are being created, if slowly, layoffs are at an all-time low, and wages are finally beginning to creep up. What’s ahead of us? If this keeps up it may surprise just about everyone that a serious labor shortage is in the works – indeed, there already is one in some industries. That’s worth celebrating even more than the end of Summer.
There is little doubt that the American worker has been taking it on the chin for a very long time. As we’ve noted before, wages have not kept pace with productivity gains since about 1974. Where capital and labor used to split the spoils of good work 50/50, it’s now down to about 57/43. If we had only kept that old arrangement in place workers would pocket an additional trillion dollars a year – about $9,000 per household.
The forces that have been grinding on workers since that time are three-fold. There is increased competition for jobs – at home even more than abroad. The rise of automation has replaced many workers in areas far beyond the robots that now build nearly everything they can. Finally, the overhead per employee has made workers much more expensive than the money they take home.
We covered this and many other topics putting pressure on the American worker in the second installment of “People’s Economics” titled “Work In the Next Economy” last December. If you haven’t seen it, please do.
Ultimately, however, the American worker is facing an unstoppable force that can only help – because demographics is indeed destiny. The deepest point of the recent downturn, January 2010, marked the start of the only time the majority of both the Millenial and Baby Boom generations are of working age. The retirement of Boomers is scheduled to accelerate now that the peak birth years of 1952-1958 are hitting 65 years old between 2017-2023. Soon, the majority of that generation will be retired.
The median retirement age is still 65, despite all the changes in the economy. Most workers sill retire as soon as they are eligible for Social Security.
There will be a net worker shortage when we are done with this wave of retirement. More to the point, we are seeing it already. Nearly 69% of all construction firms are saying they are having a hard time finding skilled craft workers in key areas. This puts a real wrench in plans to finally start building out our nation’s infrastructure, but more importantly it suggests there is some opportunity already here today.
Despite this, youth unemployment in particular is still a problem. The operative word for the areas of shortages today is “skilled workers”. There isn’t a lot of good information as to what trades are needed and still no good system for creating a school to work pipeline for far too many. A lot of kids are leaving high school unwilling to take on the debt required for college, but a good job is still hard to come by. The systems needed to make this work are only now being slapped together.
But they will be put together in the near future and the “skills gap” will be closed. Like the chill in the morning air on these waning days of summer, all of this is a symptom of an economy in transition. Where we have more or less gotten back to even, genuinely half-full, this is the time of greatest change. There is solid momentum moving forward with the same rate of job creation we’ve seen for more than six years now.
Even without much economic growth we can see many new opportunities ahead in what will be a very new economy – replacing the old one which seems to have slowly died between 2000 and 2010.
How will we deal with the shortage of workers? Wages will have to rise and companies will increasingly rely on recruiting for talent not skills. On the job training is already making a comeback, but this will accelerate. By the time we face the next Labor Day we can reasonable expect that this is what the headlines will be in every trade journal.
There will also be a call to open the borders to more immigration, too. No matter what you hear in this election cycle there is little doubt that immigration will be part of the fuel of the next economy. The US has always picked up the most ambitious people from around the world, and the next boom will be no different.
But if they start arriving before wages have really rebounded back and income inequality is not closing fast there will be a new backlash. The main difference between the future and today is that large corporations will likely expand their pleas for more workers beyond the H1-B Visa dispute and may be very vocal in their calls for major immigration reform.
What is the state of Labor today? It’s a day off, a day to reflect. That’s where the whole economy is in many ways, especially in labor markets. Like Labor Day itself this is also an American thing, strangely isolated despite increasing globalism and international competition.
It’s a good day all around.