Policymakers must accommodate globalization and technological innovation by refocusing the economy and training (and retraining) the labor force.
No matter how much politicians promise to protect us, technology and globalization will continue to transform the American workplace, driving the U.S. economy to abandon simpler, labor-intensive production processes, turn increasingly toward more mechanized, digitized, high-value efforts, and, accordingly, demand an ever-better-trained workforce.
Though these trends should generally create prosperity, they'll also bring significant social disruptions. Indeed, they already have: Income disparities between rich and poor have widened, with the skilled and educated seeing enhanced earning opportunities, and the less skilled and less educated finding their options constrained.
Less and less is left of the old, stable middle class, the product of an era when the semiskilled could maintain security in a job for life. Unless we can better prepare workers for this dramatic economic shift, social decline will worsen.
“The first step is to acknowledge that labor-intensive industries on which the lower middle class once depended will not return, at least in their old form. ”
In response, policymakers must accommodate globalization and technological innovation, refocus the economy accordingly, alter the nature of the workplace, and train (and retrain) the labor force.
As economic pressures increase, a broad constituency demands, usually of government, an end to the pain of change. Merchants and local governments in the regions most affected have joined the outcry as they've lost business and tax revenues to factory closures and layoffs. Their representatives in Washington have tallied the votes in favor of relief and picked up the call, as has the media.
Most government efforts to intervene, however, constitute a cure worse than the disease. Certainly, minimum-wage hikes can do little to bolster the beleaguered middle class. Politicians might believe that ordering management to pay a regulated wage will raise incomes; but no business can pay people more than they produce, at least not for long. Complying with such laws would force marginal firms out of business, costing jobs.
Others would defray higher wage costs by using robots and other labor-saving devices. The few workers that manage the equipment would do better, but most others would lose out entirely.
Subsidies or tax breaks to affected industries are another long-term dead end. Taxpayers wind up footing the bill, either by funding the breaks or by making up for the taxes not paid by those getting the breaks.
Such burdens would impede economic progress by shortchanging other worthy government projects, such as infrastructure improvements, or worker retraining for the unemployed, or general tax cuts to promote economic dynamism and encourage hiring.
Worse, by making others pay, subsidies not only strip from the favored few the incentive to adapt but also rob the unfavored of the means to do so. And for all this cost, history shows that subsidies rarely protect jobs or boost incomes. The industries receiving them seldom pass the benefit on to their employees, whom they often replace with labor-saving technologies, anyway. Management tends to gain from such policies, not the broader workforce.
Avoiding the onerous costs of heavy-handed intervention should not mean ignoring the plight of displaced workers, passively watching the destruction of the middle class, or suffering social instability. On the contrary, the U.S. can prosper by retooling the skills and orientation of its workforce.
The first step is to acknowledge that labor-intensive industries on which the lower middle class once depended will not return, at least in their old form. Wage competition from emerging economies is simply too intense for domestic operations to compete in the labor-heavy production of shoes, toys, textiles and the like. Robotics and other technologies may render domestic operations in these areas viable again, but they will not bring a massive number of low-skilled jobs with them.
The economy we need would instead embrace digitized, mechanized processes and focus more on producing sophisticated, high-value-added products. Only these can support jobs at middle-class wages.
The U.S., which enjoys a comparative advantage in these areas, should be able to make the transition. The average American worker, for instance, has 20 times the productive equipment and computing power at his or her disposal, compared with workers in China — and more still, compared with workers in India, Brazil, Vietnam or Indonesia.
America clearly needs a workforce trained to meet future needs. Education at the university level will have a role in that effort, but the crucial step will be vocational training to upgrade the skill set of new entrants to the job force as well as those displaced from old industries or old jobs.
So far, Washington has missed the point. President Obama and the Beltway bureaucracy focused almost exclusively on higher education, particularly the study of science, technology, engineering, and mathematics — the so-called STEM subjects.
STEM graduates will undoubtedly play a big role in the economy of the future, but they'll have less to do with rebuilding the middle class. To do that, Washington needs to end its obsession with advanced degrees and instead help those who want to become machinists, robot-repair technicians, installation specialists, client-liaison managers, and other occupations that tend to require a post-high school education but not a four-year university diploma.
Adapting to our emerging economic reality is unavoidable. The question is not whether the country will make the changes but whether it can do so with significant amelioration of pain and avoidance of social stress. Even at its smoothest, the effort presents serious obstacles. Experimentation, tolerance for failure and attention to the experiences of others will all be required.
Still, we should take heart in the fact that businesses, workers and even governments have already begun the process, and in time, their efforts are likely to become more effective. If Washington could think outside the Beltway, for a change, it would help a lot.
It would be foolish to be complacent about the country's ability to meet the challenges of work in the 21st century. At the same time, the evidence argues strongly against despair.
This piece originally appeared at Investor's Business Daily
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Milton Ezrati, a contributing editor at The National Interest and an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), recently joined Vested as its chief economist. This piece was adapted from the special issue of City Journal, “The Shape of Work to Come.”
This piece originally appeared in Investor's Business Daily