The labor market will be vastly different within the next decade or two. One of the major adjustments in the workforce is the reduction in the number of workers. It may seem morose or dystopic to think, but there are multiple signs today to suggest this is very much a possibility for millions of professionals and non-professionals all over the world.
Everything from rising labor costs to technological advancements, the worker will seem superfluous in the future, an unnecessary cost for businesses - both big and small. Indeed, it could be avoided if the worker enhances his or her human capital. But, like anything else, there has to be a demand for labor. It’s simple economics. It could very well be unnerving to even conjure up a future where you’re being served by a machine or millions of people are facing unemployment because there isn’t a healthy job market. We’re very much myopic so we, including governments, don’t think about how our actions today affect tomorrow.
Although we sometimes fear a world transforming into the likes of "Terminator," it likely won’t be that severe. But the children of today have to be ready for an immensely different future. Here are five reasons why the worker is facing his inevitable demise:
1. Rising Labor Costs
Ostensibly, countries across North America are embracing the $15 minimum wage movement. As previously written, it’s a dangerous initiative that is already seeing the negative consequences in cities and states instituting this wage. When governments begin to artificially raise wages for the unskilled or uneducated then it creates distortions and greater costs for businesses with smaller profit margins. Moreover, the higher minimum wage effectively eliminates jobs because businesses have to scale back employment, slash hours or shut down its doors entirely.
Of course, it’s not just the minimum wage that has a negative effect on the economy. The cost of labor in general is a burden on business. Training and development costs the average U.S. business more than $1,200 per year, including an increase of one to three percent each year. Also, payroll taxes continue to soar and have to dole out thousands of dollars every year for an employee that earns anywhere from $35,000 to $100,000.
Remember, labor is the biggest cost for most businesses worldwide. If companies can find a solution to the issue of labor, particularly when costs soar, then there’ll be fewer jobs.
2. Technological Advancements
All over the world, we’re already starting to see businesses embrace automation. Although it’s common for companies to install automated machinery, they are being accelerated today because of growing labor costs. One of the industries that is advancing its automation efforts is the fast-food business. Over the past couple of years, everyone from McDonalds to Pizza Hut have gradually been replacing humans with machines. If you want to make an order, you don’t need to speak to a human being but rather a machine. If you want to pay your bill, you use a touch screen device. If you want to order a drink, you touch a few buttons. Heck, soon restaurants will use machines to make the food (check this machine out).
Smart technology, connectivity and consistent advancement are all ingredients for a recipe of employee extinction. Since Silicon Valley - or its likely successor - will continue to churn out this type of technology, businesses will be first in line to purchase it.
3. Cheaper Alternatives Overseas or Contractors and Freelancers
We noted that labor costs are growing, including payroll taxes and other liabilities. This eats into a company’s bottom line. When paying Social Security and Medicare, employment insurance and other taxes, it all adds up to thousands of dollars annually. For what? Productivity is stagnant. You might as well take on contractors and freelancers or offshore employment options. Indeed, the rise of contractors and freelancers has become ubiquitous since the economic collapse. Not only does it give professionals the opportunity to work for themselves, but it has also launched a demand by business. Companies simply just have to pay for work without all of the additional costs. Why wouldn’t a company do this? There aren’t any concrete numbers, but many suggest looking at the increase in temp work.
Moreover, the number of professionals with high human capital overseas and the sheer size of businesses specializing in this niche is large. Assurances are made, work is done and the costs are minimal. Simply put: the full-time employee with benefits and perks will be taken over by remote contractors, work from home freelancers and foreign workers.
4. A Lack of Skills
Whether it’s in the realm of technology or the resource industry, there is one constant trend: a skills shortage. In the United States, Canada and the United Kingdom, the paucity of skills is prevalent. There’s a whole host of reasons - liberal arts degrees, a lack of vocational training or limited intelligence - but if an employee wants to be in demand then they have to have skills.
Businesses, like Microsoft and Facebook, are such majorproponents of the H1B Visa because they realize there isn’t enough talent domestically so they have to seek elsewhere. Critics will allude to cheap labor, but many of these workers are getting paid a handsome sum.
Every generation faces new challenges. During the Industrial Revolution, for example, there was a demand for labor not just with strong hands but with the know-how of handling machinery. Today, it takes more than just being astute with Microsoft Office and Twitter. You have to know how to code, design websites or speak in a foreign language. Although there’s no certainty these level of skills will guarantee employment by the time 2030 comes around, it’s still a better chance than only understanding how to mop floors, cook burgers and cite 17th century English poetry.
5. Weak Economy; No Demand
Finally, the economy hasn’t remained the same since the Great Recession. Indeed, stock prices are at all-time highs thanks to quantitative easing by the Federal Reserve, but the overall economy is still in shambles. Debt is at all-time highs, the labor market is stuck in neutral and growth is very timid. In other words, the global economy is weak. Now, when the economy is weak then there is no demand for labor. There may be an entire generation of supply, but when there is no demand for labor then you can’t earn a steady paycheck. This may happen in the next 10 to 20 years: very little demand.
Keynesian economists argue that labor shouldn’t be viewed in conventional economics - supply and demand - but that’s not reality. You could have one million employees with the highest knowledge and regard of delivering milk. But if there is no demand for that then what are you going to do?
Here are a few tips to circumvent this and actually be somewhat prepared:
- Learn something of value: have skills that produce something of value.
- Be creative: automation can’t destroy artistic acumen.
- Start to save your money as much as possible.
- Always be expanding your knowledge in an array of fields.
- Know how to code because machines can’t program themselves.
Who knows what will happen in the future? There have been numerous false prognostications before. Didn’t John Maynard Keynes aver that we’d only be working 10 hours a week at around this time because of technology? We’ve survived so many technological breakthroughs that millions are still working...for now. Time will tell. But it’s better to be prepared than standing there with your pants down.