Jobs are everything these days. Specifically, the lack of jobs is everything. This issue drives the economy and the markets. It’s driving the 2012 election. And it’s driving the moves Americans are making about whether to go to (or back to) college, buy a home or make other major decisions.
Lately I’ve been thinking … where have all the jobs gone?
And more important, will they ever come back?
By now, everyone should know what happened to the jobs in the financial sector and in the homebuilding industry as the funny money of subprime loans evaporated. Consider that in April 2005, according to this throwback post from Barry Ritholtz of The Big Picture, almost half of jobs created were related to real estate. In this context, it’s easy to understand the pain once the pendulum swings the other way. (See this chart I created using data from the St. Louis Fed.)
Click to Enlarge Real estate jobs now are back to 1998 levels. Construction employment has fallen to levels not seen in almost two decades.
These developments aren’t particularly surprising. But they’re only part of the story. Beyond the specifics of the financial crisis, I see a broader narrative of technological disruption at play — both in the labor market and in how wealth is created.
‘Trading Print Dollars for Digital Dimes’
Click to Enlarge Media is one obvious industry that has been forever changed in the last decade or so by technology — specifically the Internet . After working almost a decade in newsrooms of daily newspapers — including properties of Gannett (NYSE:GCI) and The New York Times Co. (NYSE:NYT), I have firsthand knowledge of the number of journalists, editors and typesetters displaced in the Digital Age. This chart from Mark J. Perry’s Carpe Diem blog shows you just how much less money is in the newspaper biz since the Internet came along.
Of course, I have moved over to the Internet with the all-digital content of InvestorPlace.com. So you may think it’s a wash, as high-tech blogs replace analog newspapers and magazines, but that’s not the case.
Digital content costs less — and is even free in some cases — thus there are fewer dollars to go around. A colleague of mine in the media business referred to this as “trading print dollars for digital dimes.” Check out this chart from All Things D that shows how digitization had gutted the music industry. Those dollars won’t be coming back, regardless of whether music is sold in digital or physical form, anytime soon.
Click to Enlarge The threat to physical media like paperbacks, print magazines, DVDs and the like is obvious to anyone with an iPad. But it’s also instructive to consider these lessons across other industries.
Take retail. Clearly, a raincoat or a coffee table can’t be virtualized. But the sales transaction and distribution can be. Why do you think Best Buy (NYSE:BBY) stores are ghost towns these days, and Amazon (NASDAQ:AMZN) is eating the big-box retailer’s lunch? It’s because AMZN doesn’t need a single cashier to manually process transactions, or a single square foot of urban commercial real estate.
Same for other service industries. Priceline (NASDAQ:PCLN) has rendered travel agents nearly obsolete. The rise of sites like Zillow (NASDSAQ:Z) and Redfin are making even real estate agents less valuable. And close to home for InvestorPlace, online brokerages like E*Trade (NASDAQ:ETFC) are giving old-school stockbrokers a run for their money.
As digitization has driven down costs for online providers of goods and services it’s also forcing bricks-and-mortar outfits to keep slashing their own costs to keep up. The result for them is even thinner margins and the inability to hire more (and more expensive) skilled help that might have otherwise helped them compete better with the Amazons of the world.
Not an Information Age, a Service Age
Now, I’m not insisting that we pay double for smartphones or cornflakes. I’m simply pointing out that the interconnectedness of the Digital Age has pushed down prices — both due to ease of competition (how often have you searched the Web for the lowest price on something before buying?) and decreased costs of production.
So, where are Americans putting their dollars if most goods cost less than ever before? Simple: They are buying services.
Some of these service jobs are skilled, well-compensated positions, most notably in health care. But if you think that we’re employing armies of computer programmers … think again. Remember that chart earlier showing the drop-off in construction jobs since 1992? Well, in the next chart I’ve added the trajectory for telecommunications and data processing jobs, and you may be shocked to find these industries are also roughly back where they were 20 years ago. In fact, telecom jobs are actually down moderately compared with 1992. (Again, data from the St. Louis Fed.)
Click to Enlarge Most people might think construction should be back at 1992 levels. But data processing and telecommunications? That doesn’t make sense in the Digital Age.
A “People-Focused Economy”
The irony is that we have become a “people-focused economy” as a result of high-tech innovations. The few areas that have been resilient across both the dot-com bust and the recent financial crisis have been industries that serve people and their needs directly, and have nothing to do with any tangible product. I’m talking about teachers, nurses, trash collectors, day-care providers and restaurant workers.
Look at this next graph, which shows those four categories of workers overlaid on the same 20-year chart of private employment — this time with the line for Total Private Industries a bit darker so you can make it out better.
Some jobs in colleges and hospitals are well-paying, sure. But it’s clear that many Digital Age jobs are decidedly analog — that is busing tables, hauling trash and babysitting. These are unskilled professions and often don’t offer impressive wages.
Please don’t think I’m deriding the unskilled laborers of our service economy. I’m just pointing out that America makes far less than it used to, and we don’t stress the trades as ways to make a living. We mostly just serve other Americans.
Click to Enlarge To drive this point home painfully, the next chart shows what the private employment trends have looked like for the entire construction industry (not just housing), the manufacturing sector and the catch-all “goods producing” industries on the same 20-year scale.
Is There a Way Out?
This brings us to the crux of our current unemployment mess. In the past, the “creative destruction” of the economy has made certain products and skills obsolete but created new ones. But in this economy, we aren’t creating enough new areas of business — we’re mostly relegating more people to professions that have existed for centuries.
So, it’s not as simple as taking a competent American worker who has spent years in a trade and retraining him for a new vocation. There’s a broad decline in skilled work: An autoworker can’t easily become a roofer, and a roofer can’t easily work for a textile mill.
Everyone is displaced, and nobody has anywhere to go.
Click to Enlarge That’s why the job market is so grim, and recovery is taking so long. Bill McBride at the blog Calculated Risk recently submitted this chart to a Business Insider feature of the “most important charts in the world” — and despite the hyperbole, I think this might just be the most compelling chart I’ve seen in ages.
Many folks think the lagging labor market is due to corporate greed. And I’ll admit that it’s disturbing to see executive compensation soar and corporate profits thrive even as the broader economy remains troubled. There was even a great article in The Atlantic recently proving that high profits for big business coupled with painfully low employment is the new normal in this high-tech age and will never be reversed.
Still, I don’t believe that will be the case forever. The way out of this mess is to rethink how we can get skilled workers a decent job with a decent wage. In the short term, that may involve infrastructure and public works projects to employ out-of-work construction workers and tradesmen. Some resist this kind of government “stimulus” as irresponsible spending, but quite frankly nothing else can fill the vacuum right now.
But it’s a fair point that such efforts are not a long-term solution.
To replace lost manufacturing and goods-producing jobs, America must wait for globalization to come full circle, as the standard of living rises in emerging markets to the point where the U.S. can compete again.
As China tallies its slowest growth pace in three years, some think the tipping point for some parts of Asia may be near. There are already rumblings of repatriating jobs as costs rise abroad, and the pace could quicken if American spending recovers and the demand for higher wages overseas continues.
As for the next industry to offer the promise of big growth and big job opportunities, we’ll have to rely on American innovation for that. Maybe it will be an alternative energy boom or space tourism. Maybe it will be something most of us haven’t even dreamed up yet. Who in 1992 thought something called the Internet would transform every aspect of our lives — both commercial and personal? It can happen again — indeed, it needs to happen again.
But that will take time. For now, U.S. workers have no choice but to hunker down and fight for the jobs that remain. The labor market will remain ultracompetitive for the foreseeable future.
Perhaps the only silver lining here is that if more Americans enter service professions in these lean times, they may come to respect each other more. It’s not an exaggeration to say that the biggest engine of the economy right now is people helping other people, whether it be through education or health care or just cleaning up their messes.
Call me a sap, but I think the nation will be better off if we learn to properly value behavior like that — whether or not it’s on the clock or just because it’s the right thing to do.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at [email protected] or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the stocks named here.