The Digital Destruction of Middle-Class Jobs

When a new piece of technology is introduced, it's touted as the miracle solution to make work and life smarter, easier, and faster. Nearly every person carries around a small super computer in their pocket, the Internet keeps faraway family or coworkers connected, and mountains of data and information can be stored for time immemorial. Technological innovations claim to aid people in life and employees at work, but is the constant march of digital development actually destroying middle-class jobs?

The end of employees and the rise or robots is an apocalyptic prediction that has been forecast before, but never come to pass. However, the rapid advancement of tech could eliminate middle-income jobs that sustain many households, leaving workers without a digital skill set out of luck. Until about the year 2000, labor productivity and private employment grew together in the U.S. However, at the turn of the century, a gap emerged between productivity and employment: productivity continued to increase, while private employment decreased (see chart). Because of new technology, the economy and GDP were growing, but not coupled with job creation (Tech Republic, 8/19/14).

Since that time, new technologies created high-paying jobs – but only for a few and only for those with the right skill set. In the past, most middle-income households were sustained by factory or manufacturing jobs. In 1970, more than one quarter of U.S. employees worked in manufacturing (Bloomberg, 4/25/2014); those jobs accounted for only 8.8% of U.S. employment in 2013 (Economic Policy Institute, 1/22/15). The decline of U.S. manufacturing has several contributing factors: outsourcing and a surge of Chinese imports both contributed to the continual drop. However, manufacturing employment is falling globally in nearly every country, including China, (Bloomberg, 4/25/2014), due mainly to technology and the elimination of the need for industrial workers.

It is not just factory jobs being claimed by automation. About 47% of all present jobs in the U.S. are predicted to be computerized or automated within the next two decades (Oxford University, 7/17/13). Some service and white-collar positions are also expected to succumb to technology; accountants, retail salespeople, technical writers, and telemarketers, all have a high probability of being replaced by robots within the next twenty years (see chart, Business Insider, 7/23/14).

As middle-class jobs decline because of automation, others jobs do replace them; however, these are typically highly-skilled tech jobs or low-wage service jobs, leading to a polarized workforce. Those working in high-skilled jobs will benefit from high wages, while those working in low-skilled jobs will encounter the continuing trend of finding their earnings depressed. Additionally, technology allows companies to substitute labor for capital, which boosts productivity, but does nothing for wages, and concentrates wealth among a small group and resulting in ever-increasing inequality (University of Oxford, 2/2015).

But are the dire predictions are a bit too apocalyptic? Is the technology boom all part of typical economic cycles that destroy some categories of jobs but open up a whole world of new employment? A few decades should determine whether technology replaces workers with robots.

Readers, do you think technology is creating or destroying jobs? Comment and let us know!

The Disappearing American Worker

The unemployment rate has been falling steadily for several years as the United States emerges from the Great Recession. In June, the unemployment rate fell to 5.3%, the lowest in seven years. Job growth has also been consistently steady, if a bit sluggish after a first quarter slump. However as the unemployment rate has fallen, so too has the labor participation rate. In June, the workforce participation rate declined to 62.6%, the lowest since October 1977. Do more and more people exiting the workforce reveal that the economic recovery may not be as bright as some hope? Or is it simply the new normal?

Americans have been leaving the labor force since the tech bubble burst in 2000. Before then, the rate had been steadily climbing as women entered the workplace. More than 94 million Americans are neither employed nor looking for work, and 432,000 people left the labor force in June, causing a further slump in participation. The downward trend has been consistent for nearly fifteen years and a sluggish economic recovery has only hastened the decline.

The drop in participation could be caused by certain demographic groups opting out of work. For instance, Americans are now living longer and the Boomers who once made up the majority of the workforce have retired in force in the last years. Only a third of Baby Boomers in the U.S. are still working (Gallup, 1/26/15). On the opposite end of the spectrum, more young Americans have opted to stay in or return to school rather than start their career. Non-working students, mostly under the age of 35, increased from 5.8% in 2006 to 7.1% in 2012 (Bloomberg, 1/19/15). Those continuing their education are predicted to return to the labor force once they've finished school, but for now their education keeps them from being employed. Younger people staying in school longer and a mass exodus of older workers means that the labor participation has dragged since well before the Great Recession and will continue to do so as more Boomers retire.

However, less people working may not just be about generations. The more worrying aspect of decreased participation is the decline of "prime workers" (those between 25 and 54 years of age) dropping out of the workforce. The amount of men in the workforce declined to 69% in June, the lowest since the data started being tracked in 1948 (U.S. News & World Report 7/16/15). Women, who were responsible for the climbing participation rate for several decades, have also left the workforce and their participation has declined to 56.7%, down from the 60% peak in 2000.

Most concerning is that economists do not expect prime workers who have left the labor force to return to it, even if the economic recovery speeds up. Those who have opted out have done so out of discouragement and changing work environments. Despite 5.4 million vacant positions, these workers do not have the skills potential employers are seeking for their open jobs. This becomes a vicious cycle: as workers drop out of the labor force due to lack of skills, being unemployed means they can't get the job skills they need and decreases their employability even further.

The shrinking American workforce is predicted to continue and economists worry that low labor participation will hurt the economy. A decline in productivity could mean depressed development and stagnant GDP growth. The disappearing American worker may mean that the economy will continue to limp along rather than surge ahead.

Readers, why do you think the labor participation rate is falling? Comment and let us know!

June Jobs Report

A third straight month of strong job growth continued to boost optimism for the second half of 2015. The U.S. economy added 223,000 jobs in June according to the Bureau of Labor Statistics' Employment Situation Summary. The unemployment rate decreased to 5.3%, the lowest in seven years. However, economists worry that falling unemployment was prompted by Americans exiting the workforce, rather than more people finding jobs. The labor participation rate decreased to 62.6%, the lowest since October 1977.

Industries that experienced the most growth in June included professional and business services (+64,000), health care (+40,000), and retail (+33,000). Temporary help services increased by 0.7% and created 20,000 new jobs.

Los Angeles is Now the Largest City with a $15 Minimum Wage

In an anticipated move on Saturday, Los Angeles Mayor Eric Garcetti signed a measure into law that will require employers to raise the minimum wage from $9 an hour to $15 an hour over the next five years. The first increase will take place in July of 2016 and raise the wage to $10.50. The Los Angeles law was approved with a 14-1 vote and requires that any business with more 25 or more employees raise their hourly wages to $15 an hour by 2020. The wage hike will affect upwards of 600,000 workers, but no one is quite sure the effects the new law will have, and the second-largest U.S. city has now become an experiment for a huge higher minimum wage. Although other cities such as San Francisco and Seattle have also recently raised their wages to $15 an hour, the city of Los Angeles will be watched closely as a trial for whether other cities, and even the federal government, could reasonably institute similar wage hikes. No city as large as Los Angeles, which has nearly a million people living below the poverty line, has tried to institute such a hefty or fast pay increase. The success or failure of the new law will be closely scrutinized and could either be a huge victory for those advocating for higher wages or deter other cities from implementing similar pay increases.

A seemingly endless debate surrounds raising the minimum wage and whether it will help or harm the economy. Mitchell Englander, the only City Council member to vote against Los Angeles' new measure, argues that this new minimum wage "may hurt the very people it is designed to help" by forcing low-margin industries and small businesses to reduce jobs and hours and relocate to the many districts outside of LA city limits which have much lower wage standards (Los Angeles Times, 6/15/2015). Additionally, Englander points out that even $15 an hour will not do much good when affordable housing is so scarce in LA, where the average apartment rents for more than $2,000 a month. A report from the LA Chamber of Commerce echoes Englander's concerns, citing that the increase will result in job loss, business relocation, and will do little to aid low-income families to rise above poverty due to the high cost of living in Los Angeles. Many restaurants openly opposed the measure, predicting that they would be forced to cut as much as half of their staff (The New York Times, 5/19/2015).

However, some are concerned that the wage hike is too little too late. For instance, by the time that LA's minimum wage reaches $15 an hour in 2020, it will be worth the equivalent of $13.75 today (assuming that inflation holds steady). Add to that the fact that it currently costs 40% more to live in Los Angeles than in the average American community, and the future $15 an hour for LA residents diminishes to be worth about $9.75 an hour (FiveThirtyEight, 5/20/2015).

Other cities such as Seattle and San Francisco have passed similar measures to raise the minimum wage. The pay increases have not had enough longevity to determine whether they've helped or hurt workers and businesses. San Francisco's first pay increase was instituted on March 1 and will reach $15 an hour by 2018. Long-term effects of the minimum wage increases are still a mystery, although some are already decrying the escalations in San Francisco as a disaster that has led to local businesses teetering on the brink of closure and restaurants increasing prices by 20% (The Wall Street Journal, 3/24/2015). Seattle's minimum wage, which took effect April 1 has already spurred a debate about whether the pay increases will lead to adverse effects including an abnormal amount of restaurant closures or whether that speculation was wildly exaggerated without the full facts.

Whether the recent minimum wage hikes will be a boon to the economy or will make these metro areas go bust is still unknown. Economists, politicians, business owners, and employees will all be watching these major cities as they experiment with significantly higher wages. Los Angeles especially will be under close scrutiny since it will be the largest city to date that has decided to raise the minimum wage so much and so quickly.

Readers, how do you predict that the $15 minimum wage will affect Los Angeles and other cities? Comment and let us know!

6/17/15 Update: The small California city of Emeryville, near the San Francisco Bay area, voted to raise the minimum wage to $16 per hour by 2020. This will make Emeryville the city with the highest minimum wage in the nation.

May Jobs Report

A second straight month of strong job growth continued to boost optimism that first quarter stagnation was due mostly to winter weather and not a sign that the economy is stalling. The U.S. economy added 280,000 jobs in May according to the Bureau of Labor Statistics' Employment Situation Summary. The unemployment rate edged up slightly to 5.5% as more Americans returned to the labor pool and actively started looking for work. Wages increased 0.3% last month and have risen 2.3% over the last year, which may be luring some back to job searching again.

Industries that experienced the most growth in May included professional and business services (+63,000), leisure and hospitality (+57,000), health care (+47,000), retail trade (+31,000), and construction (+17,000). Temporary help services increased by 0.7% and created 20,000 new jobs.

Do New Grads’ Job Expectations Match Reality?

This is part 2 of our series examining the job market that the Class of 2015 will enter into after graduation. To read part 1, click here.

Millennials have officially surpassed other generations and become the largest share of workers in the American labor force. More than one in three employees now belong to Generation Y (Pew Research Center, 5/11/15), and even more young people will inundate companies after the Class of 2015 enters the workforce. New graduates are starting out in the "real world" with a firmly Millennial mindset about work, but their career expectations may not match up with the reality of what employers want or offer.

Optimism reigns for the Class of 2015. Some 80% of new graduates are confident that their education prepared them well for the labor force (Accenture, 2015); however, businesses don't share their positivity. Only 23% of employers reported that last year's graduates were prepared with real world knowledge (AAC&U, 1/20/15). Some 46% of employers believe that this year's college students do not have enough real-world learning (CareerBuilder, 4/28/15), and their concerns may be validated: four in 10 students about to leave school will do so without the complex reasoning skills necessary for white-collar work (The Wall Street Journal, 1/16/15).

Those in the Class of 2015 seem to think they will outperform their past peers and rank themselves highly in many areas necessary to succeed at work, while employers view new grads as under-prepared and lacking in many essential skills. For instance, when it comes to feeling prepared for (1) working well with others, (2) making good decisions at work, (3) organizing and evaluating information, and (4) analyzing and solving complex problems, new grads' perception differs greatly from their prospective employers'. Well over half of graduates think they are well prepared in each area, whereas well under half of employers agree (AAC&U, 1/20/15). It remains to be seen whether these new graduates have an elevated opinion of themselves or whether their future employers are underestimating their abilities.

The Class of 2015 has not only a high sense of self worth, but also high expectations for their future employers. However, when they enter the "real world" they may want to prepare themselves for disappointment. Some 77% of college graduates expect that their first job will provide formal training opportunities, but only a little more than half (53%) of those graduates from 2013 and 2014 received such training. They may also face frustration when they receive their first paychecks. Some 85% expect to earn more than $25,000 a year, while 41% of graduates from 2013 and 2014 are earning less than that (Accenture, 2015) and 49% are under-employed (CareerBuilder, 4/28/15).

High expectations may stem from the fact that the Class of 2015 will have more career options than the other graduates from the past few years. Rather than simply being grateful for a paying job, they have the opportunity to be more selective in where they choose to work. More than ever, new workers espouse a Millennial mindset and value work culture over pay. Some 69% of graduates prioritize positive social environment over compensation, and many are more concerned with meaningful work and flexible hours than their pay rate (Accenture, 2015).

New college graduates have high (some employers might say unrealistic) expectations for the workforce and may find themselves let down once they start their first job. However, an improved job market does promise more opportunities, better pay, and the luxury to be more selective as they enter the workforce.

Readers, is the Class of 2015 prepared for the "real world?" Comment and let us know!

Class of 2015 Graduates into Best Job Market since the Recession

The Class of 2015 is preparing to don their cap and cloaks, turn their tassels, and transition from college into the "real world" of the workplace. Commencement speakers will encourage new graduates to follow their dreams and change the world, but many soon-to-be grads are worrying more about the immediate question: "Will I be able to find a job?"

New graduates are no strangers to the effects of the Great Recession. When they started their college years in 2011, the graduating class had over 10% unemployment and 19% underemployment. Many of those in the Class of 2015 witnessed their siblings who graduated during the worst years of the recession founder, scrambling to find full-time employment and moving back in with their families.

This year's college graduates are entering into the best job market since the Recession; however, they will still be competing for entry-level jobs and may find it difficult to earn wages that will help chip away at their student debt. Employers expect to hire 9.6% more college graduates this year than in 2014; organizations also reported that they have more job openings for new graduates than the previous year (NACE, 4/15/15). The Class of 2015 may not be competing against each other as fiercely as in the past, but the market is still competitive, and employers receive an average of 23 applications per posting (The Wall Street Journal, 4/15/15). Despite several years of continued job growth, the unemployment rate for those in their 20s with a four-year degree actually rose last year to 12%, putting a damper on the optimistic expectations for this year's new graduates (CBS News, 4/16/15).

New graduates in certain fields face better prospects than others. Health care, STEM industries, and accounting and finance offer the best growth and some of the highest salaries for newly minted college grads. Health care careers are expected to grow by nearly 20% between now and 2020, engineering has a similar growth projection (and some of the highest starting salaries for new graduates), and accounting jobs are expected to grow by 17% (Fortune, 4/7/15). College graduates with degrees that are less in-demand may face more trouble finding a job with decent pay. Less than 10% of companies are making it a priority to interview and hire those with degrees in communication, journalism, liberal arts, and education (CareerBuilder, 4/28/15).

Members of the Class of 2015 have high hopes for themselves, despite the fact that nearly half (49%) of college graduates from 2013 and 2014 consider themselves underemployed or working in a job that does not require a college degree (MarketWatch, 5/12/15). In contrast to this and perhaps reflecting the optimism of youth, some 8 in 10 college graduates are confident about their working future and report that their education prepared them for the workforce (Accenture, 2015).

With 58% of new graduates reporting that they will leave college with more than $50,000 in student loans (MarketWatch, 5/12/15), wages are a concern for new graduates. Although 33% of employers plan to raise the starting salaries of college graduates that they hire, 57% have no plans to change starting salary offers, and 26% plan to offer less than $30,000 a year (CareerBuilder, 4/28/15). Just like hiring, the salary predictions for the Class of 2015 will vary widely depending on their degree. Those that leave college with an engineering degree can eagerly await starting pay upwards of $60,000 a year, while those carrying degrees in education, the arts, or communication can expect to make less than $40,000 per year (PayScale, 2015).

Although anyone graduating in 2008 or previous years would be envious of the job market for the Class of 2015, this year's new graduates will face still face a tough (although improved) job market. If companies hire as predicted, many new graduates will be able to answer the pressing question of whether they will find a job with a solid "Yes." However, will their presumptions about the working world match with the reality of what companies expect? Find out in Part 2 of our series next week.

Readers, what are your predictions for the Class of 2015? Comment and let us know!

Cracking the Millennial Consumer Code

Millennials remain a mystery for many companies. Those belonging to Generation Y have been characterized as both self-absorbed narcissists and socially conscious advocates for change, as lazy Peter Pans who won't grow up and as ambitious self-starters looking to take on leadership roles. Whatever Millennials may be, they will soon become one of the largest groups of consumers in the United States, and companies are trying to crack the code on how to harness their enormous buying power.

Millennials (generally known as anyone between the ages of 18 and 35 in 2015) represent about one fourth of the U.S. population and have about $200 billion in annual buying power (Forbes, 1/20/15); by 2020, it's estimated they'll account for 30% of all retail sales (Accenture, 2013). Almost every company is trying to capture the attention and patronage of Millennials. Organizations are investing an enormous amount of money and effort into attracting them as potential customers, especially as consumer spending continues to remain stagnant despite job growth and falling unemployment.

Many companies have launched new product lines and branding techniques in order to win Millennials as patrons. Whole Foods is the latest in a string of companies trying to attract Gen Y customers; the health food grocery store recently announced they will open a chain of stores that will sell less expensive food and also focus on "streamlined design and innovative technology." However, in order to fully understand what Millennials consume and how they choose to buy, Whole Foods and other organizations need to understand the experiences and mindset that influences the purchasing decisions of Generation Y.

They are still recovering from the Great Recession.
Many Americans across a wide range of demographics are still recuperating from the Great Recession. However, the 2008 recession may loom the most for Millennials. Many in this generation graduated into or just before the downturn, where unemployment for their age group hit 18% in 2010. More than a third of un- or under-employed Millennials moved back in with their families, giving them the reputation of youths who would never grow up. They postponed marriage, children, and home buying because they could simply not afford it. Even as prospects improve for Gen Y, most are skeptical of the economy and the housing market especially; about 30% of Millennials claim they have no plans or desires to ever own a home (The Washington Post, 2/28/15).

They are saddled with student debt.
Millennials are the most educated generation in American history, but their knowledge has come at a huge price. Student loan debt has increased 84% to $1.2 trillion since 2008 (CNN Money, 9/10/14). Students hoped to take on debt that would allow them to get a better job with a higher wage; instead, they graduated into the worst U.S. economy in eight decades. For more than 50% of Millennials, more than half of their monthly incomes goes to paying off debt (The Boston Globe, 4/26/15).

They do their research.
Before Millennials buy, they do their research on products and companies, but rarely is it through such historically traditional media sources as the news, magazines, or books. Rather, Millennials are relying on blogs and social media to scope out their purchases before they buy. Some 33% of Millennials will consult blogs that they trust before making purchases (Forbes, 1/20/15), while 62% use Facebook to do research on products they're hoping to buy (Brafton, 7/14/14).

They don't trust advertising or rhetoric.
Deriving from their experiences during the Great Recession, many Millennials are skeptical of corporations and companies. Some 86% of Gen Y don't trust Wall Street (The Washington Post, 4/30/15). Cynicism toward big business means that those in this generation don't trust advertising or corporate rhetoric. Only 1% of Millennials claim that company advertising makes them more willing to purchase goods or services from them. They value actions over words; almost half (43%) rank authenticity as more important than content (Forbes, 1/20/15).

Millennials have an influential amount of buying power, and when they like a company and product they have brand loyalty; 60% of Gen Y continue to be patrons of brands they already trust and like (Forbes, 1/20/15). However, unless companies understand the experiences that have shaped how Millennials think about money, they may have trouble winning their patronage.

Readers, do you think that Millennials are a different kind of consumer than other generations? Comment and let us know!

April Jobs Report

Relieving fears that the economy may have been starting to stall due to weak GDP growth and disappointing job increases in the first quarter, April saw the job market rebound, according to the Bureau of Labor Statistics' Employment Situation Summary. The U.S. economy added 223,000 jobs, and the unemployment rate decreased to 5.4%, the lowest since May 2008. The labor participation rate edged up slightly to 62.8%, a still worryingly low number despite falling unemployment.

The number of long-term unemployed persons remained little changed at 2.5 million, accounting for 29% of the total unemployed. Despite continued hopes for increased wages, average hourly earnings rose only 0.1%, indicating that any meaningful pay growth for workers still has yet to materialize.

Industries that experienced the most growth in April included professional and business services (+62,000), health care (+45,000), construction (+45,000), and transportation and warehousing (+15,000). Temporary help services increased by 2.1% and created 16,100 new jobs.

Employee or Contractor? The Answer Could Change the Economy

When people need a ride around town, instead of hailing taxis, many are ordering rides from Lyft or Uber. If their home needs to be spring-cleaned, rather than calling a maid service, they can find someone on Handy. When they have a to-do list that needs to be checked off, they don't need a personal assistant because someone from Task Rabbit can do the work for them. Postmates will deliver your packages or meals, Instacart will buy and deliver your groceries, and Washio will launder and deliver your clothes. There is now a business for nearly any human task or job that needs doing. However, all of these companies, and the entire structure of the "sharing economy," could be dramatically changed depending on the outcome of a slew of recently filed lawsuits. Businesses like Lyft and Uber have tens of thousands of people working for them; Uber alone has about 300,000 drivers around the world. These workers are all classified as independent contractors, not as employees. Last year, multiple class action lawsuits were filed in California against Uber, Lyft, and Handy claiming that categorizing workers as contractors, and not employees, exploits them by avoiding paying benefits, health insurance, or other costs (such as gas, vehicle maintenance, and cleaning supplies) that would be incurred by the company if they were employees.

Last month, separate U.S. judges overseeing the lawsuits ruled that they could not make a determination regarding how Uber's and Lyft's workers should be classified. These cases will now move to juries to try and establish the status of the drivers. If drivers are determined to be employees and not independent contractors, the verdict could set a precedent that would greatly alter, and even possibly dismantle, the sharing economy and any business that operates like Uber. A verdict in favor of the plaintiffs could force these companies to take on the cost of payroll expenses, Social Security, workers' compensation, and unemployment insurance. Classifying workers as contractors is estimated to save these companies about 20-30% in labor costs (Fast Company, 2/17/2015). According to SHRM, the average premium for employee health care is $882 per month; by that standard, health care costs alone would cost hundreds of thousands per month if drivers were classified as employees (CNBC, 2/2/2015).

The amount of compensation for which Uber and Lyft would be responsible is unclear, as the plaintiffs have not disclosed the damages they are seeking and neither company will reveal exactly how many drivers work for them in California. For a business like Uber that currently has 300,000 independent contractors, putting even some of those workers on the books as employees would create serious financial impact. Additionally, any future start-ups could collapse under the monetary obligation to pay workers as employees, and those fresh companies looking for venture capital investment that are structured similarly to Uber or Lyft could struggle to find investors that would be wary of that business model.

The plaintiffs suing Uber and Lyft argue that because the companies exert a significant amount of control over their work, such as setting compensation and vehicle standards and terminating employees who fall below performance measurements, they should be treated as employees and protected by the same wage and labor rules. Whatever ruling the jury hands down would apply only to operations in California; however, this verdict could have influence in other decisions.

Many are pointing to the recent lawsuit involving Federal Express where the U.S. Circuit Court of Appeals determined that the company had misclassified 2,300 drivers as independent contractors, opening up the company to hundreds of millions in wage claims. The FedEx case orbited around the question of whether the logistics company maintained control over the work of its drivers; the judge ruled that it did. The sharing economy businesses could have the verdict for their cases balance on a similar issue.

In an economy where more than 17.7 million Americans work more than half-time as independent contractors (The New York Times, 8/16/2014), classifying even a portion of these workers as employees would have huge costs for companies and would change the very landscape of the sharing economy.

Readers, do you think that workers in sharing economy companies should be classified as independent contractors or as employees? Comment and let us know!

7/29/15 Update: A slew of companies who employ workers as independent contractors have announced changes to employment. Instacart will allow some shopper to convert from independent to employee status and Homejoy announced that the company would closing entirely in this blog post.

6/17/15 Update: A ruling from the California Labor Commissioner's Office has stated that a driver for Uber should be classified as an employee, not as an independent contractor. The ruling ordered Uber to reimburse the drive more than $4,000 in expenses and other costs. The ruling does not apply to anyone beyond the individual driver, but does have symbolic significance. Uber claims that the decision is nonbinding and also asserts that the ruling contradicts a previous ruling from the same commission.

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