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AP IMPACT: Recession, tech kill middle-class jobs

Workforce investment board job fair at University of Phoenix

Job seekers meet with potential employers during the Workforce Investment Board of Solano County's job fair at the University of Phoenix in Fairfield in early 2012. According to organizers, over 1,200 people visited the job fair. (Conner Jay/Daily Republic file)

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From page A1 | January 23, 2013 | 3 Comments

NEW YORK — Five years after the start of the Great Recession, the toll is terrifyingly clear: Millions of middle-class jobs have been lost in developed countries the world over.

And the situation is even worse than it appears.

Most of the jobs will never return, and millions more are likely to vanish as well, say experts who study the labor market. What’s more, these jobs aren’t just being lost to China and other developing countries, and they aren’t just factory work. Increasingly, jobs are disappearing in the service sector, home to two-thirds of all workers.

They’re being obliterated by technology.

Year after year, the software that runs computers and an array of other machines and devices becomes more sophisticated and powerful and capable of doing more efficiently tasks that humans have always done. For decades, science fiction warned of a future when we would be architects of our own obsolescence, replaced by our machines; an Associated Press analysis finds that the future has arrived.
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EDITOR’S NOTE: First in a three-part series on the loss of middle-class jobs in the wake of the Great Recession, and the role of technology.
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“The jobs that are going away aren’t coming back,” says Andrew McAfee, principal research scientist at the Center for Digital Business at the Massachusetts Institute of Technology and co-author of “Race Against the Machine.” ”I have never seen a period where computers demonstrated as many skills and abilities as they have over the past seven years.”

The global economy is being reshaped by machines that generate and analyze vast amounts of data; by devices such as smartphones and tablet computers that let people work just about anywhere, even when they’re on the move; by smarter, nimbler robots; and by services that let businesses rent computing power when they need it, instead of installing expensive equipment and hiring IT staffs to run it. Whole employment categories, from secretaries to travel agents, are disappearing.

“There’s no sector of the economy that’s going to get a pass,” says Martin Ford, who runs a software company and wrote “The Lights in the Tunnel,” a book predicting widespread job losses. “It’s everywhere.”

The numbers startle even labor economists. In the United States, half of the 7.5 million jobs lost during the Great Recession paid middle-class wages, ranging from $38,000 to $68,000. But only 2 percent of the 3.5 million jobs gained since the recession ended in June 2009 are midpay. Nearly 70 percent are low-paying jobs; 29 percent pay well.

In the 17 European countries that use the euro as their currency, the numbers are even worse. Almost 4.3 million low-pay jobs have been gained since mid-2009, but the loss of midpay jobs has never stopped. A total of 7.6 million disappeared from January 2008 through last June.

Some occupations are beneficiaries of the march of technology, such as software engineers and app designers for smartphones and tablet computers. But, overall, technology is eliminating far more jobs than it is creating.

To better understand the impact of technology on jobs, The Associated Press analyzed employment data from 20 countries; and interviewed economists, technology experts, robot manufacturers, software developers, CEOs, and workers who are competing with smarter machines.

The AP’s key findings:

–Over the past 50 years, technology has drastically reduced the number of jobs in manufacturing. Robots and other machines controlled by computer programs work faster and make fewer mistakes than humans. Now, that same efficiency is being unleashed in the service economy.

–Technology is being adopted by every kind of organization that employs people. It’s replacing workers in large corporations and small businesses, established companies and startups, schools, hospitals, nonprofits and the military.

–The most vulnerable workers are doing repetitive tasks that programmers can write software for – an accountant checking a list of numbers, an office manager filing forms, a paralegal reviewing documents for key words to help in a case.

–Startups account for most of the job growth in developed economies. Thanks to software, entrepreneurs are launching businesses with a third fewer employees than in the 1990s.

–It’s becoming a self-serve world. Instead of relying on someone else in the workplace or our personal lives, we use technology to do tasks ourselves. This trend will grow as software permeates our lives.

–Technology is replacing workers in developed countries regardless of their politics, policies and laws. .

The lingering pain of the Great Recession is not entirely a result of technology’s advances. Other factors are keeping companies from hiring – partisan gridlock in the U.S., for instance, and the debt crisis in Europe, which has led to deep government spending cuts.

But to the extent technology has played a role, it raises the specter of high unemployment even after political troubles lift and economic growth accelerates.

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In the U.S., the economic recovery that started in June 2009 has been called the third straight “jobless recovery.”

But that’s a misnomer. After the recessions that ended in 1991 and 2001, jobs lost were slow to return, but they all returned within three years.

But 42 months after the Great Recession ended, the U.S. has gained only 3.5 million, or 47 percent, of the 7.5 million jobs that were lost. The 17 countries that use the euro had 3.5 million fewer jobs last June than in December 2007.

This has truly been a jobless recovery, and the lack of midpay jobs is almost entirely to blame.

Fifty percent of the U.S. jobs lost were in midpay industries, but Moody’s Analytics, a research firm, says just 2 percent of the 3.5 million jobs gained are in that category. After the four previous recessions, at least 30 percent of jobs created – and as many as 46 percent – were in midpay industries.

Other studies that group jobs differently show a similar drop in middle-class work.

Some of the most startling studies have focused on midskill, midpay jobs that require tasks that follow well-defined procedures and are repeated throughout the day. Think travel agents, salespeople in stores, office assistants and back-office workers like benefits managers and payroll clerks, as well as machine operators and other factory jobs. An August 2012 paper by economists Henry Siu of the University of British Columbia and Nir Jaimovich of Duke University found these kinds of jobs comprise fewer than half of all jobs, yet accounted for nine of 10 of all losses in the Great Recession. And they have kept disappearing in the economic recovery.

In Europe, companies couldn’t go back even if they wanted to. The 17 countries that use the euro slipped into another recession 14 months ago, in November 2011.

“The recessions have amplified the trend,” says Maarten Goos, an economist at the University of Leuven in Belgium. “New jobs are being created, but not the middle-pay ones.”

Developing economies have been spared the technological onslaught – for now. But even they are beginning to use more machines in manufacturing. The cheap labor they relied on to make goods from apparel to electronics is no longer so cheap as their living standards rise.

One example is Sunbird Engineering, a Hong Kong firm that makes mirror frames for heavy trucks at a factory in southern China. Salaries at its plant in Dongguan have nearly tripled from $80 a month in 2005 to $225 today. “Automation is the obvious next step,” CEO Bill Pike says.

Sunbird is installing robotic arms that drill screws into a mirror assembly, work now done by hand. The machinery will allow the company to eliminate two positions on a 13-person assembly line. Pike hopes that additional automation will allow the company to reduce another five or six jobs from the line.

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The uncomfortable truth is technology is killing jobs with the help of ordinary consumers by enabling them to quickly do tasks that workers used to do full time, for salaries.

Check out your groceries or drugstore purchases using a kiosk? A worker behind a cash register used to do that.

Buy clothes without visiting a store? You’ve taken work from a salesman.

Book your vacation using an online program? You’ve helped lay off a travel agent – perhaps one at American Express Co., which announced this month that it plans to cut 5,400 jobs, mainly in its travel business, as more of its customers shift to online portals to plan trips.

Software is picking out worrisome blots in medical scans, running trains without conductors, driving cars without drivers, spotting profits in stock trades in milliseconds, analyzing Twitter traffic to tell where to sell certain snacks, sifting through documents for evidence in court cases, recording power usage beamed from digital utility meters at millions of homes, and sorting returned library books.

The Hackett Group, a consultant on back-office jobs, estimates 2 million of them in finance, human resources, information technology and procurement have disappeared in the U.S. and Europe since the Great Recession. And it pins the blame for more than half of the losses on technology. These are jobs that used to fill cubicles at almost every company – clerks paying bills and ordering supplies, benefits managers filing health-care forms and IT experts helping with computer crashes.

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What hope is there for the future?

Historically, new companies and new industries have been the incubator of new jobs. But even these companies are hiring fewer people. The average new business employed 4.7 workers when it opened its doors in 2011, down from 7.6 in the 1990s, according to a Labor Department study released last March.

Technology is probably to blame, wrote the report’s authors, Eleanor Choi and James Spletzer. Entrepreneurs no longer need people to do clerical and administrative tasks to help them get their businesses off the ground.

Entrepreneur Andrew Schrage started the financial advice website Money Crashers in 2009 with a partner and one freelance writer. The bare-bones start-up was only possible, Schrage says, because of technology that allowed the company to get online help with accounting and payroll and other support functions without hiring staff.

“Had I not had access to cloud computing and outsourcing, I estimate that I would have needed 5-10 employees to begin this venture,” Schrage says. “I doubt I would have been able to launch my business.”

Technological innovations have been throwing people out of jobs for centuries. But they eventually create more work, and greater wealth, than they destroy. Many economists are encouraged by history and think the gains eventually will outweigh the losses. But even they have doubts.

“What’s different this time is that digital technologies show up in every corner of the economy,” says MIT’s McAfee, a self-described “digital optimist.” ”Your tablet (computer) is just two or three years ago, and it’s already taken over our lives.”

Occupations that provided middle-class lifestyles for generations can disappear in a few years. Utility meter readers are just one example. As power companies began installing so-called smart readers outside homes, the number of meter readers in the U.S. plunged from 56,000 in 2001 to 36,000 in 2010, according to the Labor Department.

In 10 years? That number is expected to be zero.

How US jobs came back after recent recessions

Midpay jobs aren’t coming back from the Great Recession, partly because jobs in the middle are the most vulnerable to computer technology. That shortfall has helped prevent the total jobs lost in the recession from being regained. A look at how midpay jobs have fared in the five most recent U.S. recessions that were followed by a recovery that lasted at least 42 months:

– In the Great Recession, 3.76 million, or 50 percent, of the 7.48 million jobs lost were in midwage industries, according to Moody’s Analytics. But only 2 percent of the 3.52 million jobs gained the 42 months since the recession ended have been midpay.

– In the 2001 recession, 566,000, or 35 percent, of the 1.603 million jobs lost were midpay. And 30 percent of the 2.47 million jobs created the 42 months after the recession were midpay.

– In the 1990-1991 recession, 717,000, or 58 percent, of the 1.24 million jobs lost were midpay. And 38 percent of the 6.62 million jobs created the 42 months after the recession were midpay.

– In the 1981-1982 recession, 1.99 million, or 70 percent, of the 2.83 million jobs lost were midpay. And 38 percent of the 10.45 million jobs created the 42 months after the recession were midpay.

– In the 1973-1975 recession, 874,000, or 69 percent, of the 1.26 million jobs lost were midpay. And 46 percent of the 10.97 million jobs created the 42 months after the recession were midpay.

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NEXT: Practically human: Can smart machines do your job?

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | 3 comments

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  • Solano Business IncubatorJanuary 22, 2013 - 11:28 pm

    A very good article. We predicted most of these general changes over a decade ago. Read the article carefully.

    Reply | Report abusive comment
  • rich giddensJanuary 23, 2013 - 1:14 pm

    What a load of stomach curdling nauseating bile. After promising and failing to deliver on the promise of economic expansion and job creation, the government media complex comes up with this excuse making---Its designed to further absolve the government of any responsibility, blame, accountability, culpulbility or deceit and wilfull neglect. The spending and the debt of government living high on the hog along with crazy destructive beliefs like ''anybody should be able to buy a home regardless of income'' is what caused what ails us now---national and state insolvency. The government needs to get its finances in order by cutting spending and adopting austerity measures LIKE THEY DO IN EUROPE and the news media needs to go back to school and take ''journalism 101" all over again.

    Reply | Report abusive comment
  • LynneJanuary 24, 2013 - 10:51 pm

    Fascinating. We watched a special about the "real" Downton Abbey, Highclere Castle, the other night. At its peak the estate employed something like 100 people to get everything done. They now employ around 20. Some of the job loss is due to different lifestyle, but most of those jobs were lost to automation. Horses replaced with cars: no more stable employees. Washing machines replaced laundresses. And so forth. Every technological advance involves a dislocation of work, and mass unemployment: power looms put all the hand loom weavers, who had done all the cloth manufacture to that point, out of work. So where will this current revolution lead? Wait and see . . .

    Reply | Report abusive comment
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