Four-Pronged Attack on Labor Markets: Technology, Globalization, Immigration, and Health Care

The rise in nationalism expressed in the polls across the West may be somewhat baffling for many analysts. Most recently, in UK elections, it was noted that nationalism was a dominant feature with the Conservative party’s near record win on a BREXIT agenda, Scottish National Party’s rise in Scotland, and Northern Irish nationalism also clear in the results. What is really going on here? What are people afraid of? What is the underlying cause of this rise in nationalism across the West?

The truth is living standards for ‘ordinary’ folks in the West have dropped dramatically. Yes, economies are growing, and there are record corporate profits, but Mr. Joe Average is doing worse than ever before.  Income for hourly workers has been stagnant and may have dropped over the past few decades after factoring in inflation.

Above are two charts explaining what has happened to real average hourly earnings from two different (reliable sources). What is NOT explained here is the huge drop that preceded all this in 2009, when the economy faced a major recession. In effect hourly wages dropped dramatically in 2009 and have been basically stagnant since.

Historically, when this happened in the “West” there would be a rise in trade unionism. Workers would “push back”. But this is no longer an option because the forces driving down hourly wages have been presented as being beyond ‘company management’ to fix.

Conservative politicians are now masquerading as nationalists – blaming low wages on immigration and globalization – when in fact the story is far more complex. There is also a third culprit with new technology. And a fourth culprit in the US involves rising health care costs. At a recent Trump rally in New Mexico, one of the protestors to the Trump supporters shouted: “You’re all fucking welfare cases! You just don’t want anyone else getting any!” it was not a heartwarming moment of working-class solidarity! Conservatives in the UK won many ‘safe’ Labor Party seats in Britain’s north east. Across Europe right wing parties are rising, and winning votes.

Technology:  New technologies are being integrated into basic manufacturing processes and global communications (that provide easy and very low-cost access to global manufacturing partners with tools like Skype, cheap telecommunications, along with low cost, speedy global shipping).  Then add hugely disruptive new enterprises that have reduced many workers to precarious, underpaid piecework in the gig economy and Amazon fulfillment centers. Artificial intelligence breakthroughs will only elevate the level of disruption. Without doubt, the biggest factor impacting wages is new technology.

No one it appears, has a solution on how to deal with technology’s impact on wages! Not the left, nor the right. It is in fact new technology that has enabled globalization and enabled very high degree of automation.  And this force will continue to devastate jobs and transform industries.

Immigration: Declining birth rates in the west have led governments to find ways to increase ‘legal’ migration. Governments are fundamentally financed by payroll taxes.  When you have a drop in total number of workers, you must find new ways to bring in new workers. In the U.S. alone there have been over 1 million legal immigrants allowed into the U.S. workforce for literally decades. However, immigrants have accounted for about 10% of the U.S. workforce throughout this process. Never-the-less, immigrants are visible to ordinary workers and can be easily blamed for their demise – despite the facts.

The truth is total hourly labor employment has dropped dramatically, over the past few decades. More importantly, the total number of manufacturing jobs has declined dramatically. Jobs have been shifted overseas. Manufacturing now accounts for less than 10 percent of total non-farm employment in the U.S. Declining birth rates across the western world make mass immigration a national necessity. Without it there will be no one working to pay pensions for older retirees.

In the U.S., Republican party obsession with immigration and ‘the wall’ is a shrewd attempt at suppressing future democrat voters. It has nothing to do with addressing fundamental issues with declining wages.

Globalization: Jobs have been shifted overseas; and the jobs that remain essentially involve highly skilled labor that can operate high technology, capital intensive equipment. Manufacturing jobs in the west are linked to automation.

Health Care: Beyond stagnant wages, one other force has decimated labor’s take home wages: Health Care. Deductibles have risen 150% and premiums have increased 50%. Net-net, US workers are taking home much less cash then ever before.

Labor markets have been devastated not with one but a four-pronged attack by forces beyond the control of ‘workers’ to address.

And in comes shrewd politicians – not from the left – but from the right who understand this outcome; and are presenting political programs that are ‘music’ to the ear of the desperate workers. It’s the immigrants – stupid! It’s BREXIT or NEW TRADE DEALS with China, NAFTA etc. – stupid!

What to do?

Here are some viable solutions; where government can have a major impact.

One, workers must be retrained and educated quickly. Because there is a huge shortage of highly skilled labor – engineers, nurses etc. Yes, hourly labor has faced a decline, but salaried employment is on the rise. This is the secret to managing the impact of new technology! There are new jobs, but they are all HIGHLY skilled positions requiring advanced degrees. In fact, it is thought that over 80 Million new highly skilled jobs will be created in the next two decades.

Two, ALL trade must be balanced. Trade imbalances are fundamentally bad for the economy and destroy jobs at ALL levels. Making up for trade imbalances by selling treasury bills to exporting nations is not enough. When wholesale industries are shipped overseas and no industry is formed to take their place, there will be no new industrial innovation domestically. It affects ideation, new enterprise formation, and research and development. Trade must be carefully calibrated and deliberate.

Three, there must be a huge rise in entrepreneurship. i.e. new jobs must be created at a much faster pace then the destruction of jobs. (There has been a huge decline in new business start-ups in the U.S.). By the way, small and mid-size companies account for the most jobs in the economy! Yes, technology is changing everything, but new technology brings new jobs too.

Four, there must be a fundamental re-think of how to deal with the healthcare crisis in the country. Again, Republicans understand this. By undermining Obamacare, they have systematically ‘angered’ US workers with ‘less take home pay’ – and then they further blame ‘immigrants’ and ‘china’ for low wages.  

The tragedy of this situation is that the Republican Party (and Trump) have been very effective and consistent with their messaging. Workers have now migrated to accepting their arguments. In this complex scenario of causes for low wages and dropping living standards for workers – the Republicans have made a very simplistic case. If technology is a culprit, Republicans have carefully associated the Democrats with Silicon Valley elites who are responsible for all the technological disruptions workers see.

In The Limousine Liberal, historian Steve Fraser traces the rise of right-wing populism to the Nixon presidency when blue-collar Whites realized that “their social contract with New Deal liberalism was expiring.” Structural unemployment and wage stagnation were taking their toll, but the Democrats offered no solutions. 

If Globalization is the problem, Republicans are the ones that are “tough on trade”. And now they can also argue that Obama Care did not deliver the benefits it promised (to make Healthcare affordable). It is very persuasive. And the Democrats have not presented the counter arguments well. Democrats have been unable to articulate practical, better thought out defense strategy to protect labor markets and workers – beyond what appears to be ‘old school socialist’ ideals. Republicans have stolen all the ‘simple’ narratives. Meanwhile, we all know where republican’s true heart lies, right? Tax cuts for the rich and protecting the very CEO’s and boards that shipped the jobs overseas to begin with, who are investing aggressively in new capital equipment like robotics to displace workers, is what the Republican Party is about. Their propaganda has been fantastic. They have fooled the very people that are voting for them. It’s “Don the Con”!

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