Major structural change in the economy is similar to previous round of systemic transition

We are in the middle of a major structural change in the economy that is having radical impact on jobs.

Another superb article describing this transition is What If Middle-Class Jobs Disappear?, by Arnold Kling.

He suggests that the explanation for current high unemployment and turmoil is a major structural change in the whole economy.  A one sentence summary:

The economy is in a state of transition, in which the middle-class jobs that emerged after World War II have begun to decline.

Major transition in mid-1900s

He first explains the massive transition in the economy from 1930 to 1950.  In that time we moved from a world of unskilled laborers to a world of mid-skilled clerks, professionals, and managers.

Demand fell for human effort such as lifting, squeezing, and hammering. Demand increased for workers who could read and follow directions. The evolutionary process eventually changed us from a nation of laborers to a nation of clerks.

Several statistics illustrate this transition. The best ones for me are these:

“clerical and kindred workers” grew from 5.2 percent in 1910 to a peak of 19.3 percent in 1980

Workers classified as laborers, other than farm or mine, peaked at 11.4 percent of the labor force in 1920 but were barely 6 percent by 1950 and less than 4 percent by 2000

Improved technology on the farm, which I discussed here, radically changed employment in agriculture:

Farmers and farm laborers fell from 33 percent of the labor force in 1910 to less than 15 percent by 1950 and only 1.2 percent in 2000.

I’ll boil down those stats, with just the skill set and start/end portion of employment:

  • clerical and similar – 5% to 19%
  • non-farm laborers – 11% to <4%
  • farming – 33% to 1%
  • total laborers – 44% to 5%

In that time, we transitioned from physical labor to an economy where people needed to follow standard instructions and coordinate with other clerical/ administrative/ professional people. 

In the physical-labor world, four years in high school is a waste of time, while in the ‘clerical’ world, a high school diploma is the required training.

Major transition today

We are in another transition right now. I’ve been discussing a lot in this blog.  For a few examples, look here, here, here, and here.

Well defined jobs following specified procedures with established protocols can easily be replaced by a computer algorithm.  Seth Godin refers to this as ‘factory work.’   That type of work is extremely easy to automate or move offshore.

Mr. Kling’s description:

Mortgage and consumer loan underwriters have been replaced by credit scoring. Record stores have been replaced by music downloads. Book stores are closing, while sales of books on electronic readers have increased. Data entry has been moved off shore. Routine customer support also has been outsourced overseas.

The article spends a fair amount of time discussing the polarization of the US economy. Well-educated, self-directed, creative people have done very well.  Much of the job growth has been in low-skill jobs. It’s the middle range of skills that have taken the biggest hit.  My guess is that will continue.

Mr. Kling closes his article with the challenges of making this transition. Two factors make that really hard.  First, we’re talking about a very rapid rate of change. Second, it’s difficult to help people transition to a self-directed, creative work environment from a follow-the-standard-procedures world.  

He closes with a couple of possible ways this could play out.

Check out the full article. Very good description of a previous round of massive systemic change and the current one we are in the middle of now.  The comparison provides helpful context for sorting out where we are now.

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