The Great Reset: technology the end for millions of middle-class jobs

Technological breakthroughs are carrying a high price for millions of middle-class workers in developed countries as their jobs vanish, never to return.

Half of the 7.5 million jobs lost in America during the Great Recession were paid middle-class wages, ranging from $37,000 to $68,000. But only 2 percent of the 3.4 million jobs gained since the recesShow more

NEW YORK // Five years after the start of the Great Recession, the toll is 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 labour market. What's more, these jobs are not just being lost to China and other developing countries, and they are not just factory work. Increasingly, jobs are disappearing in the service sector, home to two-thirds of all workers.

They are 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.

RACE AGAINST THE MACHINE

The global economy is being reshaped by machines that generate and analyse vast amounts of data; by devices such as smartphones and tablet computers that let people work just about anywhere; 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 staff to run it. Whole employment categories, from secretaries to travel agents, are starting to disappear.

"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 numbers startle even economists. In the United States, half of the 7.5 million jobs lost during the Great Recession paid middle-class wages, ranging from US$38,000 to $68,000 (Dh140,000 to Dh250,000). But only 2 per cent of the 3.5 million jobs gained since the recession ended in June 2009 are midway. Nearly 70 per cent are low-paying jobs; 29 per cent 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 midway jobs has never stopped. A total of 7.6 million disappeared from January 2008 through last June.

Experts warn that this "hollowing out" of the middle-class workforce is far from over.

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

THE BALANCE SHEET

In the US, the economic recovery that started in June 2009 has been called the third straight "jobless recovery" but that is a misnomer because the jobs came back after the first two.

Most recessions since World War II were followed by a surge in new jobs as consumers started spending again and companies hired to meet the new demand. In the months after recessions ended in 1991 and 2001, there was no familiar snapback, but all the jobs had returned in less than three years.

But 42 months after the Great Recession ended, the US has gained only 3.5 million, or 47 per cent, 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 midway jobs is almost entirely to blame.

Fifty per cent of the US jobs lost were in midway industries, but Moody's Analytics, a research firm, says just 2 per cent of the 3.5 million jobs gained are in that category. After the four previous recessions, at least 30 per cent of jobs created - and as many as 46 per cent - were in midway 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, midway 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 such as 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.

Webb Wheel Products makes parts for lorry brakes, which involves plenty of repetitive work. Its newest employee is the Doosan V550M, and it is a marvel. It can spin a 59-kilogram brake drum like a child's top, smooth its metal surface, then drill holes - all without missing a beat. And it does not take holidays or "complain about anything," says Dwayne Ricketts, president of the Cullman, Alabama, company.

Due to computerised machines, Webb Wheel has not added a factory worker in three years, though it is making 300,000 more drums annually, a 25 per cent increase.

"Everyone is waiting for the unemployment rate to drop, but I don't know if it will much," Mr Ricketts says. "Companies in the recession learnt to be more efficient, and they're not going to go back."

In Europe, companies could not 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 current unemployment rate is a record 11.8 per cent.

European companies had been using technology to replace midway workers for years, and now that has accelerated.

"The recessions have amplified the trend," says Mr Goos, the Belgian economist. "New jobs are being created, but not the middle-pay ones."

Research in Canada and Japan suggested the same: in both countries midskill jobs are disappearing.

CLICK HERE TO KILL A JOB

Developing economies have been spared the technological onslaught - for now. Countries like Brazil and China are still growing middle-class jobs because they are shifting from export-driven to consumer-based economies. But even they are beginning to use more machines in manufacturing.

One example is Sunbird Engineering, a Hong Kong firm that makes mirror frames for heavy lorries 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.

"By automating, we can outlive the labour cost increases inevitable in China," Mr Pike says. "Those who automate in China will win the battle of increased costs."

Foxconn Technology Group, which assembles iPhones at factories in China, unveiled plans in 2011 to install one million robots over three years.

A recent headline in the China Daily newspaper: "Chinese robot wars set to erupt."

Candidates for US president last year never tired of telling Americans how jobs were being shipped overseas. China, with its vast army of cheaper labour and low-value currency, was easy to blame.

But most jobs cut in the US and Europe were not moved. No one got them. They vanished. And the villain in this story - a clever software engineer working in Silicon Valley or the high-tech hub around Heidelberg, Germany - is not so easy to hate.

"It doesn't have political appeal to say the reason we have a problem is we're so successful in technology," says Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University. "There's no enemy there."

Unless you count family and friends and the person staring at you in the mirror.

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 have taken work from a salesman.

Click "accept" in an email invitation to attend a meeting? You have pushed an office assistant closer to unemployment.

WHAT HOPE IS THERE FOR THE FUTURE?

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 US and Europe since the Great Recession. 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.

"The effect of (technology) on white-collar jobs is huge, but it's not obvious," says Mr McAfee. Companies "don't put out a press release saying we're not hiring again because of machines".

Historically, new companies and new industries have been the incubator of new jobs. Start-up companies no more than five years old are big sources of new jobs in developed economies. In the US, they accounted for 99 per cent of new private sector jobs in 2005, according to a study by the University of Maryland's John Haltiwanger and two other economists.

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, Mr 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."

All over, 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 US 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.

SOME JOB FACTS

11.8% - European unemployment rate

36,000 - Meter readers in the US in 2010

56,000 - Meter readers in the US in 2001

2 million - Finance, HR, IT and procurement jobs lost in US and Europe since 2009

3.75 million - Middle-class job losses in the US since 2009

7.5 million - Jobs lost in the US since 2009