Some time ago, I said that productivity increases enabled by technology would raise unemployment percentages forever. Get used to 10-12% or more unemployment. The counter argument by the way is that technology creates different jobs, but does not decrease employment on the whole. Wrong. The dots are coming in now and it is clear that technology does change the nature of employment skills, but it also decreases the net need for people to work. In plain economic talk, we need less people working to get the same level of goods produced. Sure it is obvious when you think of factory automation, but software/technology has the same impact.
I blog, invoice clients, write reports, make deposits, write checks, pay taxes, have meetings and never leave the chair behind my desk. It is all based on increased productivity through software, technology if you will. The delete key and word processing killed the market for “whiteout”-if you even are old enough to remember what it is.
What used to take several people to do, I now can do more effectively and more efficiently by myself. There are other more general benchmarks that I could cite. For example, sales per employee (a gross measure of productivity) is increasing in many industries. I do not have all the facts to support this observation, but I notice it frequently in anecdotal examples in the news. Companies merge and sales increase, and employees get laid off-hence sales per employee increases.
Here are a few examples from the latest news.
Solo a cup maker lays off 1,200 people. Solo has invested more than $150 million over the past two years upgrading equipment, so it just doesn't need all these people anymore.
Hewlett-Packard Co. used to replace people with other people overseas. Now it is replacing people with software. The world's largest information technology company recently said it plans to lay off 9,000 as it relies more on computer applications, not people, to run its back-office computing centers.
Netflix Inc. is cutting 160 jobs in Fremont, Calif., thanks to more plant automation. More customers are streaming movies over the Internet so they need less people to copy and mail DVDs.
UPS on Sunday furloughed pilots for the first time in its history. The 54 grounded pilots could grow to 300 by next year. UPS's newer jets require only two pilots instead of three. Its pilots average about $185,000 a year in pay and benefits. You do the math.
Mergers don't create jobs. They decrease jobs. Drug maker Pfizer Inc. is now slashing 6,000 jobs as part of a previously announced plan to trim its global work force by 19,000 after its acquisition of Wyeth.
The lost jobs listed above represent approximately $1 billion annually in lost wages. Yes, I know some of these people will get other jobs, but don’t be so sure they will pay as well. And I have only scratched the surface of the employment market.
What does it mean?
Be prepared for all entitlement programs-retired teacher salaries, government retirement payments and in general anyone else who is on any kind of entitlement program to bear the brunt. When Meg Whitman, eBay billionaire, defeats Jerry Brown and becomes the Governor of California, she will bring the bad news to the people who are retired or are on any form of entitlement program, from retired state employees to retired teachers. The retirement checks may not be less, but they will never be more. Inflation will take care of reducing the check value. It is slow and less mentally disruptive. The federal government, a natural follower, will follow California's lead as usual.
Business people understand that cash-in must be greater than cash-out to stay alive. Governments who have resisted complying with this accounting fact will finally succumb to the truth. Obama’s plea for “trust me” and “hope for the best” will not magically change the laws of the checkbook.
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