jaws of the
Why work has
– and what to do
Rolf E. Kleiner
03 The other side of the debt crisis
04 Seeing inside the jaws
07 Wages stalled as inequality rose
10 The robots are coming
11 Is it a manufacturing renaissance?
13 Why education and skills must adapt
16 The uncertainty problem
18 Changing the game
The other side of
the debt crisis
It has dominated our greatest business and political minds for the best part
of four years. The mainstream media have detailed every blip and dip on the
financial radar as results and forecasts have swung from dire to upbeat, and
then back again.
Just when we think we’ve stepped back from the cliff and overcome the slide
in confidence, a new wave of uncertainty descends. So, it’s no wonder small
business—the powerhouse of job growth—is reluctant to hire staff and bank on
Rolf E. Kleiner
The perils of the great recession/debt crisis are real and we should be informed
about them, but they have also obscured an equally pressing and important
shift in our global economy.
The fact is, the foundations of our employment market have fundamentally
shifted—and are not going back. This shift began well before the financial crisis
took hold, and has only picked up speed because of it.
The economist Jared Bernstein called this shift, which began over a decade
ago, “the jaws of the snake”, and they’re opening wider than ever.
Once upon a time, productivity increased alongside job growth. Not so
any longer. For the past decade, a critical decoupling of job creation from
productivity has occurred, and this has major repercussions for workforces the
world over and the economies they’re built on.
Now, we need to learn to live (and work) within this gap. Even if and when the
debt crisis is overcome, the need to respond to higher productivity and slower
jobs growth will persist.
Here’s what’s in store for job seekers and employers in 2013—the year of
the snake—and beyond.
The all-consuming financial crisis, and the frustrating politics
that have ensued, is usually seen as the cause of labor market
issues in economies such as the US and the Eurozone.
However, when we begin to look more closely at the data, we see that job
growth was beginning to flatten well before the debt crisis peaked in 2009.
In fact, the lack of jobs, particularly for the youngest and least educated in
developed economies, would be a persistent and growing issue even if the
debt crisis had never occurred. Yes, the debt crisis has exacerbated the fall in
employment opportunities, but it hasn’t been the main reason behind it.
Rather, if we were to focus specifically on the US market, the main factor
that has been the driving force in declining job openings—particularly in
low-skilled jobs in primary industry—is productivity growth. US productivity
has been on a steady upward trend since the 1950s. While things slowed in
the late ‘70s to early ‘80s, productivity picked up again in the ‘90s and has
remained strong ever since.
This chart below shows the average growth in productivity over various
periods throughout the past 65 years. Greenspan was right to call it the
average growth in productivity
Average annual % change
Seeing inside the jaws
But what’s really interesting is the different paths that productivity and
employment took from the end of the last century. For 50 years, the two grew
in tandem. Then, as this graph by Jared Bernstein shows, in the late ‘90s
productivity growth and employment growth became decoupled. He calls this
“the jaws of the snake”, and there are many reasons why they will be unlikely
It’s important to note that this measure of US productivity is impacted by what
has been a diminishing work-week over time, as well as the offshoring of work.
Yet the reality is that we have been creating jobs fairly steadily for the past 50
years, but in the first decade of this century the amount of jobs created slowed
significantly while productivity at the fastest rate ever.
productivity and employment, 1947–2010: what happened?
Seeing inside the jaws
What this boils down to is that we’re still creating jobs, but not enough of
them. The percentage of working-age people that are participating in paid
employment dropped more than five points during the Great Recession,
and it hasn’t made those gains back. What’s even more troubling is that the
labor participation rate has been falling since the end of the last century. The
aggregate ratio for the US was 64.4% in 2000 and had fallen to 63% by 2007.
Thanks to the recession it had slipped back to a mere 58.2% by December 2009
and is now at 58.6% (as at June 2012).
Yes, it’s clear that the recession has had a significant impact on the job market,
but the decline in employment growth was already underway anyway, albeit at a
Wages stalled as
One of the major knock-on effects of productivity growth alongside
declining employment opportunities has been slower wage growth except
among the top 1% of earners. In fact, when adjusted for inflation, the
average US household now has a lower income than it did in 1997.
Wages as a share of GDP are now at an all-time low, even as corporate profits
and CEO earnings are at an all-time high. It’s not that everyone has earned
less, but that the distribution of wealth has become narrower. Fewer and fewer
people have earned much, much more at the expense of the rest.
Estimates by Business Week and the Institute of Policy Studies show that the
ratio of executive pay to the average worker is 10 times what it was in 1980.
Their research shows a CEO-to-worker pay ratio of 42:1 in 1980, 107:1 in 1990
and 325:1 in 2010.
The implicit notion that workers receive a share of productivity gains (i.e. the
harder they work, the more value they create, the more money they earn) has
unraveled. Employees no longer gain their share of productivity improvements
and they are not necessarily paid more for the higher-value work they are doing.
“In 1970 the upper 1 percent
received 8 percent of national
income; in 2007 they received
18 percent. Most of this
increase went to the top
0.1 percent of income
recipients. In 1970 this group
had 2.7 percent of national
income and incomes 27 times
the mean income; in 2007
they have 12.3 percent of
national income and incomes
123 times the mean.”
Richard B. Freeman, 2011
As a 2011 lecture entitled “Optimal Inequality for Economic Growth, Stability
and Shared Prosperity” by Richard B. Freeman points out that the earnings
associated with increased productivity have gone virtually entirely to the highest
income earners across the US since the 1970s.
How and why this has occurred requires deep economic and social policy
analysis. Yes, there have been restructures to financial markets and legislative
frameworks that have exacerbated this trend, but there are other factors too,
including globalization and offshoring. However, the question explored in this
paper is not whether these changes and trends are right or wrong. The issue is
that they have culminated in the great decoupling of job volumes and wages
from the rest of the “train of economic progress”.
wages stalled as inequality rose
And if Freeman’s work is right, this is likely to have (if it’s not already having) a
big effect on productivity, innovation and growth going forward. Why? Because
incentives are needed to keep employees motivated to succeed.
The other fascinating aspect of the work contained in Freeman’s lecture is
the impact that reward seems to have on our ability to innovate and create. It
seems, according to a study completed by Freeman and Alex Gelber in 2010,
that unless financial reward is spread more equally, workers tend to give up and
stop giving it their all.
By testing various groups on their ability to solve the highest number of mazes,
it became clear to Freeman and Gelber that those groups that were incentivized
based on their output (the amount of mazes they solved), did far better than
those groups where only the highest performer was rewarded, or those in which
everyone was rewarded regardless of output.
Although most of our corporate structures are built on the idea that a select
few at the top should be paid vastly more than the rest—and that this somehow
reflects their output or value—the study’s conclusion is that this is not the
incentive structure optimal for growth, innovation and creativity.
reported number of mazes solved in
maze experiment at given incentives
top wins all
Source: Freeman & Gelber (2010)
wages stalled as inequality rose
If we take this example and think about the broader implications for business
incentive structures, we can see that reward must be both attainable and reflect
actual contribution. Workers want to know that their input is going to be worth
the effort—and organizations must demonstrate this in tangible ways that reflect
the overall benefit to the organization and the economy.
It seems that if we’re going to break through the uncertainty crisis and spur
genuine growth in new industries and ideas, employees need to have a greater
share in creating it. And they’ll need to be adequately incentivized to do so.
While addressing inequality and incentives may help organizations get
significantly more out of their human capital, there’s yet another major change
that’s gathering pace inside the workplace. That is, of course, the role
Even as lower-skilled jobs were sent to cheaper labor pools in various
parts of the world, technological progress was further accelerating
the decoupling of wages and jobs from economic growth.
As the digital evolution takes us into a new era of work, the way we think
about work and jobs is going to change dramatically.
Moore’s Law is the proposition that the number of transistors on a
semiconductor can be inexpensively doubled about every two years. This means
that productivity gains continue to grow exponentially over time—and this is
precisely what we’ve seen already in the workplace.
Robots and computers can do more and more of the work that people used to
do. They can do more sophisticated tasks and are even moving into creative
fields—something we once thought impossible. In short, digital labor is
becoming a better substitute for human labor in an ever-expanding number of
ways and industries.
This happens first with more routine tasks, which is a big part of the reason why
less-educated workers have seen their wages fall the most as we move deeper
into the computer age.
As we forge ahead, the Great Decoupling will only accelerate for these
1. Computers will keep getting cheaper over time: they will continue to
do more for less and be applied to more industries and roles, and they will
become more affordable.
2. This will apply in both rich countries and poor: digital labor will become
cheaper than human labor not only in the US and other rich countries, but
also in places like China and India. Offshoring is only a way station on the
road to automation.
This probably sounds rather frightening. Clearly, some of these changes are
already occurring in our employment landscape. They will undoubtedly create
new opportunities for people with the right skills, however, so long they have
access to the training required to fill those roles.
Is it a Manufacturing
At the dawn of the nineteenth century, farm workers
comprised somewhere between 75% and 80% of the entire
labor force. That number was still over 50% in 1860.
It was not just the Industrial Revolution that increased the number of
manufacturing workers in the US; it was an agricultural productivity revolution
that allowed more food to be produced by fewer people. Even so, productivity
growth was not all that exceptional in the first 60 years of the nineteenth century.
But that was then and this is now.
Today, the percentage of the labor force employed in agriculture is less than
2%. Agricultural productivity is up some 16 times greater since 1880, but we
barely have more than two million people working on the farm, which is about
the same number we had working in agriculture in 1820. Take a look at the
employment level—agriculture and related industries
(Thousands of Persons)
1940 1950 1960 1970 1980 1990 2000 2010 2020
Shaded areas indicate US recesions.
Source: US Department of Labor: Bureau of Labor Statistics
Is it a manufacturing renaissance?
Aggregate Agricultural output and input quantity trends, 1880–2004
Index (1880 = 100)
1880 1895 1910 1925 1940 1955 1970 1985 2000
The Industrial Revolution and the shift to a manufacturing economy was clearly
disruptive to employment. Yet who would advocate going back even 40 years
to when the farm labor force was three times the size it is today, especially if you
had to be the farm labor?
Just as agricultural output per worker has increased dramatically over time,
in the next 40 to 50 years we will see massive gains in manufacturing output
without an accompanying increase in manufacturing jobs.
Companies are beginning to bring manufacturing back to the US because
automation and robotics, as well as wage inflation in emerging economies, has
made it cheaper to re-start manufacturing in the US than to use labor in other
As a consequence, even those markets that have offered cheap labor are now
turning to robotics to remain competitive. When China’s largest employer
outside the military, Foxconn, is turning to robots rather than cheap labor, you
know there is a revolution in the process. In official statements about their
intentions to automate aspects of their production line, Foxconn itself talked
about the desire to move employees “higher up the value chain”. But what
does this really mean?
What jobs will be left in manufacturing, in agriculture or any other sector for
that matter? What will they look like and who will have them? And most
importantly, what skills and experience will our school leavers and college grads
need to get them?
Why education and
skills must adapt
The “great decoupling” and the increasing pervasiveness
of technology in the workplace will mean major changes
to education and the definition of employability.
In fact, the biggest effect of decoupling has already been (and will continue
to be) on uneducated youth. Let’s look at a few facts put forth by the Young
• 1 out of 2 college grads—about 1.5 million students, or about 53.6% of
Bachelor’s degree holders aged 25 or younger—were unemployed or
underemployed in 2011
• For high school grads (age 17-20), the unemployment rate was 31.1% from
April 2011-March 2012; underemployment was 54%
• According to some researchers, up to 95% of positions lost occurred in lowtech,
middle-income jobs like bank tellers. Gains in jobs are going to workers
at the top or the bottom, not in the middle
• More college graduates are getting low-level jobs. US Bachelor’s degree
holders are more likely to wait tables, tend bar or become food-service
helpers than to be employed as engineers, physicists, chemists or
mathematicians combined: 100,000 versus 90,000.
The big problem with these points—apart from the obvious - is that we need
educated and skilled workers to drive innovation and economic recovery, yet
getting the education to achieve this is becoming increasingly unaffordable. And,
students don’t always end up with the right skills to find a job at the end of it.
The data still shows that there is a clear advantage to having a college degree,
but some of the most in-demand jobs actually won’t require a college degree
as we know it. They will require specialist skills, often in the STEM (science,
technology, engineering and mathematics) disciplines, but a college degree may
not be the cheapest and most efficient way of gaining these skills for the jobs on
offer—and certainly for the wages they currently pay.
why education and skills must adapt
Tom Friedman, writing earlier in the New York Times, highlights the problem
of education and jobs. He quotes Traci Tapani, who with her sister runs a sheet
metal company in Wyoming with 55 employees.
“About 2009,” she explained, “when the economy was collapsing and
there was a lot of unemployment, we were working with a company that
got a contract to armor Humvees,” so her 55-person company “had to
hire a lot of people. I was in the market looking for 10 welders. I had lots
and lots of applicants, but they did not have enough skill to meet the
standard for armoring Humvees.
“They could make beautiful welds,” she said, “but they did not
understand metallurgy, modern cleaning and brushing techniques” and
how different metals and gases, pressures and temperatures had to be
...“Unlike a Chinese firm that does high-volume, low-tech jobs, we do a lot
of low-volume, high-tech jobs, and each one has its own design drawings.
So a welder has to be able to read and understand five different design
drawings in a single day.” Welding “is a $20-an-hour job with health care,
paid vacations and full benefits,” said Tapani, “but you have to have
science and math. I can’t think of any job in my sheet metal fabrication
company where math is not important.”
This story is typical of the change that’s occurring across many traditionally lowskilled,
lower-paid roles in many parts of the US and Western Europe. Somehow,
welding became a STEM job and it’s not alone in making that transition despite
the lack of educational infrastructure to train these “new” primary industry
America and many parts of the western world have a serious skill-to-opportunity
gap. America has three million open jobs at the same time as around 8%
unemployment. The very idea of the middle class was built on being able to
earn a middle-class wage in a semi-skilled job, but this no longer holds. Instead,
these economies are paying less and requiring higher-level skills.
why education and skills must adapt
Many lower-skilled manufacturing jobs in developed economies have gone
offshore to Asia and eastern Europe, but even the ones that are left will require
serious skills and technical know-how, but knowledge that is different from the
typical college degree. The questions is, “Where will our middle-class kids attain
this know-how in order to get the job?”
Clearly, greater investment in technical training is needed. America is not alone
in needing to address this. However, the US is already at the extreme end of the
scale on a number of employment, training and debt fronts—not least of which
is its growing issue of student debt.
In the wake of the 2008 recession, more than one-third of college-age
Americans went back to school because of the economy. While they did so
with the best of intentions, their actions have contributed significantly to the
$1 trillion in student loans already held by the US government.
People are clearly going back to school and taking out loans as a way to make
ends meet. The average college graduate has $25,000 in debt. Default rates
are up 31% in the past two years. In many ways, student loans are a little like
the NINJA subprime mortgage loans available toward the end of the housing
bubble—they’re easy to get and you don’t need an income, a job, or assets to
Seeing this trend, Congress recently passed new bankruptcy laws, and unlike
housing loans, student loans cannot be discharged in a bankruptcy. The law of
compound interest means that borrowers, mostly young, will be paying back
this debt for many, many years.
Again, this is exacerbating rather than solving the employment gap that has
already emerged and is set to deepen. Instead of requiring expensive, general
Bachelor degrees, students need access to shorter, employment-linked training
opportunities that will provide them a job at the end.
Universities continue to produce heavily indebted graduates, ill-equipped
to meet the needs of a rapidly developing marketplace. The dislocations
we experience now are not new. The same challenges were encountered in
the first (steam) and second (electricity) industrial revolutions. This third, or
computer/networks revolution is simply moving at a speed extremely difficult for
the workforce (and the training institutions they rely upon) to keep up with.
If all of these converging trends were not enough to contend with, the
ongoing credit and business confidence crises are exacerbating their least
desirable aspects—both across the U.S and much of the Eurozone.
Human beings and organizations, and even governments, are capable
of adjusting to new models of education, supporting new industries and
remodeling their corporate structures. However, they’re not always good at
doing so quickly. And it’s the pace of these changes, coupled with long-term
economic uncertainty that makes it a major challenge.
Bill Dunkelberg is the chief economist for the National Federation of
Independent Businesses. He’s been doing regular surveys since at least 1974.
His latest monthly survey shows that businesses are not terribly optimistic in
terms of their plans to increase employment, which should be no surprise. The
number one problem? Uncertainty.
uncertainty: business conditions in 6 months
PREVIOUS RECORD 07/74 TIED
(% of Firms)
2009 2010 2011 2012 2013
% uncertain as to ‘better’ or ‘worse’
The uncertainty problem
Businesses, quite understandably, are unsure whether to invest or to wait
until conditions improve and risk is reduced. The trouble is, uncertainty
about risk creates a vicious cycle: as more investment is staved off, business
confidence fails to rebound, which causes hiring intentions to remain low and
limits the likelihood of further investment. In a nutshell, uncertainty creates
We need a circuit breaker in this cycle. We talk a lot about innovation, diversity
and disruption now in senior leadership circles, but we haven’t really even
begun to make it truly flourish. We understand the problems. Now, it’s time to
think about solutions and act on them.
Three major changes are occurring that are effecting our employment market:
1. Automation is taking old jobs and creating demand for new ones:
Technologically driven change is outrunning our ability to keep up with it, and
jobs that were once outsourced to other countries are now being outsourced
to computers/robots. This means human beings must now have different skills
to move up the value chain.
2. We’ve stopped creating enough of the old jobs: The decoupling of jobs
growth from productivity growth means we are on a permanent trajectory
of creating fewer jobs (for human beings at least) than we have working-age
people. We have jobs we can’t fill, but not the educational framework to
3. Workers are no longer incentivized to study, innovate and invest:
Inequality in wage growth means the path to a good job isn’t what it used
to be, and it doesn’t necessarily make economic sense to obtain a college
degree. It is also becoming too risky for many to start or expand small
businesses, which have traditionally been the engines of jobs growth.
In order to respond effectively to these changes, we need to employ technology
itself by improving the rate and quality of organizational innovation, and by
developing human capital. This is the way to ensure the workforce has the skills
it needs for both the jobs of today and tomorrow.
Organizations must do these three things in response to these challenges:
1. Get flexible, fast
Leveraging emerging technologies to change business processes, operating
models and organizational structure is the primary focus of our own innovation
efforts—and we’ve seen this approach work.
Changing the game
But above all, employers and employees need to have a greater dialogue about
the long-term structural move away from permanent full-time jobs. Instead, the
dialogue needs to focus on creating work in the form of projects, assignments
and deliverables that will improve output, develop employees’ skills and build
long-term career prospects.
“Flexibility” means many things, but above all it’s about matching the work to
the resources. Flexibility cannot be code for “insecure” or even “temporary”, it
must accurately match skill with opportunity. It’s not about creating a “job”, it’s
about ensuring that the tasks that need to be done can be done in a way that is
genuinely beneficial to both employee and employer. And this is what the idea
economy is all about—efficiency, innovation, productivity and mutual benefit.
Instead of measuring ourselves on the hours we work, our job titles or where we
complete our tasks, we need to move to measuring ourselves based on value
2. Provide greater access and higher accountability
The single greatest game-changer for the way we access our “work”, share
knowledge, collaborate and create value is already here. The trouble is, too few
organizations have fully embraced it.
Despite huge advances in technology that is available for us all to collaborate
and do our work, few organizations have adequately balanced the risk and
reward of allowing their employees full access to it. Nor have they provided
employees with the accountability to properly manage their own risks and
responsibilities in using it.
In fact, things have become so dire in most mid-size to large organizations that
many individuals now have access to better, more reliable technology in their
own home than they do at work. Part of this is thanks to declining investment
and rapid change that organizations haven’t always understood or seen coming,
but it also has to do with the way organizations manage and assess risk.
Too often, to their own detriment, organizations focus on restraining and
limiting technology, reducing productivity as a result. Notwithstanding the
need to manage legislative and commercial responsibilities, there’s a great
deal of change that organizations need to embrace to unleash to the power of
Changing the game
technology to their workforce—and to show employees what’s expected and
how to adequately manage risk in return for greater access.
We need a greater focus on finding ways to make things happen, to open the
lines of communication, to increase knowledge sharing and less focus on all the
reasons why it can’t or shouldn’t happen.
3. Educate, educate and educate more
With respect to human capital, this same focus on structure and business model
innovation will be required of the educational establishment to properly address
rapidly changing conditions in the workplace and the ensuing gaps those
Businesses will need to be proactive to build mutually beneficial relationships
with educational institutions. They will need to achieve better alignment
between what students learn and the skills that businesses need. But to do
this, businesses must offer real opportunity that is worth both institutions’ and
individuals’ investment. They must think about pay structures more deeply and
how they reflect the cost of attaining the skills workers need. And, they must
think about how to offer experience alongside knowledge, so that graduates
pay their way and contribute to business bottom lines and overall economic
regeneration more quickly.
The static “four years and out” mindset will need to give way to one with
a broader array of educational opportunities, including those offered by
vocational schools, trade technical colleges and the like. Continuous education
throughout students’ and employees’ careers is key—because the need to
innovate and adapt isn’t going away.
The stagnation of the middle, and the continued polarization of job growth
at the low and high end of the skills spectrum are creating opportunities for
creative entrepreneurs to leverage technology and develop the operating
models of the future. This applies both inside corporate enterprises, as well as
within the educational fraternity.
The collision of four powerful forces has seen a permanent and fundamental
shift in our employment landscape. While the financial crisis has undeniably
accelerated some of the impacts of these shifts, it has not been the root cause
of them. In fact, these employment obstacles we now face would likely have
occurred (albeit at a slower rate) with or without the Great Recession.
Rapid technological change, growing inequality and declining employment
incentives, coupled with educational and training inflexibility, has seen a steady
decrease in jobs growth in the US and other developed economies. These three
issues have now intersected with what Greenspan termed the “productivity
miracle” to create an employment “perfect storm”, which we simply cannot
The state of the global economy is now dependent upon major change—
change that will require shifts in our approach to work and education.
This change can, at least in part, be driven by organizations that see,
understand and have the ability to adjust their approach. Huge opportunities
for new kinds of jobs, for new ways of working, and for new solutions to the
world’s biggest challenges are there for the taking.
Just how quickly and how effectively we respond is up to us.
John Mauldin’s Nov 19th, 2012 weekly newsletter, “Thoughts from the Frontline”
Erik Brynjolfsson and Andrew McAfee’s “Race Against the Machine”, Jan 23 2012
Jared Berstein’s “On the Economy” blog: http://jaredbernsteinblog.com/the-challenge-oflong-term-job-growth-two-big-hints/
The US Employment–Population Reversal in the 2000s: Facts and Explanations by Robert
Moffitt, Johns Hopkins University, September 2012: http://www.brookings.edu/~/media/
Richard B. Freeman’s “Optimal Growth for Economic Growth, Stability and Shared Prosperity:
the Economics Behind the Wall Street Occupiers Protest”, Insights, April 2012
About the Author
ROLF E. KLEINER is the Senior Vice-President and Chief Innovation Officer of
Kelly Services. In this role he is responsible for fostering disruptive innovation
efforts, innovation strategy, innovation culture development and idea
management at a corporate wide level.
About Kelly Services ®
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