The jobless recovery continues

By Neil Patrick

If redundancies are slowing and hiring is rising, how come no-one feels much better about the outlook?

There are confusing signals coming out right now around the supposed economic recovery. We know that hiring rates are rising. Incomes and spending are on the up too. We also know that workers are increasingly feeling confident enough to quit jobs they don’t like. This fact alone pushes up the volume of hiring activity. So this part of the situation can be at least partially explained.

An oft-quoted opinion about the persistence of unemployment is that workers don’t have the right skills. If this were true, then we’d expect to see that in some sectors, the numbers of unemployed workers would be dwarfed by the numbers of job openings. Employers would have no choice but to settle for less than ideal candidates and many vacancies would remain unfilled.

So is this the case?

Here’s the breakdown for Feb 2015 by industry sector in the US:

What we can see here is that with just one exception, namely Healthcare and Social Assistance, the number of unemployed workers still massively exceeds the number of job openings.

For example, in construction, the number of unemployed workers exceeds the number of job openings by five and a half times. In the enormous sector of retail, unemployed retail workers exceed job openings by around two to one.

This is a jobless recovery. And the lack of any significant recovery in the US labor participation rate confirms this:

So what is going on? Here’s my hypothesis.

First there is a flight to technology investment over investment in human capital. In the seven or so years since the onset of the Great Recession, technology has made huge strides. The result is that most organisations can today accomplish the same or a greater amount of work with a smaller workforce than they did even just a few years ago.

Second, the globalization of workforces means that many jobs which used to stay firmly in the domestic market are now spreading around the world. And it’s not just a cheap labor argument. I recently had lunch with an entrepreneur friend who told me that almost his entire workforce was now composed of freelancers based the Philippines. Yes it was cheaper than a UK workforce (by about 75%), but critically this wasn’t his main reason for the choice. He was in the business of web content production and he had found that his overseas workers were more diligent, more proactive and had better written English than the people he used to employ in the UK.

Thirdly, endlessly falling marginal costs of production mean that revenues and inflation are acting as a brake on spending levels and wage growth. Both have a negative impact on incomes, spending and government tax receipts.

The forty-thousand dollar question is will business growth and continued recovery result in more jobs for humans being created or will the robots steal them?

Why we should all be concerned about banking job losses

By Neil Patrick

News reached me this morning that RBS is to make 20,000 (about 20%) of its staff redundant in the next few years. These job cuts will take RBS staff numbers to their lowest level in more than a decade.

RBS is expected to exit its Connecticut-based US investment banking business, as well as shutting down large parts of its Asian investment bank.

 Ross McEwan, Chief Executive of RBS. Photograph: Ian Macaulay/PA

If you are not familiar with RBS, in brief, these job losses and business closures will likely see RBS staff numbers, which stood at 161,000 at the time of its £46bn government bailout in 2008, fall to below 100,000 for the first time since the bank’s 2000 takeover of larger rival NatWest.

Since the bailout, the RBS share price has been languishing in the doldrums:

So what?

You may not care about bankers losing their jobs. You might even think it’s the very least they deserve.

I spent almost 20 years in banking and finance and left it for good in 2004. I cannot claim any great moralistic reasons for this choice or even foresight about the tsunami which was headed towards the sector. No, I was just a bit bored and wanted to do other things. But I have retained an interest in the sector and watched its grisly agonies like a train wreck.

So I feel I have a unique perspective. First inside experience of how banks operate and stage manage their communications and second a degree of detachment which makes me neither sympathetic nor an outright bank hater.

Why this news is significant

The public reaction to this news was even more interesting than the news itself. People’s reactions are shaped by their political and social beliefs more than anything else it seems.

Those of a socialist persuasion see this as some kind of moral victory, but also suspect that these redundancies will be softened with generous exit packages. Those of a more capitalist orientation see it as share price manipulation and the share price did tick up a few points on this news granted. Those who are inclined to a conspiracy view of the world see this news as evidence of yet more government and big business bosses in collusion for their own ends.

I subscribe to none of this positions, though I can see some truth in all of them. What I am really interested in though is what this tells us about the future of work in general.

This is yet more evidence of how technology will continue to destroy jobs for everyone

Buried behind the headlines was this comment:

Project Cook, the internal codename for the plans, will deliver cost cuts which are intended to help fund increased investment on vital IT systems after a series of embarrassing glitches caused millions of the bank’s customers to lose access to their money.

Ross McEwan, CEO, is understood to believe that only increased automation will allow the bank to compete with rivals such as Barclays and Santander UK, which have spent billions of pounds building state-of-the-art computer platforms to offer customers better online and mobile banking services.

This is how the banks frame their statements for public consumption. These headcount cuts are presented as being an investment to enable them to deliver better customer services through more and better IT.

The job cuts are explained as being necessary so that customers and investors can both benefit. Regulators will be happier too as these changes will improve the bank’s capital ratios.

These things may all be at least partially true. But they don’t matter. What matters is that thousands of high paying jobs will be lost and replaced with a combination of technology and lower cost labour. And because similar trends are developing within the rest of the sector and businesses as whole, many within this massive exodus of workers will find nowhere to be rehired.

This accelerated contraction of the banking sector jobs means these people will soon be looking for jobs outside the sector. Which may well mean they’ll be after your next job.

This is why this isn’t good news for anyone.

Are our employers and institutions ready for the New Machine Age?

By Neil Patrick

Researching for my post on the zero marginal cost society led me to the great work of Erik Brynjolfsson and Andrew McAfee. They have painted a dazzling picture of the digital future and described the changes that people and society need to make in order to prevent being left behind. I think the potential is bright too, but today as the dog days of summer retreat, I’ve got a nagging feeling about one thing…

MIT’s Erik Brynjolfsson and Andrew McAfee have coined the term and titled their book, The Second Machine Age. It describes an almost utopian future. It’s a very uplifting vision of how technology holds the potential to fill the world with more possibilities than we can even imagine.

I featured Andrew McAfee’s great TEDx talk here a couple of weeks ago.

But can this vision be realised? Technology frees us up to achieve more than we ever could have dreamt of, but will organisations be able to keep up? After all, apart from the goods and services we consume, most of us rely on organisations for one other very important thing…our jobs.

People, organisations and societies have to keep up with the speed of technological change

The Second Machine age will require constant change, delivering at speed, innovative thinking, fast-paced learning and cross functional collaboration like never before.

So my worry isn’t with technology per se. My worry is that the pace of technological change is moving so fast that people cannot keep up. Let alone corporations and society as a whole. And if organisational thinking can’t keep up, how on earth can organisational culture?

The future’s here, ready or not

Brynjolfsson and McAfee paint an optimistic picture of the future. As the full impact of digital technologies is felt, they profess that we will realize an immense bounty in the form of dazzling personal technology, advanced infrastructure, and near-boundless access to cultural items that enrich our lives.

They admit that amidst this bounty will also be wrenching change. Professions of all kinds, from lawyers to truck drivers will be relentlessly downgraded and delisted. Companies will be forced to transform or die. But will they spot the need to transform quickly enough to respond? I think it's safe to predict that some will and some won't and will suffer the consequences. Recent economic indicators already reflect this shift; fewer people are working, and wages are falling even as productivity and profits recover.

But will organisations and employers keep up?

I don’t doubt the guarantee of technological transformation. What I doubt is the capability of organisations to transform fast enough to keep up. Let alone institutions and legal systems…

On the one hand technology is enabling things to be made and done faster and cheaper than ever before. At the same time, this speed is outpacing people’s ability to extract enough money from the system to live.

Brynjolfsson and McAfee recognise that to adapt, society must change rapidly. This includes revamping education so that it prepares people for the next economy instead of the last one, designing new collaborations that pair brute processing power with human ingenuity, and embracing policies that make sense in a radically transformed landscape.

I agree that this is needed. What I struggle with is the idea that persistent ideas and attitudes left over from 20th century top down command and control structures can possibly evolve fast enough to prevent giant chasms opening up between technology and policy and culture.

From the time I have spent teaching business in universities, I took away a lot of learnings. And one of these was that the smallest unit of time measurement used in the management of educational institutions is a year. And that's just far too slow to keep up with the world of tech.

But educational institutions are not alone in being slow to change. Commercial businesses are so focussed on day to day and week to week revenues, that the medium and long term changes they need to make are deprioritised. And this makes them vulnerable. And this will leave many people exposed to redundancies, lower incomes and longer periods without work.

Our organisations have got to embrace this new economic reality or they will die. And one way they can do this is to hire more people who understand what's going on and how to capitalise on this new economic era not be crushed by it. And this creates a whole new world of economic winners and losers.

Who will respond and who will not?  That's the most interesting and important question I think...

Andrew Keen’s interview with Erik Brynjolfsson and Andrew McAfee here may help you decide for yourself: