When Creative Destruction Strikes Near Home

Each month, the Bureau of Labor Statistics (BLS) reports on new jobs, unemployment and other measures about the labor force.  At least 200,000 new jobs per month are needed to keep pace with labor force growth.  But that paints an incomplete picture.  The quality of jobs created and lost each month matters a lot.  Well-paying jobs are in high demand, but they are in short supply, except for notable shortages in tech jobs.  Entry-level jobs that pay at or near minimum wage are better than nothing, but they do not sustain middle class workers who lost good jobs during the great recession and recovery.

Much of the ebb and flow of well-paying jobs is tied to innovations in Information technology (IT).  IT departments were once rooted in “mainframe” computers with massive hardware and large, highly-paid staffs.  Companies typically endured a backlog of proposed applications awaiting IT department attention and budget.

The advent of powerful personal computers, standardized databases and programming languages, and Internet connectivity of the 1990s let non-IT employees develop useful applications that had been too costly in the mainframe era.  These “client” innovations reduced need for highly-paid mainframe specialists such as Computer Programmer, Console Operator and Tape Librarian – and those middle income occupations gradually disappeared.

Current innovations such as virtual data centers (Office 365, cloud storage and Software as a Service are leading companies to outsource much of their physical IT equipment, discontinue pricey software subscriptions (e.g. SAP, Oracle or SAS), and to shed relatively high-priced talent such as SAP and Oracle programmers.  IT innovations continue to cannibalize highly-paid IT jobs.

Slowly, Electronic Health Records (EHR), an IT application is replacing medical file cabinets full of paper, CDs and x-Ray film. Used as intended, EHR supports patient data sharing among physicians. EHR allows simultaneous access and multi-party posting of lab results, treatment notes, and relevant insurance information.  Before EHR, medical practices employed busy teams of file clerks who shuffled paper, pulling and refiling folders in storage rooms.  As the EHRs gather steam, file clerks who want to stay in the medical industry must make the heavy lift of becoming an IT technician or a clinical specialist such as a phlebotomist or an x-Ray technician. Overall the medical industry is a big producer of new jobs, but the low-paying file clerk jobs are disappearing quickly.

In the 1980s, neighborhood Blockbuster stores supplied home-viewed movies.  A store’s thousands of VHS tapes or DVDs represented a large capital expense with a limited lifetime due to a movie’s decaying popularity and rough treatment of the rented copies. Physical movie copies are still available through Red Box kiosks but cheap storage and high-speed communications support virtual holdings of “on demand” services from major cable TV operators and as online downloads from Amazon Instant Video or Netflix.  Virtual services are low in cost and are sometimes free.  The transition from balky VHS tapes to fast downloads displaced minimum-wage store clerks, employees of the commercial and construction services the stores needed, and the VHS tape and DVD duplicating factory help.  The retail clerk jobs are not coming back.

Innovations in industries other than IT are also leading to job losses.  Between 2011 and 2018, the Bureau of Labor Statistics expected 1.3 million jobs to disappear from the manufacturing, mining, oil/gas extraction, and utility industries. Most of the jobs are in occupations that pay between $21,000 and $36,000. A few are middle income occupations, such as 6,200 Petroleum Pump and Refinery Operators who are paid an average of $60,000 per year and 139,000 Postal Service Workers who are paid an average of $53,000 per year.

Many occupations are displaced by technological innovations but some just no longer serve the public’s interest.  For example, most of the time, consumers prefer to replace than to mend shoes and leather goods. That preference will displace 3,100 shoe and leather workers by 2020.

Looking ahead there are innovations that will force industries to shed decent jobs, many of them paying at a middle income level.  Self-driving cars jeopardize the jobs of many taxi, bus, limousine, and delivery drivers. 3D printing and numerically controlled machining will eventually replace many “tool and die” jobs that currently pay $48,000.

Robots are already used for the heavy and dangerous work in automobile manufacturing (e.g. frame welding and final painting) and they are used in pharmaceutical manufacturing because they operate around the clock without hazmat suits and without contaminating biological and chemical processes. Robots replace some auto assembly workers who are paid $58,000 per year, and some pharmaceutical lab technicians who are paid $40,000 per year.

Innovations will continue their creative destruction of occupations.  The only plausible treatment seems to be a focus on education in STEM fields (Science, technology, Engineering and Math), as well as re-education at higher degrees of sophistication.  We all need to engage in the hard work on education and re-honing skills – trying to stay a step ahead of innovations.

Alan Daley is a retired businessman who writes for The American Consumer Institute Center for Citizen Research

FacebooktwitterredditlinkedinFacebooktwitterredditlinkedin