Guest Post: Why the Job Market Will Continue Shrinking

Tyler Durden's picture

Via Charles Hugh-Smith of Of Two Minds blog,

The paradox of an advanced post-industrial economy is that the number of jobs needed declines even as the cost of living rises.

The fundamental dynamic of America's job market is simple: we need relatively few workers to provide the absolute essentials of life even as the cost-basis of the economy inexorably rises. In other words, there are fewer jobs even as the costs of maintaining a "middle class" life rise.

Let's start by observing how all the financial data in the world does not necessarily describe the primary dynamics of an economy. There are a number of factors that cause this disconnect between the primary forces at work beneath the surface and the data.

One is that economists tend to focus on situations with abundant, easy-to-interpret data. If you're only looking for roses, then you ignore everything that isn't a rose. So economists seek dynamics that can be easily explained by available data, and financial factors that they are paid to examine. Everything else is ignored, especially if the act of examining it casts a skeptical light on a self-serving Status Quo.

One key reality that is rarely if ever discussed is that the number of workers needed to provide the bare essentials of life to the 313 million residents of America is modest. Let's stipulate that bare essentials include food, heat in winter, clean water, sewage and waste disposal, public health (innoculations against pandemics, etc.), public safety and enough energy to fuel these essentials. If life were suddenly reduced to these basics, and no energy were available for anything but these essentials, then how many full-time workers would be needed?

Roughly 1% of the workforce raises the vast majority of our food, and a modest number of workers maintain the water and sewage systems, natural gas pipelines, furnaces, etc., A similarly modest number of workers maintain public health and safety and provide transport of essentials.

Of the official workforce of 154 million, how many fall into this "absolute essentials of life" category? Perhaps 10% or 15 million people? Even if we double that to include all sorts of non-essential but "critical" goods and services, then that's perhaps 30 million workers, roughly 10% of the population and about 12.5% of the real workforce of 240 million (the Federal government has relegated roughly 88 million working-age people to the zombie-status of "not in labor force" to keep the official unemployment rate low).

We all know the dynamic behind this dramatic reduction in the number of people needed to provide the essentials of life: enormous increases in productivity based on abundant fossil fuels and advanced technology.

Even well-made infrastructure requires maintenance, but this process of replacing aging transmission lines, water mains, highways, refineries, etc. requires a relatively modest number of workers because machines do much of the work.

If you doubt this, stop and count the workers on a major repaving project or the construction of a highrise building. A very large multi-story building is generally assembled by about 100-150 workers, more during certain stages and less during others. Most of the components are fabricated in factories where machines do most of the work.

Ask how many frontline police officers are on your local force. Cities of a few hundred thousand might have 200-300 officers, larger cities might have 800-1,000. It's not a large number.

On a macro-scale, the challenge in advanced economies is creating "make-work" for 80% of the working age population. This is not an issue in developing economies, as most of the workforce is non-market and does not participate much in the cash economy. For example, only 7% of India's vast workforce of hundreds of millions of people gets a paycheck. The other 93% survive via barter, raising their own food, a bit of trade or occasional labor for cash, etc.

Before industrialization, roughly 50% of the U.S. population and workforce lived and worked on farms. The surplus of their labor fed the other 50% who lived in urban areas, and that cash supplied the few essentials the rural dwellers needed.

The paradox of post-industrial economies is that the cost of living rises even as the efficiencies of providing essentials reduces the number of essential jobs. Some of this may be due to Baumol's Disease, a topic I have covered before (Productivity, Baumol's Disease and the Cliff Just Ahead, December 8, 2010).

Baumol's cost disease is named after economist William J. Baumol, who with William G. Bowen described a critical difference between goods-producing and labor-intensive work.

Baumol and Bowen noted that if productivity/wages rose by 2.2% a year and costs rose by 2%, then over time workers could buy more of everything--goods, services and government services paid for with taxes.

They also observed a critical, long-term difference between the rates of productivity growth in goods-producing industries and labor-intensive industries such as nursing and teaching. (I would also include the Armed Forces as an example.)

Goods-producing industries could achieve very high productivity growth as labor-saving automation and supply-chain efficiencies scaled up, while nursing and teaching required the same number of hours with patients or students as in years past. In other words, productivity in labor-intensive services has intrinsically lower rates of productivity increases than goods-producing industries.

Baumol and Bowen then described the peculiar result of this: as GDP increased due to goods-producing improvements in productivity, the relative share of low-growth-productivity services would rise.

Thus machine-produced TV sets and computers fall in price while labor-intensive healthcare costs rise.

While this is undoubtedly one causal factor, it is not the only causal factor. I think there is an implicit assumption being made on both a policy and cultural level that higher costs are acceptable because it "means more people are being put to work."

So when the cost per military fighter aircraft leaps from $56 million each (the F-18) to $200 million and $300 million (the F-22 and F-35), then we accept this as OK because we assume more jobs will be created as costs rise.

Gross waste and inefficiency is thus accepted as the "cost" of creating more jobs.

The problem with this implicit pact is that a rising percentage of these jobs are friction: they do not increase productivity or wealth, they merely consume wealth. In the case of fighter aircraft, the cost has leaped so dramatically that it is now apparent the nation cannot afford a fleet of these hyper-costly (and apparently troubled) aircraft.

Will 100 of these aircraft prevail over 1,000 dirt-cheap drones? How about 10,000 drones? If the future of warfare is increasingly powerful unmanned networked drones (and it clearly is), why are we spending $1 trillion+ on hyper-costly aircraft that are essentially designed for a previous era?

We're not building miltary dominance with these programs, we're sinking money down ratholes, just as we're not "buying" more health with our 17% of GDP spent on sickcare, we're simply managing more chronic diseases.

In the case of healthcare, patients being issued $1,000 a month in medications are not necessarily "getting better," rather many thousands are dying of accidental overdoses. Though the U.S. spends twice as much as other advanced democracies as a percentage of GDP on healthcare, Americans are arguably less healthy in aggregate than the citizens of Japan and Australia, nations that spend about 8% of GDP on healthcare while the U.S. spends 17% of GDP.

These are but two examples of trillion-dollar friction that is sapping the nation's wealth and vitality. Since the nation cannot actually afford to spend $1 trillion on the F-35 program or $2.5 trillion every year on a healthcare system of which at least 40% is fraud or paper-pushing, then we have been borrowing $1.5 trillion every year to maintain the illusion that these trillion-dollar sinkholes are sustainable.

The solution to the post-industrial decline of labor is not unproductive "make-work" jobs and borrowing trillions of dollars until the system implodes, it's lowering the cost basis of the entire economy and culture. The central paradox of an advanced post-industrial economy is that the number of jobs needed declines even as the cost of living rises. The only way out of that paradox is to radically reduce the cost-basis of the entire economy, which means eliminating all the systemic sources of unproductive friction.

I will discuss this further in the days ahead.

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carbonmutant's picture

By 2015 - one third of US fighting strength will be composed of robots

- US Department of Defense
francis_sawyer's picture

When are we going to have robot bankers?... Oh wait!

Are you kidding's picture

When are we going to get women out of the workforce? Most of their "work" is nothing but busywork. They belong at home raising their kids.

BigJim's picture

 The central paradox of an advanced post-industrial economy is that the number of jobs needed declines even as the cost of living rises.

Basically, this is the 'lump of labor' fallacy, and I'm surprised to see CHS make it.

Back in the early 20th century, what he says held true, yet we've seen plenty of growth since then... because people's perception of what they 'need' is infinite. Just because you have all the basics doesn't mean you won't strive (ie, work) to get a lot, lot more.

Yes, I need another car! None of my Lamborghinis is chartreuse-pink!

Dr Benway's picture

You're reading this wrong. The point is that the number of productive jobs that actually has useful output will fall. That is how 'needed' should be interpreted in that sentence, perception is irrelevant. We can invent lots of unproductive jobs, no matter what we think of them they will still be unproductive.


This article was excellent.


The author should have mentioned the increasing portion of each workday that is spent slacking off. I estimate that most office jobs the average worker puts in maybe 50% of actual work. The rest of the time is just passing the time, chatting, surfing, getting coffee, etc. And the actual work itself is purposefully inefficient in many cases, with endless selfjustified meetings. Most management positions are rewards and sinecures.


Truth is most of society is just pretend busywork nowadays, because the system required employment, and gradually employment has become more and more unproductive as unneeded jobs are invented and needed jobs filled with unproductive people.

narnia's picture

The article is pretty good.  It nibbles around the basics.

Because so much of what we pay for in the price of our products is comprised of involuntary purchases or compliance, we really have  no idea what it is really worth absent those artificial influences.

If we had no minimum wage, a subsitence level minimum income (as Milton Friedman suggested), and a limited government that had very few involuntary transactions, labor and intellect would not be idle.  I have little doubt it would flow to where it is most needed (or demanded).

gwiss's picture

Charles is remarking on the capacity for self organizing systems to become increasingly efficient.  We see this in nature on a grand scale.  It's how we started with a rocky planet but now have a planet covered with soil and amazing biodiversity, through the process of the excess being ploughed back into the system to create increasing complexity and depth of organization.  No waste thanks to the tireless and ruthless culling of unproductive efforts.

An economy is an ecology.  So, no surprise that it would achieve increasing efficiency.  Supposedly, that excess could be ploughed back into the soil of the economy, which would support additional organic and balanced growth.  However, Charles seems to have simply accepted that successful economies produce themselves out of jobs, without stopping to ask -- why is that excess not reinvested into the economy to produce more productive growth, such as we see in nature?  Why would this process not create a parabolic increase in standard of living rather than  producing sloth and dependence?

In a way, what Charles is talking about is a variant of two other concepts. 

Bataille had a concept called "the accursed share", in which he imagined that a certain proportion of economic spending would not be spent on "productive endeavors", which is to say endeavors which yield a net benefit of increased capital or productive capacity.  This excess proportion could be spent on patronizing the arts or on conspicuous consumption.  But, if they were not, then they would be spent on other societal level conspicuous consumption projects such as wars or ruinious social safety nets which debauch the character of the entire society.  Societies with excess success thus contain within themselves the seeds of their own destruction, and unless that excess is allowed to vent itself harmlessly and aimlessly within a society, it will be gathered up and directed by those who would commandeer it to change the society, and the gusts produced by this directed venting destroy the delicate fabric of society.

The Jevons paradox approaches this reality from a slightly different angle, in that it recognizes that any improvements in efficiency will be compensated for by increases in utilization (a variant of the Laffer curve, if you will.)  Thus increased efficiency in coal use leads to increased use of machines that use coal rather than decreased coal usage.  Or, for a more contemporary example, increases in storage density and computer processing are matched by increasing unproductive bloat of code size.  As the programs get larger and larger, efficiency per unit of code steadily decreases, but because the limit against which they are pushing is steadily moving away from them, there is no hard perimeter which forces them to prioritize and therefore become increasingly efficient.  Hard perimeters and prioritization are thus seen to be the only true protectors of efficiency.

Part of the answer, of course, is that we abandoned the guiding hand of nature by divorcing our money from physical reality.  By divorcing wealth from reality, we fostered an incomplete and fraudulent conception of reality.  When this false increasing society wealth, built upon currency debauchery, was combined with nearly limitless and nearly free energy in the form of oil and the combination was poured into our civilization, we lost our hard perimeter, and we were stupid enough to hand the bloat steering wheel to politicians rather than retaining it as individuals.  It's thus sort of a perfect storm.


Gazooks's picture

whoa! stunningly clear observation



StychoKiller's picture

Encouraging stupidity and waste does not help matters; let's change the incentives:


RICH Economy step 1:
Offer a prize of $50,000/year to any worker that designs a
machine/software/process that will replace him/her.

Offer an additional prize of $30,000/year to ALL OTHER WORKERS that get replaced.

Answering conservative objections:
1. A machine works 24/7, thereby tripling output immediately.
2. Machines do not take sick leave.
3. Machines are never late for work.
4. Machines do not form unions and constantly ask for higher wages and more fringe benefits.
5. Machines do not take vacations.
6. Machines do not harbor grudges and foul up production in sneaky, undetectable ways.
7. Cybernation was advancing every decade anyway, despite the
   opposition of Unions, government, and other Alpha males; it was
   better to have huge populations celebrating the reward of $30K
   to $50K/year for group cleverness than huge populations suffering
   the humiliation of welfare.
8. With production rising due to Cybernation, consumers were needed and a society on welfare was a society of very meager consumers.

The majority of the unemployed, living comfortably on $30k/year, spent most of their time drinking, smoking, engaging in primate sexual acrobatics and watching TV.  When Moralists complained that this was a subhuman existence, Hubbard answered, "And what kind of existence did they have doing idiot jobs that machines do better?" [/quote] -- R.A. Wilson

gwiss's picture

Interesting.  So -- embrace the suck of humanity and allow those with little intelligence or motivation to follow their desires to be as slothful as possible?  Certainly would produce a more peaceful existence -- bread and circuses tends to soothe the populace quite well.  Trouble is, they will breed.  Continuously and like rabbits, quickly overwhelming the capacity of the system to support them, at which point you will still have to face the necessity of allowing them to feel the hard perimeter of reality, which is the only thing which changes behaviors by forcing prioritization.  To me, this solution seems analogous to bailing out insolvent banks with more debt or trying to make a black hole stop sucking matter by feeding it more matter.  You can never satiate the appetite of a black hole any more than you can improve insolvency with more debt.

Equilibrium is only maintained when opposing forces balance.  Thus, the urge to breed or be slothful will only stop expanding when it is matched against an opposing force that is just as unpleasant as sloth and breeding is pleasant.

Of course, you can just sterilize their offspring at birth as the price for their sloth.....


blunderdog's picture

    Trouble is, they will breed.

Evidence doesn't bear out this prediction.  When you educate the women, provide survival security for the children, and provide no artificial incentives to reproduce,  birth rate DECLINES.  This is one of the most robust statistical observations on the subject, so I'd say you'd have to come up with some really compelling data to support your assertion.

See: every post-industrial society on Earth

That said, it is very definitely the case that many (perhaps even most) human brains are far too calcified to permit new ways of thinking about how life should be.  Although we theoretically have the ability to change our way of life overnight, there will always be a significant number of people who oppose the new way of doing things because they fear change.

gwiss's picture

Agreed, but you have to look past the generalization to the specifics. What is very clear is that affluence is tied to declining birth rates, but the specifics of that link is not at all clear.  Is the better education of women what causes them to choose less births, or as they become better educated do they assume more responsibility and therefore choose to have less children because they are busy with other things?  In other words, if you provided a slothful existence to educated women, would they still breed less?

Figuring out cause and effect would be important, because remember that Stycho's plan was not to make everyone more affluent.  Rather, it was to allow a few to become affluent and control the whole system of robotic production, with the purpose of robotic production being to provide cheap and slothful existence for the rest of the majority of humanity.  Essentially, to intoxicate the majority of humanity into quiet consumptive sloth so that they don't complain about the disparity between their existence and the existence of others who are more affluent.  So, while I agree with you that post-industrial societies have lower birth rates, are you sure that Stycho's plan represents a post-industrial society?

blunderdog's picture

I'd say you have to try the experiment if you want to know anything about it.  You can speculate all you like, but it doesn't add any information to the system.

Philosophically, no one's ever REALLY answered the question of causation in the first place.

narnia's picture

Spending time being a good father is productive & rewarding activity.  I'd like to see any philosopher quantify that.  

midtowng's picture

If you or the article are right then we are reaching the end of capitalism. It worked fine when people's basic necessities couldn't be met, but now...

If you only employ 20% of the population you wind up with social instability and revolutions that never end.

narnia's picture

Full time for 20% of the people or 20% of full time for 100% of the people? You aren't going to get to the latter scenario with central economic planning.

Dr Benway's picture

Rather, if you only pay 20% of population you wind up with unrest.


Trust me, vast swathes of society would be perfectly happy to just pull social security checks given they are generous enough.


The problem is, if 80% are on these checks they'll vote up the benefits to unsustainable levels, and so the system crashes.

MacGruber's picture

I think this article misses probably the largest point, which are the 1% walking black holes. If the balance of trade is negative then the U.S. economy is at best a zero sum game. So as the exponential expansion of wealth of the top 1-5% demonstrates, they are the only ones benefiting from the expansion of productivity. As productivity increases it is the capitalist (owners of capital) that benefit.

This fits into a broader mechanism that is in full swing which is the continued concentration of wealth that capitalism naturally causes. $4 gas and other forms of inflation ONLY benefit capitalists. Just look at oil company profits, and tell me that the high cost of gas isn't helping their top and bottom line. It's a systematic extraction of wealth from those that are marginally economically attached, which is basically anyone but the capitalists at the top.

Military spending is just another form of government transfer payments. Just because a guy gets shot at behind a Hesco barrier, drives a tank, or builds a ship, non of it has any productive economic value - its the same as paying a dude to eat cheesy poofs on his couch, though maybe a lot more fun for the tank driver.

StychoKiller's picture

How much of the cost of living rise can be attributed to the incessant inflating of the Munny supply by the Fed over the decades?

The price of finished goods should be falling over the decades as efficiency increases.  Too many middlemen raking in their cut doesn't help matters either!

Clueless Economist's picture

Who cares about jobs???

The PPT has done their job today.  Dow/S&P rallying as we speak.

docj's picture

Yep - spot on. S&P is up 11 since 13:00, already erased more than half of the day's losses and still almost an hour to go.

So to recap - straight down on actual news in the morning, straight up on absolutely nothing into the close. Just another day in Fraud Street, USA.

DaveyJones's picture

By 2016, two thirds of Congress will be composed of the same. 

HarryM's picture

In the 70's we were told that increased productivity through automation would result in shorter and shorter work weeks, earlier retirement etc.


But then , we were also told we'd have flying cars by now.

OpenThePodBayDoorHAL's picture

Michael Hudson addresses this. The incredible gains in productivity should have resulted in leisure, peace, and prosperity. What happened though is it all gets siphoned off by the financialization of the economy. Like parasites sucking the life out of a host. Check it out, great article:


GeezerGeek's picture

I believe that THE single greatest source of friction is the Federal Government. Once the Feds begain to do more than allowed in the Constitution the amount of friction, via taxes, regulations, etc., increased dramatically. Don't bother talking about replacing F-35s with drones until the human drones in all those bureaucracies are dumped. At least developing the F-35 led to technological advances.

jerry_theking_lawler's picture

Agreed. WELFARE STATE has increased population size. In reality, the population should have stabilized or began to shrink thus increasing the standard of living for those that were left. With the .gov trying to buy power (ie votes) it has taken wealth from one class to give to another (thus allowing them to breed and raise offspring). Not being crazy here, just the way it is meant to be....survival of the fittest. If you have skills and can earn income, then you can have a family. If you don't have skills and can't earn income then you and your family starve.

Society will go back to the real world....and when it does, its gonna be UGLY!!!!

Milestones's picture

Excellent post! Thanks for putting it up.                  Milestones

sushi's picture

That is a big change from the present force which is 98% drones.

kralizec's picture

That'll bring the unemployment rate down.

El Viejo's picture

All together now: "Would you like fries with that sir?"

francis_sawyer's picture

Maybe humans can find a 2nd life as batteries...

El Viejo's picture

OK All you robots together now: "You will service us!"

Dr. Richard Head's picture

All your jobs are belong to us. 

Sorry, it had to be said.

StychoKiller's picture

Hey meatbag, bite my splintery, wooden @zz!

GeezerGeek's picture

For far too many it would be a first life.

Seer's picture

Soylent Green is more like it...

ihedgemyhedges's picture

As long as someone is there to deliver your pizza and fix your cable (God forbid you miss an episode of Dancing With the Stars or CSI Miami/Las Vegas/New York), do you really care if anyone else is working??????????

Joe The Plumber's picture

You will care when there is a huge tax added to the pizza and cable bill due to labor market barriers that cause unemployment that you have to support with lowered pizza consumption

FeralSerf's picture

I won't care a bit.  I don't consume either.   Society would be better off if the pizza and cable were too expensive for the average prole.

williambanzai7's picture

I have wondered why Mickey D has not pushed automation farther. If you look at what happens behind the counter, it is not so hard to imagine.

El Viejo's picture

I've got about 34 yrs total in automation. 10 yrs building installing and programming off-the shelf andcustom built robots. They do a lot more than just build cars. Back in the 80s you could buy a Toshiba pick and place robot for ten thousand and add a little tooling and possibly a light curtain safety perimeter and presto chango one less conveyor worker. Who knows what they do now. I've moved on.

El Viejo's picture

Of course the biggest centralized control robot: The Internet. It's time to replace politicians with an internet referendum on every bill.

GeezerGeek's picture

Why bother? Obama just issues executive orders and does whatever he wants. Besides, we've got too many laws already. And do you really want the CIA/DIA/NSA/whoever watching how you vote?


tarsubil's picture

They haven't needed to with all the cheap imported labor. Now as those meheecans leave, you see more automation like with drink carousels. Or maybe it is the other way around. I remember working for a factory that saved with meheecans on the line to buy a giant automated line machine. Yes, I'm arguing with myself.