RateWatch #369 – The Nature of Work
August 16, 2003 by Dick Lepre

What's Happening

CPI was +0.2% (overall and core) in July. Inflation is mild and, for the moment, Greenspan's concerns about disinflation should be assuaged. Capacity Utilization was up slightly.  Restrained inflation and higher capacity utilization are signs of economic recovery.  The "Joker" is still jobs.
We need to see increased investments in plants and capital equipment and also hiring if we are to
have satisfactory economic recovery.  All of these forces seem to be keeping Treasury yields firm
at these levels.  Little relief is in sight for mortgage rates.  Any opportunities will occur only on brief dips in yields.

Treasuries prices spiked about a point and a half after the regular session on Thursday as terrorism was feared.  On Friday morning, prices returned to pre-blackout levels. 

Last week's newsletter was about jobs as in "where the heck did they go?"  This week I want to re-run an old newsletter on the changing nature of work in the United States.  This is all working up to a piece dealing with the issue of tech jobs migrating from the U.S. and whether protectionism is a solution. This is one of those issues that polarizes folks.

The Changing Nature of Work in the U.S.

Every month we look at the BLS Employment Situation Report. It is one of the most important pieces of  economic data issued each month.

Underlying the numbers is a larger picture of the changing nature of the U.S. economy. The source for data for the American workforce is the Bureau of Labor Statistics. One may go to:
http://stats.bls.gov/webapps/legacy/cesbtab1.htm and retrieve some interesting data series on the
changing nature of this set of people.

One exercise is to pull tables of "goods producing" non-farm employees v. "service producing" employees. In January 1988 the number of goods producing workers (seasonally adjusted) was  23,668,000. It peaked at 24,706,000 in March 2000 and has fallen to 21,982,000 most recently. I would describe that as "dramatically flat." In January 1988 the number of employees in
service-producing jobs was 80,060,000. This is now 107,888,000.

There are many things that can be derived from such data but I would suggest that there are 2 big points:
1) 81% of the workforce is in service producing jobs and
2) almost all new job growth is in service-producing jobs.

Indeed, none of this is "news" but I think that it requires perspective. We are not on the Enterprise
where the Captain says, "replicate some blankets, clothing and food for these people," and the "replicator" makes it. Stuff is made abroad. This is done because economics dictates it. It can be made less expensively there and, thus, there is no good reason to make it here.

Americans of my generation and younger folks have been through a period where we are trying to seek a greater social consciousness. The very reports that the BLS publishes describe our concerns: what are the differences in employment rates between various ethnic and age groups? It identifies groups that have higher unemployment, presumably so that something may be done about it.

As the economy is becoming more of a "world economy" where "stuff" is made in other countries this concern is diffused. Should we be concerned about how much money people who work in factories in Asia make? Maybe, at some time in the future, our concerns will translate into better lives for people there. For now, stuff will be made abroad and wages will be determined by the market there. We might be horrified at the low wages being paid to seamstresses in factories there but the real question might be: what were these people doing before they took those jobs? In the "world economy" the United States will be:
a) a supplier of capital
b) a supplier of technology and ideas
c) as stable economy providing a stable currency and
d) a consumer.

Is This Work?

At some time in the past, a large sector of the economy was agrarian. The Industrial Revolution came along and we became a nation of factories. Perhaps the folks who operated the machines felt that they were not really working. "The machine is doing all the work, I'm only turning the controls." Even though operating a back hoe might not seem like as much work as digging a hole by hand, the fact is: it accomplishes the task at a much lower cost. I don't think that there are many successful excavating contractors who use shovels exclusively. The important thing is not getting calluses but getting the hole dug. The contract to dig the hole will go to whomever can do it at the lowest cost.

We are in the second iteration of the Industrial Revolution. The machines are now computers. Our jobs are service jobs. They are made to somehow seem less "real" or less important. A commonly held belief is that "service producing" jobs pay less than "goods producing" jobs and that, by not making goods we are becoming a nation that cannot compete in the world economy. Our merchandise trade deficit is viewed as a symptom of malaise.

This is nonsense. There are several serious problems with the notion of service jobs as not
being a viable basis for a healthy economy for the 21st century:

1) the concept is imbued into the fabric of American Protestant ethos. Work is good. Work should be hard. Real Americans are Masons not lawyers. This is absurd. I am (by education) a physicist.Work is measured in foot-pounds. Pick a 10 pound object up one foot and you have done 10 foot-pounds of work. Pick a 1 pound object up 10 feet and you have done the same amount of work. You can use a pulley to pick up a very heavy object and you are doing no less work than if you had busted your ass picking it up without one. Work is measured by accomplishment - not perspiration.

2) the government-defined concepts of goods producing and service producing are fuzzy.

If I buy a frozen hamburger at Safeway it is a good. If I buy it cooked at McDonalds - it
is a service.

If I am a trucker who works for a manufacturing company and move parts around for them I am a goods producer. If I own the truck and am contracted to do the exact same work, I am a service producer.

Is a computer program a good or a service?

Is assembling a computer by attaching chips to a board that much different than assembling
something such as a loan file and delivering it to a lender? The neat standardization of loan
files makes them commodities tradable on markets as if they were bushels of wheat.

3) the changing nature of work is a derivative of the extent of technology. The average product has a lot less "stuff" in it and a lot more intellect. The Pentium that I am typing this on was produced with a lot less effort by "goods producing" workers than the first Univac 1107 that I used. Its ability to accomplish tasks is largely the result of a lot of work by service producers: programmers, circuit designers, electronics engineers and physicists.

Is someone worse off because less physical work has been done to build my computer?

4) as union-dominated manufacturing jobs: producing steel, cars, and television sets, have vanished to appear in other countries there is a political-social concern that this represents a failure to the people in these industries - the real workers that the labor movement fought so hard to emancipate from capitalist scum such as Henry Ford.

The perception is that the loss of these union jobs is socially disbeneficial, that those hard-fought gains of workers are being lost to service-producing jobs at lower wages with less benefits. Perhaps labor unions have lost power but their workers are getting more done.

Expansion in service producing has not resulted in a reduction in the number of people producing
goods. It has made them more productive. America is not de-industrializing. It is getting more done with fewer workers. The important point here is that this expansion in productivity has required not more work, not more raw material but more capital. I want to repeat that last item for emphasis. The requisite for higher productivity is capital, lots of capital.

But What About the Big Layoffs?

Among the many things that drive me nuts about the media is the presentation that since big
companies lay off large numbers of workers, the economy must be going into the tank. This is addle-patted. That is like saying: since old people die and people are born at an early age the average age of the population must be decreasing. I don't think so. Everyone gets a day older each day. In a similar manner: big companies have big layoffs, little companies start every day and the small and medium sizedcompanies are the ones that add jobs.

Where Is This All Going?

I have the feeling that this change in the nature of work is, in a sense, evolutionary. When I watch "Star Trek, the Next Generation" I see a model (albeit an incomplete one) for the future. These people do not produce goods; replicators do this for them. As a matter of fact, Captain Picard says that since people have all of the material things that they need they do not have money. This is not going to help the mortgage business but the serious point is this: freed from the necessity to work to make stuff would we not be on the next evolutionary path as a species? This changing nature of work may be a step in that direction.

In a few weeks (and with enough work) I will finish my newsletter on the migration of tech
jobs and what (if anything) can be done about it.

To receive this free RateWatch newsletter each week by e-mail, click here.
To view the archive of RateWatch newsletters, click here.