Part 5 of 10: Here’s why fewer middle jobs is bad news for everyone.

This is the fifth in a series of ten posts on the threat to jobs and growth from technology and online distribution, and what we might do about it. 

  • The first part summarises the argument
  • The second introduces the challenge.
  • The third looks at the threat to jobs from automation.
  • The fourth looks at the threat to jobs from online competition.
  • The fifth looks at what economic problems this might cause.
  • The sixth looks at the social and moral problems it might cause.
  • The seventh looks at some of the arguments against a policy response: are we really sure this is a problem? Doesnt technology always create as many jobs as it destroys? Surely there is nothing we can do?
  • The eighth explains why more education and training isn’t the solution to technological un and underemployment.
  • The ninth explains why more self-employment and entrepreneurship isn’t an adequate solution either.
  • The tenth looks at other solutions, and proposes a new one.

In the last two posts I sketched why automation and online competition could drastically reduce the number of middle jobs and the total number of jobs.

Here’s the first of two posts on why that would be a problem.

1. Lower Economic Growth

Fewer jobs – or even just fewer middle jobs – will mean less purchasing power across the economy.

Jobs are simply the main way that money flows from companies to the broad mass of people who consume. When there is a shortfall of jobs, there is a shortfall of purchasing power and demand, holding back growth.

This sometimes happens already, of course. In 2014, for example, the International Labour Organisation joined many commentators in worrying about low aggregate demand and slow job creation across G20 countries.

If middle jobs carry on disappearing, this will be an issue because the rich spend less of their income than the rest. Fewer middle jobs, let alone higher structural unemployment, would be bad for business: companies would be fishing for business in an ever smaller pool of purchasing power.

Ultimately, it would surely threaten long-term trend growth.

This may already be happening; long-term growth in developed countries seems to have stalled (‘secular stagnation’), and economists are debating why.

2. Deflation

Fewer middle jobs could lead to deflationary pressure, and perhaps even deflation.

If enough jobs are lost or pay falls, total spending power in the economy falls, so companies might be inhibited from putting up prices. They might even decide they need to drop them to compete.

Sustained, across the board deflation offers something for everyone not to like.

Wages would fall. People might put off purchases while they wait for prices to fall further, like you might do before a sale that you knew was due to start next week. That make it tough to do business. Debts would rise in real terms each year. And businesses would be discouraged from borrowing to invest, because they would have to pay back more than they borrowed in real terms.

This is the story of the USA during the Great Depression.

On a small scale, we already have historically high deflationary pressure.

Andy Haldane, the Bank of Englands Chief Economist – has said (p.17) that the monetary policy committee has been consistently surprisedby how weak wage growth is in the UK.  And it could be because of the effect of technology on jobs. As he speculated, it could be because technology has made it easier and cheaper than ever before to substitute labour for capital, man for machine.

3. A waste of education and skills

A loss of middle jobs would be a waste of education, skill, and human potential.

It would mean more people with hard-won skills doing jobs which dont use those skills, like the guy with two degrees and a business school Masters cleaning the toilets in Pret, or the rise of the PhD barista.

Over time, the problem would probably get worse. After all, the demand for higher education probably wouldnt fall substantially – it would still be the best chance to get the best jobs. But if the number of graduates grows faster than the number of jobs which need graduate skills, you are left with more overeducated and overtrained people each year. Thats when the skilled people start leaving the country.

Again, there is some evidence that this is already happening: in the first twelve years of the century, ‘skill unemployment’ doubled in the US and the UK and tripled in Italy and Spain. 

Could it be because in those countries, ever more skilled workers are chasing ever fewer jobs which need their skills? This is an indicator to watch.

4. Lower Productivity

Productivity drives growth and wages, so a waste of skills means the economy is less productive than it should be.

That raises issues of national competitiveness.

If, say, France finds a way to protect its middle jobs but Britain doesnt, then French skilled workers use those skills productively but British skilled workers dont. French productivity pulls further ahead of British productivity, and the motor powering the French economy gains power while the British motor sputters.

Substitute France for China, Brazil, or Nigeria – or any countries with a growing middle class of consumers – and the challenge compounds. The Civil Service has already started worrying aloud (p.29) about this.

And, sure enough, British productivity has stalled in recent years. 


Source: ‘Labour’s Share,’ Speech by the Chief Economist of the Bank of England

If we continue to lose middle jobs or all jobs, skills will be wasted, placing a drag on the economy compared to its potential.

5. Lower Interest Rates

A loss of middle jobs or aggregate jobs means it will be harder for people to work their way out of debt.

That could discourage central bankers from raising interest rates, as they might be inhibited from making it harder for debtors to pay their debts down. But those low interest rates would also be a disincentive to save.

It would also make it harder for central bankers to use interest rates to stabilise the economy. If central banks consistently expected low demand and inflation, they would be obliged to keep interest rates low, blunting one of the most useful tools by which policymakers try to regulate the economy.

This last aspect has already happened, of course. And at least one member of the Monetary Policy Committee has explicitly linked the problem to distributional issues – inequality.

This is a sample of the economic problems which higher technological unemployment or underemployment could cause.

The next post looks at three social and moral problems.