You probably don’t read the same nerdy stuff I do – but have you noticed the number of news stories about “wage stagnation” lately? The term means that the economy may be growing again, but average wages are not. The headline statistic in the US is that the average wage today has the same purchasing power as the average wage in 1979. In other words, the average worker has been standing still, economically, for nearly 40 years. In the UK, the bottom 90% of earners (which is most of us) had more or less the same income in 2012 as in 2000. In Germany, the bottom 90% earned less in 2008 than they had in 1992. In seven European nations, the average worker has seen wages fall every year since 2009.
And you’ve been wondering where all this populist anger is coming from?
Waiting for Your Raise
Still, it’s weird. In the US, the Federal Reserve Bank wants to raise our sub-normal interest rates, so that thrifty citizens can earn more than one percent on their money and business will stop issuing enormous piles of debt for no better reason than to buy their own shares. The Fed is waiting for a familiar pattern to emerge: as the demand for workers outpaces the supply, employers should be forced to offer more money to new employees and bigger raises to keep the ones they have. Average wages should rise. Except that they are not.
Experts are debating whether information and communications technology is to blame. The argument is simple. ICT makes it possible to automate a rising percentage of jobs, and that may be putting a ceiling on the growth in wages, especially for jobs requiring low and mid-level skills. Employers increasingly have a choice between hiring workers or buying software and hardware that never gets sick, never needs a vacation or even a good night’s sleep. If the machine is a lot cheaper than the worker, employers will reluctantly choose the robot. So, we may have a situation where demand for workers is putting upward pressure on wages but running into downward pressure from the inexorable decline in the costs of software and hardware. The result? Stagnation.
Part of the Cycle
This kind of thing doesn't go on forever. The Harvard Business Review published an article in 2015 by James Besson that nicely sums it up:
Throughout history, major new technologies were initially accompanied by stagnant wages and rising inequality, too. This was true during the Industrial Revolution in the early nineteenth century and also during the wave of electrification that began at the end of the nineteenth century. However, after decades these patterns reversed; large numbers of ordinary workers eventually saw robust wage growth thanks to new technology.
Of course, as economist John Maynard Keynes observed, “In the long run, we’re all dead.” It’s comforting to know that the next generation will see a brighter future than we do. But as somebody who wants the best for your community, what can you do about it today?
My advice: recognize the speeding train that is bearing down on your community and get your people off the tracks. A lot of jobs are going to disappear – even the ones we once thought safe, in retailing, cleaning services, warehouses, administration, commercial driving and picking up the garbage. An even greater number of jobs are going to be created, but they are going to require an ever-expanding range of skills, from polished person-to-person communications to writing, design, math and engineering.
Are they going to be created in your community? It is quite literally up to you and your generation of leaders. Stop waiting for a fondly remembered past to resurrect itself and start today to build a knowledge-based, innovation-driven local economy. Here at the Intelligent Community Forum, we can tell you how, because we have been studying how communities do it for the past fifteen years.
The robots are coming for your next raise. Are you going to let them take it?