Originally published on 04/19/2007
In an interview with Marketplace last week, Alan Blinder talks about the enormous loss of jobs that will arise in coming years because of competition with China, India and the rest of the world. Some jobs will be lost because imported goods will arrive at lower prices; others will be lost as production activities are offshored.
At the same time as jobs are lost, millions more will be created. This is the way a dynamic free market system works. Continual competition causes a kind of churning in the labor market [dead link].
In the past, the US could count on low skilled jobs being lost and higher skilled jobs being created (in general). More recently though, even high skill jobs such as computer programmers have been offshored to India and elsewhere due to the advances in telecommunications. I recall a recent news story where programmers who had lost their jobs to Indian workers said they had gone to college to learn these skills because these were “supposed” to be the jobs of the future, only to discover it wasn’t so. Their question: what will the new jobs or occupations be?
Economists often say something vague, like we should produce the goods and services in which we have a comparative advantage. Although an accurate statement, it doesn’t tell a worker much.
Unfortunately, if we accept a free market system we also need to accept that there really is no way to provide a good answer to that question. You see, one of the main strengths of a free competitive economy is that decisions about what to produce and how to produce it are left to individual small-scale decision makers. By this I mean households and the managers of businesses. The advantage of this system is that the people who have the most information (for example, about how to produce and market, say, insurance policies) are the people who decide the types of workers to hire for their business. As businesses compete with each other, they will make continual adjustments to their workforce, sometimes firing and sometimes hiring workers. They will also decide what type of worker to hire or fire, based on the skills they deem important or not for production at the moment. These firms will engage in a substantial amount of experimentation, trying to decide the right mix of worker skills, to capital equipment and other inputs. The firms whose experiments succeed, will stay in business. The others will fail. These small scale decisions made everyday by millions of businesses will result in an aggregate number of programmer jobs and financial analyst jobs, etc. Although it may be possible to track the changes in job composition in the economy over time, it will be impossible to predict which firms will succeed and what skills they will demand in the future.
This truth is clearly unsettling. It would be nice to be given information about what will happen, what to expect, what one should do. There are many people willing to provide that info, but unfortunately they are merely guessing (sometimes using sophisticated methods). Alternatively we could predict future jobs needs more accurately if we simply planned the economy more. If the government stepped in and guaranteed jobs in certain sectors then we could solve this messy problem.
However, this is precisely what was done once before in centrally-planned economies. In that system, formerly used in the Soviet Union and China, production and consumption decisions were “controlled” from above. Jobs were guaranteed, regardless of the skills the worker had. Of course, we all know that system failed. It failed because they didn’t allow the small scale experimentation that is stimulated by competition. It failed in part because jobs were secure.
The sad truth about globalization is that all sorts of jobs are now threatened because of international competition. It is very difficult to know precisely what skills will be most in demand in any particular country in the future. Thus, the only, and best strategy is first to be aware of this difficulty, and second, to prepare to be flexible. Be ready to reinvest as necessary in new and complementary skills. Make education a lifelong endeavor. It is no longer sufficient to stop with a BA or MA degree and assume it will last a lifetime. This, I think, is the best attitude to carry into the future. Adopting this attitude won’t guarantee success, but it will surely make it more likely.
