The machines of the 20th century were dumb machines that could replace brawns but not brains. To protect against the commoditization of labor, we invest about twenty years of our lives in formal education, and then join the white collar labor force.
The era of education as a foolproof insurance against commoditization of labor is coming to an end. The machines of the 21st century are smart machines that will replace both brawns and brains. In this new era, only the best and brightest that design and maintain the smart machines will escape commoditization of wages. The other 80% will come to the realization that college only saddles them with student debt. From a purely financial perspective, it is probably better for the 80% not attend college. Why spend a quarter of your life accumulating student debt if salaries are commoditized with the school dropout?
During the commoditization of blue collar work of the last century, the optimists predicted a future filled with leisure. The optimists believed in a world without human toil, a world where humans eat, not by the sweat on their forehead, but by the constant humming of the internal combustion machine. History tells us otherwise. The dumb machines dominated the blue collar workbench. The human person it dominated ended up not with leisure, but with low wages.
The commoditization of white collar work should be no different. Instead of leisure, the future is likely filled with low wages and inequality: income inequality between the 20% who build and maintain the smart machine against the rest. The rest are either merely operating the dominating machines (the underemployed), or are displaced by the smart machines (the unemployed). Extreme wealth inequality between the possessors of capital and labor will likely be the next defining feature of our future. Since there is generally no financial recognition of the social consequences of commoditization of labor, the benefits of automation will accrue to possessors of capital.
The predicament is similar to environmental consequences of the industrial revolution. In the early days, environmental consequences were ignored. The gains from ignoring environment costs accrued into corporate income statements. Today, the social consequences of the automation revolution will likely be ignored too. As in the past, the automation gains will accrue into income statements of corporations. The onus thus falls upon global policymakers to come up with policies that recognize the social costs of the commoditization of labor. Policymakers need to recognize openly that social peace and the ability to sustain family life (healthy demographics) rest upon a just wage.
If the environmental movement of the past century is any guide, then it is likely that policymakers will not act before a catastrophe. Prevention is bad politics. Thus:
1. We will continue to see low paying jobs replace high paying jobs.
2. We will continue to see more social unrest and further deterioration of the demographic position of nation states.
3. We will not see 1970s style wage-price inflation spiral.
The main forces keeping a lid on prices today are higher unemployment and underemployment. Only pestilence or war would change the equation. As long as we don’t see a repeat of the Black Death that brought labor into short supply, then unemployment and underemployment is going to remain structural. Stock investors might even be cheering a low NFP number in the future because they might see it as evidence that the Silicon Valley geeks are neutralizing emerging markets labor advantage with automation.
Good luck in the markets.