Technology, Unemployment, and Our Children’s Future

Once in a while I like to add an article from a guest writer.  The ensuing article is one written by Hunter Richards, who really did his homework on this discussion of the impact of technology on productivity, employment and education.  If you'd like to leave him a comment, you can go to: The Software Advice Blog.

This is a guest post by Hunter Richards, a blogger who covers web-based accounting software and other technology trends.

Got a teen playing Wii instead of doing homework? You might want to share this post.

Despite the tremendous benefits of information technology (IT), it comes at a human cost – the displacement of less-skilled employees. As software and systems automate an increasingly large portion of business processes, the displacement is affecting a wider set of workers. So despite an improving economy, 9.5% unemployment might last longer than many think.

Here we walk through a fairly simple story of man versus machine. It’s not a new story, but we went to the effort of pulling together and visualizing the relevant data.

Our conclusion? Drop the Wii-mote and hit the books.

IT spending has risen dramatically over the last 40 years…

IT spending has steadily risen since 1970. Trendlines and new opportunities like cloud computing suggest that the current dip in spending is only temporary.

…making us more productive…

Technology has made labor more productive. There’s a long-term upward trend in labor output rates, and it isn’t slowing down.

…which has led to rapid growth in corporate profits.

The resulting productivity has been great for business – greater productivity means higher profits. But these profits don’t benefit everyone. They accrue to the executives and shareholders.

IT is slowly replacing many functions. There’s an ever-widening divide in the labor market between skilled occupations and what one might call “low-level jobs” – simple clerical roles, plant-floor workers, and low-level support roles.

While national unemployment rates have ebbed and flowed…

…the uneducated are consistently left behind…

This polarization between highly-skilled and less-skilled workers is part of what’s eroding the middle class, pushing more and more people into the low income bracket.

…and wealth has shifted toward the highest earners.

The less-educated workers who manage to keep their jobs are falling further and further behind in the national income distribution as the relative value of their services declines.

Alas, high-tech industries are growing…

So how can you avoid being replaced by a machine? You’ll need to be one of the people who work in an advanced field that still requires highly-skilled human capital. Take the IT field, for example. The Tech Pulse Index tracks the growth of national economic activity in technology by combining data on employment, investment, production, shipments, and consumption. The Tech Pulse Index has risen sharply (with the exception of the dot-com bust around the year 2000), reflecting continued demand for high-tech workers. The same is true in other engineering disciplines, healthcare and finance.

…but an advanced education is required.

Are we educating people enough to slow the widening of labor market gaps? The graph above shows the percentage of all 18- to 24-year-olds enrolled in degree-granting institutions since 1970. There’s an upward trend, but is it growing fast enough?

IT is good for society in the long term, but it’s a double-edged sword when considered together with labor market trends. Sure, the current economic despair owes its severity to many different issues – offshoring of jobs, the real estate collapse, and the national debt are just a few – but education and income disparities are long-term problems that demand attention. We must align education growth with productivity growth to close the gaps.

Will this deus ex machina lead to an age of renewed human potential, or will it harm the well-being of the majority?

Two Steps Back

After a lackluster four days of up and down trading, the subprime woes and a weak jobs report hammered the market on Friday. With hedge funds, builders and mortgage companies melting down, the concern is the housing mess will spill over into other areas of the economy. Hence, the uptick of the unemployment rate to 4.6% gave traders one more reason to unwind their positions.

On Tuesday, the Federal Reserve meets and investors will be looking for any references to the problems in the credit markets or a change in the Fed's position on inflation. There is no indication there will be any change in the Fed's target interest rate of 5.25%, which has held steady for over a year now. Lehman Brothers anticipates the Fed's outlook on growth and inflation will remain unchanged and only a minor acknowledgement of market developments will be mentioned.

The biggest concern I have is how over leveraged the financial system is. Treasury Secretary Paulson has stated the subprime credit fiasco is contained, but others aren't so sure. Alan Abelson, of Barrons, cites concerns by Jeremy Grantham, who runs GMO, an insitutional money manager. Grantham feels we are "watching a very slow train wreck", and that in five years, because of over leverage, at least one major bank will have failed, half of the hedge funds and a substantial percentage of the private-equity companies "will have ceased to exist". One of the great equalizers of our markets is the fact that eventually unsound investments unravel and leave unwise investors holding a worthless bag. The question is how far down do these unsound investments drag the rest of us. Containment becomes a very important issue.

John Kaighn

Jersey Benefits Advisors

Plug in Profit Site

Internet Home Business Ideas and Opportunities

It's Earnings Season, Again!

Investors will be eyeing second quarter earnings reports over the next few weeks to get a feel for the health of corporate profits, which will set the tone for the direction of the stock market. Last week's employment numbers were better than expected, which shows the economy is still humming along. The unemployment rate held steady at 4.5%, nonfarm payrolls rose by 132,000 in June, while the April and May numbers were revised upward by a combined 75,000 jobs.

During the holiday shortened week, the the market stayed in a tight trading range, as crude oil moved above $76 a barrel. Even with oil prices moving upward, gasoline prices have been holding steady, due to the fact that inventories have been higher than expected. Treasury yields also inched up to 5.19%, but the increase didn't seem to spook the market. For the market to resume its upward trend, earnings are going to have to meet or exceed forcasts, and the guidance by companies will be scrutinized extensively.

John Kaighn is a Registered Investment Advisor with Jersey Benefits Advisors and writes articles on various business and investment information, ideas and opportunities. For more information about this and other topics you can visit Internet Home Business Ideas and Opportunities and Jersey Benefits Advisors