There has always been an uneasy relationship between technology and the workforce. In the late eighteenth and early nineteenth centuries, invention after invention revolutionized the process of spinning thread and weaving cloth, particularly in England which was the epicenter of the industrial revolution. As the impact of the new inventions spread, traditional artisan weavers found they could not compete with machine made cloth that was a fraction of the previous price. Skilled weavers even had a hard time finding work in the new factories because far fewer employees were needed and the weavers wanted to be paid a wage equivalent to what they made as an artisan. The newly mechanized process, however, did not require skilled labor so wage rates fell dramatically.
Weavers eventually banded together to pressure Parliament into passing a minimum wage. Unfortunately for the weavers, that initiative was soundly rejected. Growing frustration and desperation eventually led to mob violence against factory owners and the newfangled machinery. The supposed hero of the new movement was an apprentice by the name of Ned Ludd who was reported to have destroyed two knitting frames in a fit of rage after being taunted for being out of work. Ned Ludd is now thought to be fictional, but by the early 1800s organized mobs of frame breakers, known as “Luddites”, became a real and significant threat. The movement was short-lived, however, because Parliament passed a law in 1812 known as the Frame Breaking Act which imposed harsh penalties (up to the death penalty) for anyone convicted of destroying knitting frames or associated machinery.  Periodic incidents continued for several more years but by 1816 the movement was fading away.
The term “Luddite” eventually came to mean anyone who was opposed to new forms of mechanization or automation. Historians, however, believe that members of the movement were not opposed to the new machines per se, but to the impact they had on the ability for skilled workers to make a wage sufficient to support their families. For my purposes, the story is important because it illustrates the impact that technology can have on employment and the frustration that can result from having your livelihood taken away by automation. Technological advancements routinely make the process of producing goods and services more efficient which typically create the following economic ripple effects:
The number of required workers is reduced because fewer people are needed to produce the necessary quantity of goods or services;
The cost of the good or service being produced falls significantly;
The falling cost often raises demand, partially offsetting the original decline in employment;
The money saved by the people purchasing the good or service essentially increases their wealth (typically by a relatively small amount), allowing them to either buy other goods and services or save for the future; and
The owner of the intellectual property rights for the new technology and the owners of the newly enhanced production process also see their wealth increase (typically by a large amount).
The net effect is that some people suffer significantly (those who are now unemployed), many people benefit to a modest degree (those who now can purchase goods or services for less), and a small number of people (the owners) benefit greatly. The benefits of the process (newfound wealth) eventually ripple throughout the economy, sometimes creating demand for new goods or services that were not previously affordable or even imagined. The problem is that in the short run, the damaging effects significantly precede the positive effects thus creating periods of economic pain. The process also tends to increase income inequality, at least in the short run, since those losing employment tend to be near the bottom of the income spectrum and those making the most profits tend to be at the high end of the spectrum. 
This bad news/good news story around automation has been playing out in the computerized form of the information age for the past several decades. The purpose of this post (the second in the Future Trends series) is to make some educated guesses about how automation -- increasingly supercharged by artificial intelligence -- will change the nature of work and the workforce in the future.
Unfortunately, the handwriting on the wall is clear, as robots replace workers in factories and warehouses; internet applications make travel agents, stock brokers, real estate agents (and more) increasingly irrelevant; office “cloud” applications make white collar workers productive enough that fewer of them are needed; and smartphone shopping apps decimate the retail industry. These trends are only going to accelerate over the next 10 years as the potential of artificial intelligence really kicks in. The impact will be somewhat muted by the fact that automation doesn’t happen instantaneously everywhere. This means it won’t feel as disastrous as when employment plummeted during the pandemic, but thousands and thousands of jobs are going to be lost every year for the foreseeable future which means that the pain of being unemployed will be broadly felt.
The Great Resignation
While continued automation driven by continued improvements in artificial intelligence will have a substantial impact on the workforce, it is not the only significant driver of change. Over the past several months, the number of people voluntarily quitting their job has been at record levels -- resignations are up 13 percent over pre-pandemic levels. This trend, which has affected employment in a variety of industries, has been dubbed the “great resignation” and is hobbling companies who simply can’t find enough new employees to replace those who have resigned.
Although the symptom (people quitting) is easily quantified, understanding the causes is more complex. To begin with, there is the relatively long-term decline in the labor force participation rate (the percentage of working age people who are either employed or actively seeking employment). After years of relative stability, the participation rate has been slowly sinking for the past decade. Most economists attribute this drop to the gradual retirement of the Baby Boom generation. Roughly 2 million baby boomers retired each year for the past 10 years, and that number jumped significantly over the past year due to COVID-19. Young workers have not been entering the workforce at a rate equal to the baby boomer retirements, hence the slow decline in the participation rate.
|Source: Bureau of Labor Statistics|
Although baby boomer retirements have provided the backdrop, the real force behind the great resignation has been a change in attitude as a result of the COVID pandemic. As infections, hospitalizations and deaths rose, many people dropped out of the labor force due simply to fear. There were, of course, a lot of reinforcing factors -- businesses closed, schools closed, daycare was hard to find, and supplemental unemployment benefits made staying home financially feasible for many. But in the end, a substantial number of people stopped looking for work largely because they were scared of the public contact that work entails.
Between January 2020 and May 2020, the labor force participation rate dropped from 63.4% to 60.8%. As the panic subsided and vaccinations became a viable option, the participation rate bounced back but has not gotten close to the January 2020 level. By April 2021 the rate was back to 61.7% but it has not budged since then. Low paying jobs, such as those in the hospitality, food and beverage sector, were hit particularly hard by this trend.
One of the bright spots of the pandemic was the discovery that many jobs can be done remotely without much, if any, drop in productivity. The trend toward remote work was occurring before the pandemic but was greatly accelerated out of necessity when the pandemic hit. Although some workers hated remote work, many others came to appreciate its advantages to the point where they are reluctant to return to the office. Many bosses, while thankful that remote work kept their business afloat, now want employees back in the office at least part of the time.
Several recent studies have concluded that while working from home is efficient in terms of gross productivity, it short changes several aspects of work that are important for long-term business success. Team building, skill development, networking, and the cross-pollination of ideas are much harder to do when everyone is remote.  Many managers would like to see their employees back in the office on a regular basis but fear that pushing too hard will cause their best people to leave for jobs where they can work remotely, thus adding to the pain they are already experiencing with the “great resignation.” The issue is severe enough that a recent Wall Street Journal article (“Come Back to the Office, Pretty Please”) focused on strategies to lure employees back. 
The bottom line is that in many cities the number of white-collar office workers who are currently back in the office on a regular basis is still at 50 percent or less than pre-pandemic levels. While some will eventually return to the office full time, others will end up working remotely full time (perhaps 10 to 20 percent of white-collar workers). The solution that many companies appear to be settling on is some form of hybrid work schedule. Employees are in the office one or two days a week, and work remotely the rest of the time. In-office time is focused on group activities and meetings (“heads up” work) and remote time is focused on getting individualized tasks done (“heads down” work). This is probably a workable compromise for many, although it does create scheduling and office space assignment challenges. Companies may be able to cut down on the amount of office space that they need, but what they keep will likely need to be reconfigured into more collaborative designs.
One of the aspects of remote work that employees came to value during the pandemic was the increased flexibility to handle personal errands or family issues during the middle of the day. This was already high on the wish-list for the younger generations, but now everyone wants this perk. One adaptation has been the development of a “non-linear” work schedule where there are set blocks of time (say 10 AM to 2 PM) where employees are expected to be actively working and available for meetings or collaboration, but the remainder of their work schedule is up to the individual as long as their work gets done on time. Morning people can start work at 6 AM or night owls can work until midnight, it doesn’t make any difference. This can create some performance monitoring issues, but for many jobs this is just a logical extension of the work from home model.
Finally, it is important to keep in mind that whatever equilibrium is found for workplace schedules over the next year or two, the long term trend is toward more remote work not less. The needs of the information economy and the growing capabilities of virtual reality and augmented reality will continue to boost the effectiveness of remote work and will eventually relegate the 8 to 5 work schedule and the office building full of cubicles to the dustbin of history.
The Worker/Job Mismatch
One of the oddities of this economic recovery compared with previous recessions is that there are simultaneously many job openings and many people looking for work at the same time. This apparent inconsistency is due to a mismatch between the requirements of available jobs and the skills and locations of unemployed workers. The mismatch is showing up in three different ways. 
First, there is a geographic mismatch between where jobs are plentiful and where workers are plentiful. Idaho, Utah, Montana and Arizona, for example, have strong job markets but that does little good for workers in Louisiana, New York or Massachusetts where unemployment is still high. Generally speaking, only young workers are willing to relocate for a job although that might change in the future if the unemployed see no other options.
Second, there is a skills mismatch. Educators and health care workers, for example, have quit their jobs at very high rates, likely due to job burnout during the stressful days of the pandemic. Filling those positions is difficult because they have very specific job requirements -- unemployed factory workers need not apply. The same is true in hot sectors of the economy such as professional services where job openings outnumber experienced applicants by roughly two to one.
Third, there is an expectations mismatch -- many of the jobs that are open are not the jobs that people want. The pandemic gave many people the opportunity to reevaluate their life and many came to the conclusion that they wanted something more fulfilling from their job. The number of entrepreneurs starting their own business has surged as talented people said goodbye to the corporate grind. And others started to question the economic sense of paying for child care or a long commute in order to work a job that paid only $10 or $12 per hour.
How all of this plays out is yet to be determined. Employers having a hard time finding workers are raising pay rates and offering generous bonuses that will eventually attract qualified employees. At the same time, many businesses are searching for ways to speed up the automation process so that fewer workers will be required. On the other end of the spectrum, workers who can’t find a job may need to acquire new skills or consider relocating to another part of the country.
What is certain is that the current turmoil in the job market is here to stay and will probably get worse. Having too many of this kind of worker and not enough of that kind of worker is the new normal. Will a new class of Luddites arise demanding protection from automation or demanding that income inequality be addressed? Possibly, but it is important to understand that our economic system (free market capitalism) does an excellent job of signalling what we need more of and what we need less of, and exactly how valuable each thing is to our society. It is crucial that the government adapt to those signals and not try to superimpose economic mandates to protect the status quo. There will undoubtedly be actions taken at the federal level, but in the final section I will focus on actions that local governments can take.
Since many of the trends discussed above are global in nature, local governments may think that there is nothing they can do in response. I don’t think that is true and I have put together eight steps that I believe cities should take starting now.
Reevaluate pay and bonuses. Wages for public sector employment have historically lagged behind the private sector, but the stability and fringe benefits of a government job were often seen as superior. Benefit packages in the private sector have ramped up dramatically however, and local governments cannot afford to lose their best employees because of outdated pay structures. Annual pay raises need to account for the value of each type of employee to the organization rather than be uniform for all employees. The guy who mows the grass in the park is much easier to replace and less crucial to the city than the person in IT who protects the city’s data from being hacked. Wage rates are likely to fluctuate rapidly and cities need to do their best to keep up. Cities should also consider implementing bonuses to help retain key personnel. A few good employees will be more valuable in the long run than lots of mediocre ones.
Continue to automate and innovate. Cities don’t need to be on the leading edge when it comes to automation but they shouldn’t be far behind. In an era where raising tax revenue will be difficult, raising employee productivity and efficiency will be paramount. Money spent on automation now is money that won’t need to be spent on salaries in the future, and having a reputation for being “high tech” will help retain the brightest employees. In addition, cities should be early adopters of the best virtual meeting hardware and software so that citizens, businesses, employees and consultants can participate in the decision-making process regardless of their location.
Incentivise entrepreneurship, not corporate relocations. During a time when many workers are no longer coming into the office on a regular basis, it doesn’t make a lot of sense to pay companies to relocate their headquarters. Instead, use that money to support local start-ups and entrepreneurs. Start-ups, of course, fail at an alarming rate but sometimes that is not because of a bad idea but because they lack basic business guidance and short-term financing. As noted above, the pandemic caused many bright people to drop out of the corporate world and start their own business. On-going automation will do the same thing. Cities should support this trend not only as a way to keep people employed but because home-grown businesses will be more supportive of the local community than a global corporation that will relocate for the highest bidder.
Review home occupation regulations. Nearly every city has rules about business activities in residential zoning districts but most of them are based on what made sense twenty or thirty years ago. Start supporting entrepreneurs -- and the multitudes now working from home -- by making sure that local regulations are no more restrictive than necessary. Apple famously started building computers in a garage in Cupertino, California, but many cities have home occupation rules that prohibit home businesses from using the garage. Is that type of restriction still needed? Probably not.
Reconsider capital improvements for transportation. In nearly every city, commuting patterns now are significantly different from what they were prior to the pandemic and yet cities are proceeding with road construction projects as if nothing has changed. The uptick in remote and hybrid work is permanent, and it is scrambling the times at which people come and go to work. While that doesn’t mean that there aren’t traffic problems, it does mean that the causes -- and the solutions -- may be different than what they were when projects were initially designed several years ago. No major capital investment in transportation infrastructure should move forward until it is reevaluated in terms of future commuting patterns.
Consider boosting mass transit. This suggestion might seem to contradict the one above, but I am not necessarily advocating for more transit infrastructure. Rather, I am advocating that existing transit services be maintained and enhanced even though ridership has not returned to pre-pandemic levels. Turmoil in the job market is likely to put additional pressure on low income households and transit is an essential part of the support structure for those individuals. Forcing a low-income family to purchase another car so that they can get to work or school is horribly inefficient. Transit services should not only be maintained, they should be enhanced with improved air filtration, cleanliness and security measures so that fear is not a factor in deciding to use transit or not.
Accelerate continuing education. Most cities consider education to be someone else’s problem. In an age where job losses due to automation and artificial intelligence can only be addressed by learning new job skills, that attitude will no longer be acceptable. In order to thrive, cities will need to work with the business community to learn what jobs need to be filled and work with the education community to figure out how to train people for those jobs. People who have lost their jobs to automation need retraining, but they may also need short-term financial support, career counseling, and social services. Cities have a role in coordinating that response and filling any gaps that other agencies can’t cover. Our society needs to develop a mindset that learning new skills and switching careers is a normal part of life, not a sign of failure.
Prepare for social unrest. I don’t want to focus solely on the negative because artificial intelligence has the potential to take much of the drudgery out of daily work and free us for more creative, more compassionate, more “human” tasks. But there will be economic pain associated with this new technology and not everyone will be open to learning new skills, relocating to a new town, or accepting new job opportunities. Some will reject change all together and others will try to change but fail. For that segment of society, there will be politicians and social pundits who will decry the new state of affairs, find convenient groups of “others” to blame for those who are struggling economically, and promise to return things to the way they were. Those promises will prove to be empty, but in the meantime they will heighten divisiveness and discord. Cities will need to offer an alternative vision for the future, one based on inclusion and mutual support. Community building and community celebrations may become an essential public function much like police protection or water service.
As I have written before, change is hard and rapid change is really hard. Cities will be on the front line in the fight to define the future, and the ones that succeed will be the ones that can accentuate the positive, take advantage of opportunities and build trust within their community.
Thoughts? As always, share your thoughts and ideas by leaving a comment below or sending me an email at email@example.com. Want to be notified whenever I add a new posting? Send me an email with your name and email address.
Richard Baldwin; The Globotics Upheaval: Globalization, Robotics and the Future of Work; Oxford University Press; 2019.
Sungki Hong and Hannah Shell; “The Impact of Automation on Inequality;” The Federal Reserve Bank of St Louis; November, 2018.
KPMG International; “Global Assignment Policies and Practices Survey;” November, 2021.
Alexandra Samuel; “Come Back to the Office, Pretty Please;” The Wall Street Journal; November 1, 2021.
Heather Long, Alyssa Fowers, and Andrew Van Dam; “Why America has 8.4 million unemployed when there are 10 million job openings;” The Washington Post; September 4, 2021.