The one job sector that's booming

The fastest growing sector isn't tech, it's the black economy...

The other day, I met an old friend I’d not seen for years. Decades in fact.

He’s a talented graphic designer. Naturally we talked about how his career had played out. It turned out that he’d drifted from job to job, but due to health problems had never managed to hold a job down for any great length of time.

To survive he’d taken any casual work he could find. Much of this work was paid for in cash; part of the booming black or ‘underground’ economy.

With so few jobs paying an adequate wage to meet the cost of living, millions of educated and skilled people now exist in an underground economy. In the US alone, this has ballooned to over $2 trillion annually.

Most people struggle to imagine a billion dollars, let alone a trillion. Two trillion dollars is $2,000,000,000,000. To put this in perspective, according to the IMF, the total GDP of the UK is ‘only’ $2.3 trillion…

That's maybe 10 million jobs in the US since the start of the recession

America's underground economy is not new, but since the Great Recession hit, analysts estimate it has more than doubled in size, driven by unemployed or underemployed people desperate to just survive. What other sectors can match that sort of growth?

I estimate this is equivalent to at least 5 million new jobs created in the US since 2008. This is fag packet maths I know, but let's say that of this estimated $1tr growth, each person earned on average $20,000 a year (this is probably much higher than the real figure, so I'm being cautious). That equates to 5 million jobs. If the actual average was $10,000, then we're talking about 10 million jobs...

As a benchmark, one of the fastest growing employment sectors, computer systems design, provides around 1.5m jobs in the US. The BLS forecasts this will be 2.1m  jobs by 2020.

So the underground economy is huge. And it’s not just criminal businesses like drugs, cyber-crime or prostitution. Research shows that a great deal of the black economy exists in completely legal industries such as bars, clubs and restaurants. It’s simply non-criminal work that isn't declared to the government by the employer and/or the employee.

Just as many people have been hard hit by the recession, so too have many businesses. It’s a huge temptation for business owners who in better times would probably run their businesses completely legally. Faced with a stark choice between closing down or slipping into the underground economy, many businesses have chosen the latter. Ironically therefore, whilst a decision to operate in the black economy takes tax out of the treasury, it also saves governments money on welfare payments to people who at least maintain some earned income.

Suddenly, the archetypal figures of the underground economy - the drug dealers and Mafia godfathers, now have a lot more company. Their new 'co-workers' are no longer just other criminals in the conventional sense of the word.

So most of these new participants in the underground economy today are ordinary citizens not evil greedy low-lives. They’re doing anything they can to survive and increasingly, this means taking jobs that pay "under the table" because they simply have no choice.

"It's typical that during recessions people work on the side while collecting unemployment benefits," Bernard Baumohl, chief global economist at the Economic Outlook Group, told The New Yorker.

He went on to say: "...the severity of the recession and the profound weakness of this recovery may mean that a lot more people have entered the underground economy, and have had to stay there longer."

Who works in the underground economy?

Some of the folks who've become trapped in the underground economy have been there for years, such as construction workers, illegal aliens and housekeepers. But it's a mistake to think these are all poorly educated immigrant workers.

The huge job losses caused by the recession have forced more people to switch from well-paid professional jobs to low paid service jobs.

But the biggest contributor to the underground economy in the past few years has been employers increasing their use of freelancers or "independent contractors" - even many who actually work full-time.

The weak U.S. economy has already given businesses plenty of incentives to cut costs by paying workers under the table. But the arrival of Obamacare gave them even more. The rules that demand that employers with 50 or more employees provide health insurance for full-time staff while allowing them to avoid offering plans to part-timers naturally encourages employers to offer more part-time work and less full time work.

"This type of regulation could put more people out of work and into an underground economy," Peter McHenry, an assistant professor of economics, told CNBC.

The underground economy hurts everyone

The rapidly growing amount of unreported wages in the U.S. is costing the nation billions in lost tax revenue. The Internal Revenue Service estimates that the losses from unreported wages have grown from about $385 billion in 2006 to about $500 billion currently.

That means the people who play by the rules are getting a raw deal.

"Those working and not paying the taxes put the burden on those who pay the tax," said David Fiorenza, an economics professor at Villanova University. "Taxes could be lower if the government were able to capture the underground economy instead of raising taxes on those currently paying the various income and payroll taxes."

But even those getting paid under the table don't get an easy ride. They forfeit contributions to Social Security, which will reduce benefits in their retirement years. They also get no healthcare, paid vacation or other benefits.

And they certainly end up with lower pay than those in the rest of the workforce. Government regulations about minimum wages hold no sway at all in the black economy. Ironically this is the most free market sector of all…which means pay is constantly being forced lower.

What the growth of the black economy really means

Whilst very little hard data is available about the underground economy, I am convinced that the majority of people within it are there not because they want to be, but because they have no real alternative.

And its explosive growth means that if you want to work, more and more of the work that is available is within the black economy. It’s Hobson’s choice…no work or work that is officially illegal. It’s not a symptom of an increasingly dishonest population, it’s a symptom of economic policy failure.

Both the IRS in the US and the Inland Revenue in the UK have announced numerous new initiatives to clamp down on the black economy. More investigations; harsher punishments. And yet the non-payment of tax by businesses like Amazon and Google continue more or less unchallenged.

It’s unjust and it targets those who are least able to defend themselves.

Government presents these moves as being a drive for a more equitable society. For everyone to pay their fair share. This is disingenuous. If we had economic success, we’d still have tax evasion, but only by those who had the freedom of choice. Unlike global corporations, most citizens who avoid tax today have few choices left.

I don’t condone tax evasion by anyone. I just think that government needs to remember that it exists to serve its citizens not the other way round. Government is happy to punish people for not declaring income in just the same way as if they robbed a bank. And yet it is failed government economic management that has created the situation that forces most people into these desperate choices.

If forced to choose between your family having nothing to eat or paying your tax bill, what would you do?

Who will take ownership of the jobs crisis?

By Neil Patrick

My recent posts have talked about the impact of technology on jobs. But this is far from the only threat to employment and a jobs recovery in the west. Off-shoring is a major progenitor of the jobs crisis. And the biggest problem with off-shoring is that no-one thinks it's a problem....except those who suffer its consequences and can do nothing about it.

The jobs crisis is real. The World Bank certainly thinks so as you can see here.

The problem is that no-one wants to take ownership of it. Just like the old saying, “Success has many fathers, but failure is an orphan”.

Empires have a habit of crumbling...

Governments have had an easy ride until now. Provide some tax-breaks and incentives to business here, some support for the unemployed there. Survive some rough and tumble with trade union negotiations without too much alienation of the electorate.

None of these things are comparable to the systemic collapse of jobs we now have to deal with in Europe and North America.

Thus, nothing that has gone before has equipped anyone in government with the skills and tools required to solve this problem.

And worse, big business can no longer be relied upon to act as a committed ally in the struggle. Globalization and off-shoring mean that the win-wins that were previously available for governments who acted benignly towards big business have disappeared. Permanently.

And this is why governments must rethink their relationships with big business.

Businesses drive to make the most profit they possibly can. Provided they stay within the law, no holds are barred. That’s the very nature of capitalism and a free market economy.

Big businesses think and act globally. But governments and citizens naturally enough think nationally and locally.

It is this mismatch in scale and geography which is at the heart of the problem.

Offshoring is a genie let out of the bottle

About 35 years ago, western firms started sending low skilled manufacturing work abroad on an ever increasing scale. By the late 1980s this was well established. And it grew. And grew. This mass-migration of jobs was overwhelmingly in one direction: away from rich countries to places where workers with adequate skills were much cheaper.

Shanghai - plenty of jobs here

Whether openly stated or not, lower labour costs were almost always the biggest driver. At first. For many firms, their survival was at stake, since new competitors were undercutting them on price. This usually involved closing plants in America and Europe and moving production to new factories in China, Mexico, Taiwan, Thailand, or Eastern Europe.

The most commonly cited benefits of off-shoring were fourfold:

  • For workers in low-cost countries it would provide jobs and rapidly rising standards of living.
  • Rich-world workers would be able to leave the dreary work to someone else.
  • For consumers, they’d be able to buy goods at much lower prices than if production was onshore.
  • For companies, lower labour costs would bring higher profits.

The trouble is that whilst these are all good things in small doses, what happens when the scale of the activity becomes so great that the migration of jobs elsewhere exceeds the ability of the domestic economy to create new ones at home?

Who cares that they can buy a new TV cheaper than ever before, if they cannot even afford to buy food or fuel?

The jobs are never coming back – even Steve Jobs thought so…

Off-shoring from West to East is now a major creator of job losses in rich countries. And not just for the less skilled, it’s now devastating the middle classes too.

US jobs reduction mirrors off-shoring

When Barack Obama joined Silicon Valley’s captains of tech for dinner in California in February 2011, each guest was asked to come with a question for the president.

As Steve Jobs of Apple spoke, Obama interrupted him with a question: “What would it take to make iPhones in the United States?”

Not so very long before, Apple had boasted that all its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold the previous year had been manufactured overseas.

"Why can’t that work come home?" Obama asked.

Jobs’ reply was unambiguous. “Those jobs aren't coming back,” he said.

Jobs' answer revealed the attitude at Apple and most global businesses. It isn’t just that labour is cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories , their flexibility and industrial skills have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most consumer products.

Government thinks big business is its friend…not anymore

Apple is one of the best-known, most admired and most imitated companies on earth. In 2011, it earned over $400,000 in profit per employee, more than Goldman Sachs, Exxon Mobil or Google.

However, what vexes Obama, economists and policy makers is that Apple and many of its high-technology peers are not nearly as committed to creating American jobs as the previous generations of US industrial giants were.

In its early days, Apple didn't look much beyond its own backyard for manufacturing solutions. A few years after Apple began building the Macintosh in 1983, Jobs bragged that it was “a machine that is made in America.”

But by 2004, Apple had largely turned its back on the US and moved to off-shore manufacturing. Central to that decision was Timothy D. Cook, who replaced Jobs as chief executive in August, 2011, six weeks before Jobs’s death. Most other American electronics companies had already gone abroad, and Apple, which at the time was struggling, felt it had to seize any advantage it could find.

In part, Asian manufacturing was attractive because the semiskilled workers there were cheaper. But that wasn’t the main thing that attracted Apple.

For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of sources and suppliers. And as automation and AI inexorably increase, so the labour part of the equation becomes even less of a factor.

For Cook, the focus on Asia came down to two things. Factories in Asia can scale up and down faster and Asian supply chains have now surpassed what’s possible in the U.S. The result is that much of America’s manufacturing capacity has become largely obsolete. American manufacturing relative to Asia is now not unlike the Soviet Union was relative to the west in the Cold War era.

How many Apple’s are needed to make one General Motors? 10 actually…

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, formerly an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

This used to be US car factory - today, it's a shopping mall

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s on-site dormitories. Each employee was given a biscuit and a cup of tea and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Similar stories could be told about almost any electronics company — outsourcing has become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.

So who wants to own this problem?

Apple’s decisions reveal why the success of some prominent companies has not translated into large numbers of domestic jobs. “Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice,” said Betsey Stevenson, formerly the chief economist at the Labor Department. “That’s disappeared. Profits and efficiency have trumped generosity.”

Companies and other economists think that notion is naïve. Though Americans are among the most educated workers in the world, they say the government has stopped training enough people in the mid-level skills that factories need. Clearly education alone is not enough to solve the problem.

To thrive, companies argue they need to move work where it can generate enough profits to keep paying for innovation. Doing otherwise risks losing even more American jobs over time, as evidenced by the legions of once-proud domestic manufacturers, including GM and others that have shrunk as more nimble competitors have emerged.

“We sell iPhones in over a hundred countries,” a current Apple executive said. “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”

So business says it's not their problem and government doesn't know how to solve it. And just like two squabbling children, neither will accept any responsibility. Let alone ownership.

And that’s the crux…business will keep on doing what business does, chasing profits. And government will keep on doing what government does…

This may be the biggest problem facing North America and Europe today, but no-one wants to own it.

Some information in this post was taken from this article in the New York Times: LINK

Who employs older workers?

There are always plenty of opinions floating around about which types of business employ younger people and whether or not this is fair or even sensible. I have expressed my own views on this often enough on this and other blogs.

Today though I opted for a different tack. I thought I’d run some numbers and see what they revealed.

This was by no means an exhaustive study, but I was amazed by what I found.

I expected there to be few discernible patterns and yet I found quite the opposite. This quick dip into the numbers showed conclusively that there is a huge variation across business sectors when it comes to the age of their staff.

My method was simple enough. I just took the average age of employee as recorded in the Sunday Times top 50 best UK companies to work for as reported for 2014.

To calculate a simple benchmark, assuming a normal distribution curve based on an age range of 18 years to 65 years old, the mean age of employees should be 41 years. Higher than this means the workforce is older; and vice versa.

Now of course this assumes also that the available workers for each age group are the same, which of course, they are not. The baby boomers for example created a significant swelling of their age group as a proportion of the total population. So my purely mathematical average cannot be taken as wholly accurate – just a rough approximation.

Meet the new boss...

I simply wanted to discover which, if any sectors had demonstrably older workers and which ones had younger workers.

Since the average age of employee is not a significant factor in the Sunday times’ ranking, we can take this as a more or less randomised sample of the age profiles of people working in UK businesses today.

Moreover, every one of these firms has been assessed to be well liked by their employees, so they also represent some of our best employers.

So based on this data, here is the average age of employee at the top 50’s best UK firms to work for which I have re-ranked by oldest average age of employee to youngest (the original list rank is also shown in the first column):

N.b. I am not suggesting that my re-ranking makes any of these companies more or less ageist. There are plenty of perfectly valid and legitimate reasons why a company might have an older or younger age profile within its workforce.

What I was interested in was to see if there were any patterns when I re-ranked the list - and there certainly are.

The two firms ranking first and second are both from the same sector – contract catering.

Three of my list’s top 10 are from the pharmaceutical/medical sectors.

On the other hand, four of the five firms at the youngest end of this list were from two sectors – recruitment and financial services.

This list reveals other facts too. First the range of average ages 45 at oldest to 21 at youngest, reveals a huge range of age profiles across the sample firms – clearly if you are only in your early forties, you are already well past the average age of the majority of sectors’ employees.

Second, taking the approximate average age we’d expect to see – c.41 years - only 6 firms (12% of the list) had an average age that was older than this.

To sum it up, if you are over 40 and looking for work, contract catering looks like your best bet unless you have experience from the pharmaceutical sector…

Stephen Hawking on the threats of artificial intelligence

It was an odd co-incidence that yesterday I posted a piece sub-titled “Is your job at risk of being taken by a machine? A few hours later Professor Stephen Hawking was featured on the main BBC evening news with an even more gloomy prediction that artificial intelligence could be the greatest threat to the very existence of mankind.

Hawking, one of Britain's pre-eminent scientists, went much, much further than I was brave enough to do. He said that efforts to create thinking machines pose a threat to our very existence. He told the BBC: "The development of full artificial intelligence could spell the end of the human race."

Hawking is a theoretical physicist, who has the motor neurone disease amyotrophic lateral sclerosis (ALS) and is currently using a new AI assisted speech system. His warning came in response to a question about an upgrade of the technology he uses which was developed by Intel.

Machine learning experts at the British company Swiftkey were also involved in its creation. Their technology, already employed as a smartphone keyboard app, learns how he thinks and suggests the words he might want to use next. ("God help us" seems like it might be useful).

Hawking believes the basic forms of artificial intelligence developed so far have proved very useful, but he fears the consequences of creating something that can match or surpass humans.

"It would take off on its own, and re-design itself at an ever increasing rate," he said.

Professor Stephen Hawking

Ever mindful of its commitment to balanced reporting, the BBC was quick to find an expert commentator with an opposing view. Rollo Carpenter, creator of Cleverbot added to the debate saying,  "I believe we will remain in charge of the technology for a decently long time and the potential of it to solve many of the world problems will be realised." 

Cleverbot is software that is designed to chat like a human would. Its  software learns from its past conversations. In tests, it fooled a high proportion of people into believing they were talking to a real person.

Carpenter asserted that we are still a long way from having the computing power or the algorithms needed to achieve full artificial intelligence. But even he believes it will come in the next few decades.

"We cannot quite know what will happen if a machine exceeds our own intelligence, so we can't know if we'll be infinitely helped by it, or ignored by it and sidelined, or conceivably destroyed by it," he said.

I need to be braver in my position I think. And my opinion inclines more to Hawking for the simple reason that he has absolutely no vested interest in allaying concerns about the threats of technology.

I don't fear being physically killed by an out of control robot. I do fear that our whole economic system and the jobs within it will be killed if we don't do something.

I don't need to contemplate the distant future. Even today's 'basic' AI and technology is destroying jobs right now every day. Hawkings and Rollo are both contemplating the future decades ahead.

But that’s academic. The distant future isn’t the issue. Today is.

The top 30 jobs most at risk from technology

By Neil Patrick

Is your job at risk of being taken by a machine?

As technology continues to take jobs from people, so I’ve accelerated my research to try and figure out what this means for the future of work and what we can do about it.

I spend a lot of time talking to diverse experts who have insight on this subject and digging out relatively obscure research. This is far away from mainstream media which is high on attention grabbing headlines, but low on valuable insights.

So I was pleased today to discover a research paper by Oxford University academics Carl Benedikt Frey and Michael A. Osborne published in September 2013. Their research examines how susceptible jobs are to computerisation.

Their paper is titled: The Future of Employment: How Susceptible are Jobs to Computerisation?

You can read the whole document here.

Frey and Osborne developed a model which examined the current and anticipated capabilities of technology and then compared the tasks involved in carrying out over 700 different jobs. This enabled them to then rank each job by its vulnerability to being reduced or eliminated by technology in the future.

Of course, robots and IT systems are still unable to match the depth and breadth of human perception. While basic pattern recognition is reasonably mature, enabled by the development of sophisticated algorithms, sensors and lasers, significant challenges remain for more complex perceptive tasks.

So some jobs are at high risk. Others are currently relatively immune.

Computers are not so good for example at identifying objects and their properties in a cluttered field of view - hence the very nature of those annoying Captchas... Similarly, tasks that involve a complex and unstructured work environment make jobs less susceptible to computerisation.

The least at risk jobs therefore include:

Recreational Therapists
Supervisors of Mechanics, Installers, and Repairers,
Mental Health and Substance Abuse Social Workers
Occupational Therapists
Orthotists and Prosthetists
Healthcare Social Workers
Oral and Maxillofacial Surgeons
First-Line Supervisors of Fire Fighting and Prevention Workers
Dietitians and Nutritionists
Sales Engineers
Physicians and Surgeons
First-Line Supervisors of Police and Detectives
Elementary School Teachers

But even these jobs are indirectly at risk. Whilst the whole of a job may be currently impossible for a machine to replicate, parts of that job may well be perfectly capable of being replaced or aided by technology.

This fact in turn means that fewer people are needed to deliver the same amount of work.

And business has a habit of quickly finding ways round current technological limitations. If a human task cannot be replicated exactly by a machine, then why not just adapt the task so it can be?

So the limitations of perception by machines can sometimes be sidestepped by clever task design. For example, Kiva Systems, acquired by in 2012, solved the problem of warehouse navigation for its robots by simply placing bar-code stickers on the floor, informing them of their precise location. Problem solved! And fewer humans needed…

Anyway, the title of this post promised the top 30 most at risk jobs as identified by the research.

And here they are (and I sincerely hope your job is not on the list).

672. Legal Secretaries
673. Radio Operators
674. Driver/Sales Workers
675. Claims Adjusters, Examiners, and Investigators
676. Parts Salespersons
677. Credit Analysts
678. Milling and Planing Machine Setters, Operators, and Tenders, Metal
and Plastic
679. Shipping, Receiving, and Traffic Clerks
680. Procurement Clerks
681. Packaging and Filling Machine Operators and Tenders
682. Etchers and Engravers
683. Tellers
684. Umpires, Referees, and Other Sports Officials
685. Insurance Appraisers, Auto Damage
686. Loan Officers
687. Order Clerks
688. Brokerage Clerks
689. Insurance Claims and Policy Processing Clerks
690. Timing Device Assemblers and Adjusters
691. Data Entry Keyers
692. Library Technicians
693. New Accounts Clerks
694. Photographic Process Workers and Processing Machine Operators
695. Tax Preparers
696. Cargo and Freight Agents
697. Watch Repairers
698. Insurance Underwriters
699. Mathematical Technicians
700. Sewers, Hand
701. Title Examiners, Abstractors, and Searchers
702. Telemarketers