This Is the End


Markets, Risk and Human Interaction

September 10, 2012

The Great Labor Reset: Labor Laundering, Self-Sourcing, and Other Tales of Woe

In a recent post I discussed the potential for long-term, structural unemployment, the possibility that some of what we are seeing in the unemployment picture will not be resolved by an economic upturn. The focus of the post was on how robots and computers are increasingly replacing labor as a factor of production. One question, though, is why should we see this strongly manifest in the labor market now. The move toward robotics might be inexorable, but it also is gradual. So certainly it should not be the source of sky rocketing unemployment in the wake of the 2008 crisis. This gets to other effects of the crisis on the labor market.

The Great Labor Reset
The most opportune time to do a structural home renovation is after a fire has gutted the house. The crisis of 2008 did the same for the labor market. As much as anything else, the 2008 crisis provided the cover for making changes in the labor market that would have been fraught with institutional push-back in a normal environment. There are institutional barriers to outsourcing labor, reducing benefits and wages, and moving full time workers to part time, even if a purely neoclassical analysis suggests these changes can be absorbed by the supply and demand equations of the labor market. So some of what we have seen in terms of shifts in the labor market is not simply a reduction in hiring, but a change in the labor-employer contract that would not have sat well outside of the fog of war coming from the 2008 crisis.

Labor Laundering
One change in the labor market is what I call labor laundering. Many employers need to protect good will with their customers and cannot be seen as bullying workers. So they outsource their labor pool to contractors, most commonly operating in other countries, but also domestically through what are basically next-generation temp agencies. For example, warehouse packing is the sweatshop job of our time. The article “I Was a Warehouse Slave” gives a day-in-the-life view of these workers, effectively paid for piece-work, without benefits, with one-day notice job security, in physically grueling conditions. More than 20 percent of the American workforce is now “contingent” – temporary workers, as well as contractors and independent consultants.

Labor laundering only works if the workers are far removed from the customers, so that the consumers don't see how the sausage is being made. Which means it works better for remote, on-line retailing than when the workers are in the neighborhood store. Thus labor laundering gives the on-line retailers an advantage as far as labor is concerned.

Everything else equal, it is more efficient to do production domestically rather than outsourcing it abroad. The use of robots and the rising costs of labor in the principle outsourcing countries are both eliminating the advantages of outsourced labor. Labor laundering is meeting these rising labor costs from the other directions, reducing the costs of domestic labor. So although manufacturing is moving back to our shores, for labor and employment the picture is not as pretty as it might seems.

In my recent post on this topic I focused on robots taking over many labor-intensive tasks, some of which were considered beyond the reach of such automation. When there is labor involved, often the role of the robot is taken on by the consumer; we are outsourcing to ourselves. It is not very subtle stuff: self-checkout, self-ticketing, managing our own calendars, correspondence and travel arrangements. On net, even if the total time required for these tasks ends up being greater than in the days of cashiers, ticket agents, and secretaries, the cost to the producer is reduced because the labor is us. The same is true for a lot of our entertainment; Facebook and web surfing being good examples. The nature of this consumption leads us to do a lot of the work.

Workers of the World – Goodnight!
What do all of these unemployed and underemployed going to do?

I don't have a ready answer to this, but I have toyed with a thought experiment, one that – as most thought experiments do – takes things to the extreme: What if an alien race came to earth and said that if we allowed them to live in the desert sand of the Sahara and Gobi and left them alone, they would generally (if times were good) provide us with most of our consumption needs – food, housing, energy, transportation. What if they told us they would gave us all experience machines to keep us happy, (I wrote about this a while ago; it is aconcept most closely tied to the late 20th century philosopher Robert Nozick. Think of taking aspects of our virtual world a few iterations further, so that we can plug games, realty shows and other aspects of our non-work lives into our brains so that we are pretty much living a world of our own design), so that our demand for consumption was readily sated. What is the social contract that would be drawn up between us and the aliens? I might try to follow up on this question in a later post.