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.  


  1. I haven't gone as far as your thought experiment but with a seemingly surplus of labor, and a social climate resistant to lotus eaters, it seems we may need to cut back on the length of the work week (in half?) while increasing pay (doulbe+?) to make up for the lost wages (or even stagnant wages). This would have the effect of increasing money in circulation at the bottom of the economy, allowing it to percolate up and increase traction but would also double production costs. Not sure if there's a way to have increased production costs without linked prices, wiling out additional income.

    As far as a world with Oomphel in the Sky, while there may be a fair amount of just outright consumers, I think there would also be a lot of people following less economically relevant occupations. I know several people who work for their hobby, whether it's historical reenactment, cosplay, art, etc. They spend

  2. It's a great though experiment. But shouldn't the question be what the social contract is among us, rather than between us and the aliens (who represent machines in any case, if I read the context correctly).

    And then consider 2 more extensions: a) what happens when a group steals alien technology and weaponizes it? b) what do the liaisons who learned how alien tech works do (and demand) when aliens suddenly up and leave, while leaving their tech behind?

    Before you think I simply have a penchant for sci-fi movies, I believe the above extensions represent very real traits of humanity which unfortunately cannot be ignored in any economic or social system.

  3. So, a consortium develops (or acquires) 100% efficient solar energy, room temp superconducting cables, atomic level replication, and 10,000 sq miles of Sahara Desert; they'd use all this to take over economic control of the world? Sounds like Heinlein's Friday with a super-battery maker running the world through multiple proxies and inter-office fights escalating to nuclear actions in the real world.

    So, given unlimited resources and production capability, would humanity raise up everyone altruistically or trade mana for power over everyone? Yeah, I'm not betting on the altruism.

    Now, to reduce the extreme limits of the experiment down to today's apparent reduced need for human labor, are human beings prepared to provide decent wages for less than 40 hours work, even when a lot of people would still be required to work that or more? No idea how such a change could be brought about. There's no great labor movements left in the US or norther Europe, at least, not now. Maybe increasing poverty will change this?

  4. And, all the while, the infrastructure melts.

    Thanks, Rick for pointing out the 'Warehouse Slave' article. It brings several things to mind (though, I'll forgo mentioning the IPhone's contribution to hellish treatment of people -- how can some go around in such rapture due to their having a toy while thousands suffer to give them that little piece of whatever (censored)?).

    For one, there are plenty of jobs available if the problem is looked at correctly. Secondly, the push by management to exploit labor would not happen without intellectuals helping them (a whole bunch). The prostitution of mathematics (and the mind) is one way to look at it. The idiocy of six-sigma (and the like) as being integral to a whole bunch of problems is another factor. Look, the management realm could not wipe their arses, without help. So, you who are the best-and-brightest need to look at yourselves, first, if we want to suggest real solutions. Thirdly, a social contract presupposes that there isn't underlying goodness (arising from being - ah, think that quaint?) with which we are dealing (except for that above-mentioned manager class and their cronies). Even the a-theists now use 'goodness' in many situations. Further, there are very many things dealing with humans (Being) for which robotics (of the utmost ilk) cannot (and will not) touch. Only people who degrade themselves (we see plenty in a zombie state daily) will make the artificial to be superior (actually, that is what management wants! And, smart folks listen?). Dumb ourselves down to make systems look smart, in other words. And, ..., but not finally, ...) the energies seething in the masses will rise up (see below).

    However, it is an interesting thought experiment. Yet, why not alter the thing to try to build the 'perfect' city (remember Winthrop's dream?) whose functioning would require not only multiple cadres but talents of unending diversity and creativity? Look about the world. Well, look at US (do we have anything even close?), to boot.

    Unfortunately, since our beginning, we've had this idiocy of every four years to get through that has monotonically decreased to the slime (you see, we cannot get those people out of their morass). That's not an anti-vote remark. Rather, it's a comment about the very apparent ineffectiveness in terms of what we really need.


    In regard to seething, consider the upturns (even if they are being exploited) recently in the world which has a 'M' label. People over here seem to be aghast at such. Look. We've had similar things happen here, just not on the same scale. Need I point out mass rumblings that have occurred in Europe (our forefathers) over the centuries? We've opened, again, the can related to Crusade things (nothing new under the sun) allowing genies to run amok. But, that's another story.

    In regard to the masses over here, don't discount their energies. Who knows how things will erupt, but that they will at some point is inevitable. The Occupy mindset took me by surprise, but I'm happy to see the sides of issues that they seem to want to make visible (despite attempts at suppression) being discussed. Given the state of things, we ought to expect more of that sort of thing. And, they will not be malicious, by necessity.

  5. Why do you need Aliens when you have The tech? In a decade or two, Google, Apple and Wal-Amazon should be able to negotiate an optimal post-Nationstate contract.

  6. You are probably familiar with the Job Guarantee (JG) that the MMTers describe on New Economic Perspectives. It makes good sense to me, the only problem being that the government would have to be re-jigged along far different lines than what we have today.



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