Salaries will not grow in the next decades, and it is essential to understand the reasons and the impact on all of us. This week, CNN released an article entitled This is the biggest mystery in the U.S. economy. "Who killed inflation?", they asked. "It's the most puzzling problem in the U.S. economy today. Even Federal Reserve leaders are scratching their heads. Normally in a healthy economy, as unemployment goes down, workers earn more in their paychecks and prices for goods go up -- ideally more than 2% annually".
But that is not the case.
We might find a reasonable explanation on the dynamics of the job market impacted by the ongoing digital revolution. For most of us, it has been a while since last significant salary raise. Smart marketers are acutely aware of the trend, holding prices of services and goods down, and preserving a healthy demand growth while pushing inflation to lower levels. Despite many macroeconomic dynamics the FED and other organisms are looking up to solve the puzzle, we might have a plausible answer in the subtleties of the job market. Here is what we at Collective Brains think about this.
Many simultaneous micro-dynamics are ongoing, resulting in an unforeseen jobs creation polarization process on the two ends of the wages spectrum. The trend is an explosion of jobs in the gig economy and other low wage ones on one end, and a healthy demand for highly educated jobs, especially STEM ones on the other. In the middle, every position is at risk of displacement as most companies aim to increase profitability by deploying new technologies and flatting the organization. Technologies like automation, machine learning, AI, and robotics are progressively replacing human jobs at scale, and that is especially true for that middle management population, where computers are starting to understand context, process Natural Language and develop cognitive capabilities. The aim is to eliminate jobs with higher compensation by both reducing managerial levels and organization levels, with a positive impact on the bottom line. Top lines can be positively impacted too as the process also creates more agility and increase employee’s overall efficiency, freeing time to give customers more attention.
At a macroeconomy level, even though we might see low unemployment rates, the numerically subtle tradeoff of highly compensated jobs by the explosion of low wage ones will keep average labor earnings stagnated or declining. That trend shows the real threat the fourth industrial revolution is posing on the middle class in the next decades, and numbers are starting to show.
Let's look at some of them.
First, the most recent Bureau of Labor Statistics (BLS) study projecting job growth by major occupational groups to the year 2024 shows that out of the top 15 occupations with the most job growth since 2014, 12 or 80% of them present median annual wage below the national average of 35,540 dollars. It seems the job market is skewing lower by job profile and driving growth of occupations that make less money (table 6).
The same study shows that in the 2014-24 decade (table 4), those new jobs will have a weighted median annual wage average of 44,220 dollars what could be good news as it represents a growth of 24.4% over the overall 2014 market median. The problem is that the projection does not go deep to understand the impact of new technologies like automation, machine learning, AI, and robotics. The last predictions of the effects of those technologies in the labor market show that in average, 30% of all the activities performed has a potential to be replaced by a bot (depending on the profession). Just to have a rough estimate and get a grip on the impact of those technologies on wages, we can apply that percentage to the occupations highly exposed to information technology only. The weighted median projection will fall to 34,817 dollars, 2% below the 2014 national average. That means, no wages growth in the next seven years. If we consider those projections might be conservative as technology adoption and deployment tend to escalate faster than most forecasts, we might even since the median wage declining, what could also trigger prices deflation.
Undoubtedly that is not a comfortable conversation for big corporations or policymakers while clear solutions are not identified to create a counter cycle. Big businesses have already started to rationalize their payrolls and please note the group has a more prominent participation in middle management types of roles. Despite the stock market growth in the last three years, with S&P 500 adding 31% of value in average, payrolls are reduced steadily in many cases. Fewer industries are adding jobs. In most of the cases, those are the ones with salaries below the current national average as fast food chains and retailers. Most tech sector companies are also adding new high education jobs, but not necessarily increasing the annual median or being enough to offset losses. Here is a closer look at the biggest employers in the US.
As the fourth industrial revolution deploys its disruption in the job market, we urge tech companies developing new technologies and lawmakers to act fast, and think on real solutions. We are raising awareness and motivate people to be actively engaged and ready to embrace this future as the full impact of those technologies will hit in a decade or so. At collectivebrains.org we invest in startups connected with the future of work and the future of education and tech companies leading the AI agenda.
Join us on creating a better future with equal opportunity to everyone. Help us find solutions for the future of work.
A constellation is a group of stars that are considered to form imaginary outlines or meaningful patterns on the celestial sphere. Similarly, we could call a business constellation a group of businesses that temporarily align around a significant purpose. Companies that get together to complement each other and cooperate towards a broad and impactful objective. That notion differs from traditional business partnerships by its impact and number of collaborators.
"Knowledge is a function of being. When there is a change in the being of the knower, there is a corresponding change in the nature and amount of knowing", writes Aldous Huxley in his book. We are living the fourth industrial revolution, and we need to recollect and reassess our knowledge about how businesses interact, compete and collaborate. Digital and new technologies are disrupting companies, business channels, business models, jobs and entire industries. Simultaneously, new generations are coming to the workplace with different mentality and understanding of relationship models. Generations born with broader social reach, real-time virtual collaboration and need to make the difference. The result is a significant shake on before understood permanent business structures, demolishing old patterns of supply-demand dominance and creating entire new ecosystems motivated to collaborate, deliver quantic leaps in human progress, and to launch reinvigorated business concepts.
NEW BUSINESS MODELS
New business models have surged in recent years and new terms coined to define them.
"Frenemies" are companies that compete in one area and are business partners in another. Samsung manufactures most of the I-phone screens and yet is the largest manufacturer of Android phones, making Apple its archrival on Smartphones and the most prominent customer at the same time. Amazon and Microsoft just announced Gluon, a partnership to deliver a new software tool for developers that makes it easier for developers to build AI/machine learning systems. Both are the most significant contenders on Cloud computing solutions, but they need help to fight Google in that space.
"Customer-Partner" is another model that boomed along with the Cloud tech growth. On these networks, a company can be simultaneously a user of one product, a reseller of your solutions and partner on your technology. Let's get a seller of Microsoft Azure as one example - typically a partner. The partner will develop solutions based on Azure and sell to its customer base. Those solutions might live in their websites or transact in Microsoft’s marketplace. That same partner might also resell Office365, and use it as their productivity solution. In that case, the partner will be at the same time a customer of Microsoft SaaS and IaaS and a partner on PaaS, increasing mutual dependency.
"Business ecosystems" are created around big companies that offer market wide strategic solutions. Amazon is a good example of a big business ecosystem anchor, and one of high growth. "Amazon ecosystem, made up of merchants, writers, reviewers, publishers, apps developers, and the information market of commentators, analysts, journalists and feature writers who get the word out about opportunity on the Amazon platform", says the Forbes article. The critical fundamental on those business relationships is that every entity works to the success of the ecosystem and depend on it at the same time. So, a retailer using Amazon virtual distribution system will profit more if the ecosystem grows and vice versa.
New ideas, new models, but we can do better.
BRAVE NEW WORLD
The world has experienced unparalleled growth in the last seven decades and wealth has multiplied and spread. That big new economy we have inherited from the "baby boomers" came with its challenges too. The way we explore resources, fuel growth and expand demand became not sustainable. Time to pass the baton to new thinkers. Especially "millennials", came to the workplace to challenge those notions. Growth can be sustainable, society can be more equitable, and the workplace can be more motivating and fun. Businesses around the globe recognized a new expanding market and started to adapt to this new consumer-user-entrepreneur-employee demands. Those same companies embraced new causes and purposes - recycling, no-GMO, organic, sustainable, ethical, socially responsible, equal opportunity, diversity and more - as never.
A new class of attraction and collaboration has surged. The one motivated by genuine purpose. People want to express their point of view, voice their passions and meaning, and create change by adopting a product or brand and choosing where to work. Businesses recognized the power of purpose and brought it to the cover of their strategies.
At the same time, the new generations can leverage the digital economy to disrupt businesses they are not happy about, and create their clusters when necessary. Or collaborate with bigger ones where there is opportunity.
That movement started to bring closer businesses aligned by meaningful purpose and boost collaboration to an entirely new level. Companies are partnering in leveraging services, aggregating solutions, changing regulations and helping each other to achieve bigger results and transformation. Those are Business Constellations, conceptual networks of individuals and businesses that get together to solve a problem or innovate with no or low formality. Businesses that come together and go at same speed, and make significant progress in critical areas of social, moral, economic and technological development. Companies may be part of many constellations at same time and collaborate on different projects in multiple purposes. A company can offer equal opportunity, partner with the local mayor on developing education and create new technology to support an efficient classroom all at the same time. What constellations is your company taking an active role? We at collectivebrains would love to hear your feedback and ideas on the future of work. Please join our constellation.