Labour pains in the job market

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“ ... there is the dream and the will to found a private kingdom ... there is the will to conquer: the impulse to fight, to prove oneself superior to others, to succeed for the sake, not of the fruits of success, but of success itself ... Finally there is the joy of creating, of getting things done, or simply of exercising one’s energy and ingenuity.

— Joseph Schumpeter, on the nature and essential character of the entrepreneur, The Theory of Economic Development

No nation can have a vibrant and strong economy without producing jobs. Jobs are the lifeblood of a strong economy. They anchor the quality of life for citizens, pay tax revenue and support entitlement programmes. Often, however, our Island gets it very wrong.

Officially, the job market is supposed to be getting better. The unemployment rate from the 2013 Labour Force Survey suggests Bermuda’s unemployment rate has fallen from eight percent to seven percent. Unofficially, however, the picture is probably worse. Part of the fall in the unemployment rate is due to a fall in the participation rate or the number of people in the working group. Another aspect that is not tallied up in the official figure is the “underemployed” numbers — these are reported to be 5,611 persons. If we add the underemployed to the unemployed we get 8,180 people or roughly 21 percent of the labour force.

I often hear some very disturbing beliefs when it comes to jobs. These include:

— Foreign skilled workers that immigrate here take jobs away from Bermudians;

— Small companies, which have a higher failure rate, are simply too small to make a difference in our $5 billion economy;

— Unemployment in Bermuda is high simply because there are not enough jobs to go around;

— When you tax or regulate international business employment is not effected.

All these statements, of course, are incorrect. Foreign workers that arrive in Bermuda have, in many studies, been shown to create two to three local positions each.

The very nature of their presence and spending within our economy creates a virtuous circle of consumption from the multiplier effect. They pay rent which is used by the local landlord to buy groceries, which the store uses to pay employees, etc etc.

Ironically, even if a group of skilled foreign workers comes to Bermuda and does not immediately hire any local Bermudian, their mere presence and local spending creates ancillary income and jobs in unrelated (or even related) industries on the Island.

Small business is what actually creates jobs. Start-ups account for virtually ALL job creation. According to the Business Dynamics Statistics study in the US, over the period of 1980 to 2005, businesses less than five years old accounted for all new net job creation. The biggest job source is the approximately five percent of existing small companies that shoot up to big success. If you really believe that small businesses and start-ups are a waste of time you essentially believe job growth is a waste of time.

And while there is indeed a shortage of jobs, as attested to by the 2,569 Bermudians who are currently unemployed or the 5,611 people considered to be underemployed, there are still job openings waiting to be filled in certain areas by individuals with suitable skills.

Thus, part of the problem with unemployment in Bermuda, and around the world for that matter, is the gap between talent sought by employers and the abilities possessed by potential employees — the skills gap.

The problem is not simply that there are not enough jobs but that there are workers without jobs that don’t have the skills for the new jobs.

And, finally, we all need to remember is that you can’t be for employment and against employers. When corporations are excessively taxed or regulated, everyone gets hurt. The reason is straightforward: firms in this age of globalisation simply move to where the conditions, including taxes, are more conducive to business success and ease of operation. Putting these misconceptions aside, we should focus on some long-term and structural labour pains Bermuda faces and needs to overcome: Missing the Innovation Train, and Computerisation.

Missing the Innovation Train

Technology is always expanding rapidly. Now ‘fracking’, 3D-printing, the cloud, tablets and smartphones, apps, and genetics are generating new, amazing products and efficiencies. However, benefits of these technologies alter existing industries and innovation has throughout history come at the expense of jobs.

Bermuda is no different from any other nation, nor is it immune to shifting global trends. Bermuda has recently suffered from the offshoring of a whole series of positions, many in middle management or administration, that have been sent to jurisdictions where the work can be done either cheaper or better. This has been assisted, in a large part, by enhanced global communications, technology and computing power. The sheer expense of Bermuda has made many such positions obsolete and uncompetitive.

And unfortunately Bermuda is not benefiting from the new jobs that often get created by innovation and progression. Secretaries and admin positions have shrunk but we do not see a wave of computer programmers and web designers popping up here locally. This pressure on job creation is not likely to be alleviated anytime soon because we do not have any major industrial sources of jobs for which these forces will benefit and CREATE jobs.

My bigger concern however is that offshoring is only a weigh station on the road to full automation. Innovation is great news for the human experiment and great news for the privileged minority in developing countries ... but it could be terrible news for the vast number of people in Bermuda who do not have the skills to participate in this new economy. Without a focus on developing newer industries on the island in the areas of STEM (science, technology, engineering and math) it will become increasingly likely that Bermuda will miss the train of future job growth.

While we should continue to support our current industries, we are slowly becoming more irrelevant to the future areas of job growth if we do not push our economy into future areas of progress and diversify away from more stagnant or non-innovative sectors.

Computerisation and the Age of the Machine

In a paper published in September 2013 titled “The Future of Employment: How Susceptible are Jobs To Computerisation?” authors Carl Benedikt Frey and Michael Osborne, of the University of Oxford, argued that jobs in 47 percent of the occupational categories into which work is customarily sorted are at high risk of being automated.

That includes accountancy, legal work, technical writing and a lot of other white-collar occupations. The drop in the real cost of computing has created a large incentive for employers to substitute labour for computer capital. In fact the extent to which the substitution continues will only be limited to how easily the engineers can overcome pattern recognition that can replace more non-routine cognitive tasks.

See the accompanying table from the Frey and Osborne study listing the probability of computerisation over the next decade or two for certain jobs we have in Bermuda.

Clearly there is substantial future risk for wide swathes of our population from advancements in computer technology and automation.

Bermuda not only has an eerily low exposure to the employment categories which are not likely to be computerised over the next decade or so like biochemists and biophysicists (only 2.7 percent), Materials Engineers (only 2.1 percent), Microbiologists (only 1.2 percent), Computer Systems Analysts (only 0.65 percent), but also has a high exposure to the jobs that are prone to computerisation.

Advanced robotics are moving towards replacing some more dexterous working aspects as well. In a book soon to be published called “The Second Machine Age”, the case for a highly disruptive period of economic growth is made by Erik Brynjolfsson and Andrew McAfee, professors at MIT. They suggest that machines are not just cleverer; they also have access to far more data. The combination of big data and smart machines will take over some occupations wholesale; in others it will allow firms to do more with fewer workers. They even suggest that a taxi driver will be a rarity in many places by the 2030s or 2040s.

For many the labour and employment situation is frustrating and persistent. Unfortunately, if we as a nation do not start looking forward to the future and what it offers in potential employment opportunity sets, current labour pains will be chronic indeed.

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Published Feb 10, 2014 at 8:00 am (Updated Feb 17, 2014 at 11:31 am)

Labour pains in the job market

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