When he wasn’t explaining mass unemployment, negotiating the Treaty of Versailles, making a fortune trading stocks from his bed or inventing modern probability theory, John Maynard Keynes had a few ideas about the future of work.
Writing in the 1930s, Keynes predicted that automation and rising productivity would lead to a world of ease and plenty. In the future, people would work for 15 hours per week, he said, which would give us more than enough income to satisfy our needs.
This idea was still in vogue when I was being taught economics in the 1970s. The early spread of computers and increasing automation made Keynes’ dream seem achievable in our lifetimes.
But today, it’s clear that Keynes got it wrong. Instead, we live in a time where junior investment bankers are keen to do basic repetitive tasks for 90 hours per week. And where the government allows you to opt out of the EU working time directive, if 48 hours a week just isn’t enough to satisfy you.
Despite our eagerness to toil all the hours God sends, the share of national income taken by labour has been falling in recent years. Average wages are stagnating. They used to grow a little faster than inflation. Now they are lagging.
So the big political issue at the moment isn’t unemployment, which most economists (wrongly) expected to be a lot higher after the crash in 2008. The big issue is this squeeze on real wages (that is, wages adjusted for inflation).
Are we stuck with low wages?
I would normally blame the economic cycle for this. And if the economic cycle is to blame, the problem will resolve itself as the economy improves and the labour market strengthens.
Our labour market is a lot more flexible than it used to be, back when the unions ruled. So workers might well be pricing themselves into jobs by not demanding inflation-busting pay rises. It’s reasonable to expect their bargaining power will improve as unemployment falls.
But something tells me that this might not happen. In fact, there are a couple of reasons that I suspect this squeeze could be permanent.
First, there is globalisation. At first, the West lost basic manufacturing jobs as millions of workers in emerging markets entered the global workforce. Then we saw white collar jobs in call-centres, and basic legal, financial and IT tasks being ‘offshored’.
Cheap communications and IT meant that previously ‘safe’ service sector jobs could be carried out almost anywhere.
The latest big trend which is hurting workers is automation. Voice recognition technology means that you no longer have to choose between Mumbai and Middlesbrough for your call-centre. Instead, you can locate it in the cloud, and let the computers do the work.
Computers are getting smarter
Computers are getting a lot better at reading text, too. They can use smart algorithms and huge processing power to ‘understand’ human language. So rather than put-upon junior lawyers or bankers ploughing through legal texts and contracts, the machines will be able to take over.
I wrote recently about Aim new-issue Arria NLG, which makes software which is able to write technical reports in everyday language. Once the machine has been taught the industry specifics, it can generate useful reports far quicker than a technically qualified human could.
Machines are getting better at ‘working with’ humans. Another example is Google’s driverless cars. They’ve already clocked up half a million accident-free miles in the US.
Driving in normal traffic was something that most of us would have thought needed a human. But the end of the taxi driver could be closer than we thought. There’s already a trial planned for Milton Keynes next year.
How to invest in this trend
So, what ‘safe’ jobs should I try to direct my children into? It’s not at all obvious what jobs will be unaffected by the relentless progress of machines. A lot of the growth stocks I look at for Red Hot Penny Shares employ very few people relative to their market value.
A few well-paid technicians develop valuable services and software, while the support tasks are either outsourced or just don’t exist anymore.
This seems to tie in with the view that the labour market is splitting in two – that a small number will enjoy great success by working with computers, but most will struggle.
Workers and parents might find this future unsettling. But as investors, we can choose to be on the right side of this trend. That means looking out for companies that are exploiting growth in computer power.