Disruption of the Middle Class- Part 1

Part 1 of a Three Part Series on the New Economy and Disruption of the Middle Class and What Comes Next…

Part 2:  The Rise of the Individual

Part 3: Implications for Our Kids and the Future

Picture courtesy of Oak Tree Vintage website

This week, I read an interesting story in Newsweek magazine about “beached white males” talking about the number of middle age, middle management types who’ve found themselves without jobs and have had difficulty finding new ones in this recession.  The most interesting point in the whole article was the following paragraph:

In some ways, it was inevitable. Automation isn’t just a blue-collar problem anymore. (emphasis added) Powerful software programs replaced armies of financial officers, accountants, computer-chip designers, even lawyers, who now feed millions of documents into “e-discovery” programs. Job growth in management, technology, and other white-collar professions slowed to nearly zero. The media business has been perhaps hardest hit by technological change. Last year ABC News pink-slipped nearly 400 people—25 percent of its workforce.

The disruption caused by the rise of the internet and of more powerful computers has hit those who thought they were immune from the various rises and falls in the economy.  Here’s an interesting business cycle to look at:

Companies start to feel that they have to look for ways to cut costs and be more efficient.  They are looking for quarter to quarter results, because this is what the guys on Wall Street and the financial press demand.  In order to do this, you start to look at investments in getting rid of recurring costs- and frankly, salaries and benefits are ongoing expenses.  So they begin to look for ways to automate and make certain tasks more efficient.  Let’s look at a few industries effected by the rise of computerized solutions:

Travel Agents: Except for booking cruises or complex travel, automated online systems ranging from Orbitz to Priceline to Kayak and everyone in between make this process easier, both for the person trying to figure out where they want to go and when, and even for the companies, who no longer have to pay a cost (fee) to an agent who found them a customer.  This has meant airlines spend more money on direct to consumer advertising and loyalty programs, because Joanne at “She Loves Travel” is no longer sending all her folks to you, but that’s the way it goes, I guess.

Healthcare: The rise of electronic medical records has reduced (and will continue to reduce) the need for front office staff and file clerks in hospitals.  All of the tasks of managing the paperwork and insurance process is largely managed by computer.  They are still working out kinks with teaching doctors to properly “code” visits for billing, but I suspect this will be a course students will have to start taking in med school before long, or at least as a part of their residency training.

Retail: A number of years ago, when I worked in a small law firm, we did some consulting for the folks that make the automated check-outs at grocery stores, Walmart, and the like.  The issues we were looking at was making sure the machines could be made accessible for the disabled to comply with the Americans with Disabilities Act.  The bottom line is that you could use as many of these machines as possible, as long as you still had the option of having a human to help assist or have a human checkout person to make sure anyone with a disability could still receive service when needed.  So as you see the bulk of the sales and cash register people diminish, you’ll still see one or two around, but mostly that’s about regulatory compliance underneath it all.  The less people involved with checking out, the fewer salaries need to be paid.  RFID tracking helps curb shoplifting, so in the end, all you need is one front end manager and one guard.

Sales: Websites that are available 24 x 7 and programs like Salesforce can help businesses manage sales and salespeople more efficiently than ever, further cutting down the need for actual humans and eliminating jobs to sweeten that bottom line.

Inventory Control:  New cash registers help businesses of every size track inventory.  While this may need to be verified a few times a year with an actual physical count to account for loss, theft or “shrinkage”, there’s no longer the same need for every department head to manage all the inventory in a more labor-demanding way- they just look at their print outs, reconcile that with temp help for an actual count quarterly or ven bi-annually, and it’s all done for you.

Printing: Even back in the early eighties, the small neighborhood printer who did invitations and posters, flyers and business cards, was starting to fade away with the home computer and laser printers, producing great results at a desk top.  While a few big shops remain, engaged in offset multicolor printing on specialty papers, and doing lots of design work, the concept of a local printer is a memory.  So I find it incredibly ironic that Pottery Barn is currently featuring a line of furniture called the “Printer’s Furniture collection” that has the antique look and multiple drawers needed in a print shop.  As another industry further consolidates and automates, its legacy is relegated to a furniture line and faux antique status, along with the

These are just a few examples of how automation, computers and the internet have cut the need for actual humans to do a lot of the work they were trained to do and educated to do over time. The crap has finally hit the fan, so to speak, and this great recession is in part a correction for the disruption caused by the rise of cheap and efficient computing.  The economic crisis provided all sorts of businesses to re-examine what they were doing and ask the hard questions about whether they needed people or programs, and many found programs were much easier to work with, and you didn’t have to work around their moods, vacations, or coffee breaks.  These folks in the middle are much like the telephone pictured above.  They were “classic” models with push button upgrades, but once everyone adopted a cell phone, the need to be anchored to a desk rapidly became obsolete.  Likewise, these folks were trained and inhabited jobs that once were required, but as computers have been able to handle the movement of information much more efficiently and accurately than people, their jobs have become redundant, and finding a new job requiring those same skills at the same salary is extremely difficult.

The next part in this three part series will be based on one of the last paragraphs in the Newsweek article quoted above:

Many of the newly jobless rebrand themselves as consultants. (emphasis added)  The number of so-called independent contractors is up by more than 1 million since 2005, according to Jeffrey Eisenach, an economist at George Mason University. More than one in five of them work in management, business, or finance. Boutique employment agencies are springing up to exploit this labor pool, which is attractive to companies that would rather not shell out for benefits or a 401(k). The New York–based Business Talent Group has a deep bench of BWMs (and some BWFs) for hire, many of them M.B.A.s with two decades of experience as managers, directors, or C-level boardroom players. BTG is on track for record growth this year, says Jody Greenstone Miller, an ex–Time Warner executive who founded the company in 2005. “We want people who treat this type of work as a permanent career,” Miller says. It typically takes executives six to nine months of looking for staff jobs, she adds, before they come around to the idea that no matter what you were before, you’re now basically a full-time temp.

As the economy undergoes a massive shift, the concept of becoming a free agent, independent contractor and/or a “Personal Brand” is something those of us working on the web have been discussing for over 5 years now.  What we’ve learned over that time, and what it means to everyone trying to become more resilient and flexible to the crazy waves of change will be in the next post in this series.

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