Technology Eliminates Mid Skilled Jobs

Brigette Leckie

Koda Capital

Our latest extensive trip across the US (California, Arizona, Illinois, Washington, New York, Florida, Washington DC) highlighted the strength of the domestic labour market and the resulting resilience of the consumer as evidenced by busy restaurants, service-related shops, construction activity and more. Everyone who wants to work (and is largely employable) has a job. As previously discussed, the greatest segment of market “tightness” (i.e. where employers are having the greatest difficulty in hiring workers) is in the low skilled part of the labour market. This is illustrated in the chart below.

Why is the low skilled end of the market in such demand?

A fully automated process occurs when technology components are linked together to create a product or a service that has no direct human intervention. Automation is driving organisational efficiencies in many areas of task repeatability and is able to replace mid-skilled workers. However, process automation is not currently sufficiently agile and customise-able to compete with the range of contextual-task provided by low skilled workers. The competitive advantage that low skilled workers offer is that they perform a wide range of tasks that are highly specific to the context of the task before them. Examples of this segment include gardeners, cleaners, painters, construction and maintenance workers and restaurant hands.

The tightness of the low skilled labour market differs from prior cycles. The 1990s cycle was about globalisation and outsourcing, and the rise of the internet played a big role in both of these themes. These momentum drivers created the strongest employment growth in the mid and high skilled areas. The 2000s were a continuation of the globalisation and technology theme, and the US housing and global finance boom also came into play – collectively these were a bonanza for high skilled roles. This cycle has seen a hallowing out of mid-tier roles. This has been most pronounced in finance and insurance industries where large scale deleveraging has occurred/is continuing, but is happening in varying degrees across all industries.

 

Looking forward, we expect the trend of the past decade to continue and mid skilled jobs to be eliminated at a much faster rate. This includes all professional areas where the knowledge of the whole profession is being comprehensively coded. The quality of the decisions made by inter-connected system can therefore be shown to outperform human workers from an effectiveness, consistency and cost perspective. Some examples where the entire profession is being comprehensively coded includes law, medicine, agriculture, finance, banking, insurance and accountancy. Particular tasks in these professions that are rapidly being automated include consumer enquiry via chat-bots, decision making, compliance activity, report generation and even more traditional collaboration activity where contextually-aware automated work-flows are able to piece together the set of tasks across the value chain. This will continue to provide opportunities for knowledge creation professions but will significantly decrease demand for implementation/execution-based expertise.

 

For now though, the low skilled segment of the labour market will be a key support for consumption and more broadly the US economy as we head into 2020. Wages for these workers is grinding higher (also evidenced on the ground first hand) and importantly the recipients of these increased wages spend each incremental dollar. Should this segment of the labour market start to weaken then this would be of concern and a potential de-risk signal – but importantly for now we are not about to de-risk.  


 

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This research note has been prepared without consideration of any client's investment objectives, financial situation or needs. Before acting on any advice in this document, Koda Capital Pty Ltd recommends that you consider whether this is appropriate for your circumstances. While this document is based on the information from sources which are considered reliable, Koda Capital Pty Ltd, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Koda does not accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. © Copyright Koda Capital 2019 | AFSL: 452 581 | ABN: 65 166 491 961 | www.kodacapital.com

Chief Investment Officer & Partner
Koda Capital

Brigette Leckie has worked in financial markets since the early 1990s and has been Chief Investment Officer & Partner at Koda Capital since 2014.

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