During a recession or period of economic disruption, employment nearly always drops, often quite considerably.  As the economy recovers, some of those jobs return, but some do not.  A recent Wharton study set out to explore whether there are any trends behind what jobs return to see if there are any personal and societal lessons we can take to improve our economic resilience.

The study examines the influence technological transformation has had on the American labor market in the last 20 years, with a particular emphasis given to the period of the credit crisis and the years following it.

Job polarization

That a large number of jobs were lost during the recession is well known, as is the fact that employment levels were slow to recover afterwards.  The research also reveals that of those jobs that did return, the majority were in high-skilled roles.

By combining what we know about business cycles and the fundamental logic of long-term tech transformations, it helps to explain why so few of the jobs that returned after a recession were low-skilled ones.  This has made high-skilled jobs a much higher proportion of the economy than before the recession.

This hollowing out of the labor market is one that is gaining acceptance, but this disruption to a large number of jobs that were traditionally the mainstay of the labor market has some significant implications.

The missing middle

In many senses this is to be expected.  New technologies often automate low-skilled work, and make subsequent work with it more skill-intensive.  This creates a demand for high-skill workers, which should then create a subsequent demand for training in the skills required by the economy.

The question is, is this actually happening?  Many people left the labor force as a result of the recession, but did not enter education to retrain and adapt their skillset.  This is a major concern as it’s fairly well known that the longer one stays out of the labor force, the harder it is to rejoin it.

What is telling however is that rather than technology being the prime disruptor of ‘routine’ jobs, economic recessions were far more destructive.  Indeed, 88% of the historical job losses were as a result of economic downturns.  Whilst we like to think of this as a recent phenomenon, the paper highlights that it occurred just as much in the recessions of 2001 and 1990-1991.

Digital transformation

This has a certain logic to it.  Digital transformation is notoriously difficult.  Even if you discount the political and legacy pressures that make it difficult to change, the practicalities often involve disruption to business as usual as you not only adapt the technology you use, but also the processes and culture that make that technology useful.

All of this disruption renders it perfectly logical that you would undertake it when demand is relatively low rather than when it’s relatively high.  In other words, you would schedule this investment for a recession, with the ‘left over’ workers then sacked so that you’re ready for when the economy recovers.

Then, when the economy picks up and the new technology has bedded in, the jobs that are recruited for are generally a higher skilled variety to work alongside the new technology.

The authors advocate that the best course of action for those made redundant during a downturn in the economy is to invest in their skills.  This presents a number of challenges however, not least the time and cost involved in doing so.  I wrote last year about research highlighting the barriers to lifelong learning, especially among those who need it the most.

During a recession however the opportunity cost of making such an investment is lower however as jobs are scarce and wages low.  Just as it’s a logical time for companies to invest in technology, so to is it a logical time for individuals to invest in training.  The authors suggest that half of the challenge for individuals is understanding that their unemployment is unlikely to be transitory and therefore likely to change when the economy picks up.  Rather, their unemployment is likely to persist unless they gain fresh skills.