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Institutional Perspectives

Even though we have a new kind of recession, job losses are still likely to land hard on occupations that are susceptible to automation.

“Economic expansions don’t die of old age, they’re murdered,” goes the old saying – by overexpansion, financial excess, monetary tightening, and so forth. But apparently expansions can catch a virus as well.  

Although a shutdown of the world economy from a viral pandemic does not fit with the usual causes of recessions, and its eventual pattern of depth and duration remains uncertain, the response of labor markets is distressingly familiar; after each recession in recent U.S. economic history, jobs requiring a moderate level of skill are disappearing , perhaps never to return.

Job Polarization in the U.S. Labor Market
Over the past two decades, economists have noted what they call “job polarization.” In brief, job opportunities both in high-skill, high-wage occupations and low-skill, low-wage occupations have been expanding, while middle-wage, middle-skill white-collar and blue-collar jobs have been contracting. Jobs in the latter category include sales and office positions, including those in the auto industry.

Unfortunately, the cause of the current recession may be different from other recessions in our past, but that has not kept employers from, once again, heavily shedding workers in the middle-wage, middle-skill categories.  Although Figure 1 uses non-seasonally-adjusted figures, the pattern of increasingly large drawdowns for sales and office workers follows on the previous two recessions.

 

Figure 1. With Each Recession, Sales and Office Jobs are Not Getting Replaced
Jobs in selected categories (January 31, 1983-March 31, 2020)

Source: Bureau of Labor Statistics.

 

An Employment Category That Doesn’t Bounce Back
Sales and office jobs (often referred to in economists’ lingo as “routine cognitive” jobs) are most vulnerable to skill-biased technical change, a longer-term structural issue. This means that their jobs are most exposed to automation and replacement by computer code. Even though we have a new kind of recession, job losses are likely to land hard on this vulnerable group of workers once again. This employment category doesn’t bounce back; it gets replaced.

Contrast that with the experience with jobs that are higher value-added activities like management and processional occupations. Manufacturing, maintenance, repair, production, transport, and materials construction jobs owe their partial staying power to both a housing bubble in the early 2000s and an oil extraction boom in the mid 2010s that papered over these longer skill-biased technical change issues. (This may not be the case going forward in a challenging environment for U.S. oil industry job growth.)

Fortunately, the government is acting quickly to provide relief through the Paycheck Protection Program. But, from my perspective, any new phase of the federal government’s stimulus effort must address this yawning skills problem in the United States through longer-acting worker training programs. Although protectionist policies may slow this employment shedding pattern down, in my view even the most ardent of protectionists cannot stop the immense power of computer code and automation to replace human sales and office routine cognitive workers.

 

Forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

Glossary of Terms

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education.  No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein.   If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.

 

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