Will the Job Outlook be Great Again? (Part 2: Energy Extraction)

In my previous blog, I discussed the likely impact of the Trump administration on manufacturing jobs and concluded that he is unlikely to deliver on his promise of a renaissance in low-skill manufacturing jobs. Although in his campaign Trump gave the greatest emphasis to manufacturing, he also assured voters that he would boost employment in other industrial sectors. This blog is about another sector.

Energy Extraction. The government has considerable powers to regulate the energy-extractive industries: coal mining and petroleum. The majority of lawmakers in Donald Trump’s party have been saying for some time that global warming either does not exist or is not caused by human activities, and in doing so they have positioned themselves as champions of this industry sector. Although at times Trump has made vague concessions that there may be human causes, most of the time he hews to the more extreme version of the party line. He even tweeted that human causation is a myth concocted by the Chinese, although later he denied having said so.

 For both Trump and the Republican Congressional majority, two main policy recommendations result from this denial of the scientific evidence: (1) increased oil drilling and coal mining (“Drill, baby, drill!”); and (2) reduction or elimination of limits placed on carbon-releasing industrial activity (“Burn, baby, burn!”). Another result is encouragement of oil-pipeline construction, which has frequently been blocked by environmentalists.

Among the existing laws, regulations, and treaties that bind the United States to reducing carbon output, some will easier than others Trump and Congress to reverse. Trump has said he will “cancel” the Paris agreement, in which nations have promised to cut their output of greenhouse gases, and he can back out of this agreement by one of several ways. On the other hand, it will be difficult for him to roll back the regulations that make up the EPA’s Clean Power Plan and the fuel-efficiency standards for cars and trucks. To do so, he will need to propose alternative regulations and will face litigation from environmentalist groups that could delay or even block any changes. Any changes Congress wants to make will face possible filibustering from Democrats. If Trump and the Republican Congress succeed at rolling back regulations, it is possible that states will take a more active role. For example, California already has more stringent standards for vehicle emissions than the nation as a whole, and other states can adopt the California standards.

Market forces are already promoting the transition from dirty energy sources to cleaner sources. As cheaper natural gas has become available, power plants have been switching from coal to gas. The Energy Department found this transition the chief reason why carbon dioxide emissions in the first half of 2016 reached the lowest levels since 1991. During that period, in which the weather was relatively mild, consumption of coal fell by 18%, while consumption of natural gas fell by only 1%. Energy from renewable sources increased by 9% during that same period. Meanwhile, the cost of alternative-energy sources has continued to fall, and energy-saving consumer goods, including hybrid and electric cars, have become more affordable. If you haven’t shopped for LED light bulbs lately, you may be surprised at how cheap they have become.

Even if the government managed to walk away from the anti-carbon policies of the past few years, it is questionable whether market forces would allow the petroleum-extraction industry to expand and create jobs on a large scale. Employment in this sector was at 538,000 in October 2014 but is now at about 175,000 workers. Anti-carbon policies had very little to do with this slump. Instead, the main culprit was the glut of capacity that was created by America’s widespread adoption of fracking technologies, together with the development of new oilfields in other countries, such as Brazil. Opening up new areas (such as national parks and sensitive offshore ecosystems) for drilling will not produce a cornucopia of jobs as long as the glut of cheap oil and gas continues to make it uneconomical to set up new drilling rigs and pipelines.

Coal-mining jobs face a similar hurdle. Employment in 2015 reached the lowest levels since the Energy Information Administration began collecting data in 1978, and the number of mines decreased in all three major coal-producing regions.  The EIA reports (PDF) that between 2014 and 2015, “the average total number of employees at underground mines and surface mines  declined  by  13.6%  and  9.3%,  respectively.” More significantly, “the   average production per employee-hour increased by 5.4% to 6.3 short tons per employee hour.” Like the manufacturing sector, coal mining has increased its use of automation and other technologies for extracting coal more easily.  Coal is now extracted mainly by excavation from the surface (including mountaintop removal), using colossal machines operated by relatively few workers. In 2015, all of the top 10 coal-producing operations were surface extractions. The industry is vastly different from the labor-intensive days when Loretta Lynn’s father went to work with a pick and shovel down in a tunnel .

So the policies advocated by Trump (most of the time) and by the Republicans in Congress are unlikely to create a boom in employment in the energy-extractive industries. That’s not to mention the damage that these policies will do to the alternative-energy industries, to the extent that solar and wind power are still being subsidized.

There is one more wild card that may influence the energy-extraction policies of the new administration: Trump’s relationship with Russia. Oil and natural gas are Russia’s major exports, accounting for 68% of total export revenues in 2013. For reasons that are not entirely clear, Trump has made good relations with Russia a high priority. So although removing the barriers to petroleum output in the United States might create a limited number of jobs here, it would depress worldwide prices for petroleum and thus inflict a blow to Russia’s economy. Perhaps Congress will be less eager than President Trump to prop up Vladimir Putin.

Of course, unemployment in the oil patch and especially in the coal belt is no trivial matter that either party can afford to ignore. But the answer is not to turn back the clock on energy policy as if the energy markets and extractive technologies have not changed since the 1970s energy crises. Wayne Gretzky used to say that you skate to where the puck is going, not to where it’s been. As was true for manufacturing, the answer is to retrain displaced workers and train young people for the changed economy. But, as I pointed out in the previous blog, Trump and the Republicans are not advocating policies that will expand the availability of low-cost, high-skill training.

Will the Job Outlook be Great Again? (Part 1)

As a new presidential administration approaches, you may be wondering about the impact that the change in leadership will have on job prospects in the United States. I don’t claim to have a crystal ball, but I believe I can glean useful insights from what economists are saying and from past employment trends. And, in fact, I have a record of forecasting trends brought in by a previous sea change.

Eight years ago, when a major recession was looming and I was working for JIST Publishing, my editor—Susan Pines—assigned me to write a book that eventually was called 150 Best Recession-Proof Jobs. The book came out just as the full force of the Great Recession came crashing down on the U.S. economy. Thanks to this good timing, the book was so newsworthy that I was being interviewed on television approximately once a week for a month and more. (A lot of credit goes to JIST’s crackerjack publicist at the time, Selena Dehne.)

I selected the occupations that I featured as “recession-proof” by mathematically comparing the past ups and downs in the gross domestic product with the ups and downs in the workforce size of each occupation. Thus I was able to identify occupations that were least impacted by past downturns. The main limitation of this approach is that each recession is different from previous recessions. For example, the Great Recession was caused by a sudden drop in the value of real estate after a long bubble of overbuilding, so certain industries related to real estate—especially construction—suffered more than they did in previous downturns. Nevertheless, over the following several years my predictions were more often confirmed than disconfirmed.

The pending change in administrations presents a similar problem for those who would forecast employment trends. It might seem sensible to look at the employment effects of past transitions when a Democrat was succeeded by a Republican. However, each such transition, like each recession, is different in many ways. The year 2017 can’t be expected to repeat 2001 precisely. For example, while the last part of Barack Obama’s administration has seen a long streak of growth, it is not comparable to the technology bubble that ended Bill Clinton’s second term. And Donald J. Trump is not as conventional a Republican as George W. Bush.

In fact, it’s difficult to tell what kind of Republican—indeed, what kind of politician—Trump is. His policy pronouncements tend to lack specifics and frequently change depending on his audience. Some of the policy goals he has stated at various times run counter to the stated goals of Congressional leaders of his own party, raising the question of who will prevail if he tries to bend Congress to his will.

Because of these uncertainties, I am basing my forecasts on Trump’s general goals, plus an analysis of possible policies that he might or might not employ in pursuit of these goals. And I am organizing my forecasts by industries. In this blog, Part 1, I discuss only manufacturing.

Manufacturing Jobs. One of Trump’s most consistent messages has been his desire to bring manufacturing jobs back to the United States. What’s often overlooked in his rhetoric is that manufacturing output in the United States is now at nearly an all-time high. The kind of manufacturing that is now done here uses highly automated processes and employs a comparatively small workforce of highly skilled technicians. (Since recovering from the Great Recession by 2015, the number of employees has leveled off at about 12.3 million.) Most low-skill manufacturing tasks are performed either here by robots or overseas by low-paid workers, such as the ones who are making the garments branded with Trump’s name and his daughter’s.

That leaves the next president with these policy choices:

·         He might impose high tariffs that make it uneconomical for offshore manufacturers (whether American-owned or otherwise) to export to the U.S.  market—a policy that Trump has explicitly endorsed at times. But the policy could backfire. To the extent that imposing or raising tariffs is feasible under existing trade agreements, it would encourage other nations to retaliate with their own tariffs, reducing exports of our own manufactured goods and increasing the costs of the supply chain—imported parts and raw materials that U.S. manufacturers use. Also, once American manufacturers are protected from foreign competition and start hiring low-skill American workers, they will not be able to pay the rock-bottom wages that third-world workers earn. So, although many jobs will open in manufacturing, consumers will find American-made manufactured goods costing a lot more than the cheap foreign-made goods that now fill the shelves at Walmart. In summary, this policy would hurt high-skill manufacturing workers and create an economy where the low-skill manufacturing workers might have no more purchasing power than is now possible from work in service industries. And, finally, almost all Republican lawmakers, as well as many Democrats, are committed to tariff-free trade (although Republican voters have become more hostile to it), so this policy stands little chance of getting through Congress.

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·         He might mandate that American-made products and components be used when federal funds are expended. He hinted at this policy at the third presidential debate with Hillary Clinton when he said that he had used Chinese steel in one of his building projects because Congress had done nothing to stop him. It seems unlikely, however, that Congress would go along with this policy. Congressional leadership has not changed since House Republicans defeated an amendment to impose just such a mandate on infrastructure projects for the nation’s waterways.

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·         He might offer tax breaks to American manufacturers so that their operations here are more profitable. Trump actually tried this approach in October when he persuaded Indiana to give tax breaks to the Carrier division of United Technologies as a way of preventing jobs from being shifted to Mexico. However, Carrier has indicated that it intends to use the resulting savings to increase the company’s use of automation—thus subsequently cutting more low-skill manufacturing jobs. Cutting labor costs produces savings that are more dependable than easily-reversible tax breaks. So tax cuts seem unlikely to be an effective solution.

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·         He might reduce federal regulations on manufacturers that add to the costs of doing business in the United States. (I am not saying I favor this policy, but it is one that is sometimes proposed.) For example, it has been argued that the main reason Carrier wanted to relocate jobs to Mexico was regulations, not wages, and Trump is in agreement with Republican leadership in Congress on the need to reduce regulations on industry. It is not clear that Trump can get enough cooperation from Congress to make sufficient reductions in regulations to bring a true renaissance of manufacturing. And for some regulations (e.g., on the formaldehyde levels in plywood), the way to reduce competition by offshore manufacturers is to apply the same regulations to imports that are imposed on goods manufactured here, rather than rolling back regulations.

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·         He might accept the reality that low-skill manufacturing jobs are gone for good and instead focus on preparing (or retraining) workers for high-skill jobs in the industry. One way to accomplish this is to make community college as free of charge as high school. This is what President Obama proposed and that became the America’s College Promise Act of 2015, but Congress sent the bill to die in committee. I have been unable to find any statement from Trump himself about this proposal, but Trump’s campaign co-chair Sam Clovis, in an article in Inside Higher Education, stated that the campaign rejected the call for free community college.

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·         A related policy to encourage manufacturing would be to find a way to increase the number of manufacturing engineers working here. According to Walter Isaacson’s biography of Steve Jobs, the Apple  CEO once told President Obama that Apple’s suppliers in China are able to employ 700,000 factory workers because they have ”30,000 engineers on-site to support those workers. ‘You can’t find that many in America to hire.’” The skill level that Jobs was referring to seems to have been closer to engineering technicians than to what we normally think of as engineers. So, again, increased funding of community colleges and technology schools would be a way to achieve this goal, but that was not a priority of the Trump campaign. Alternatively (or additionally), a reformed immigration system might welcome engineers and engineering technicians trained abroad or coming from abroad for training here. Trump has both welcomed and rejected immigration of high-skill workers at various times. Congressional leadership has generally favored it despite the reluctance of many Republicans and therefore has sometimes had to find underhanded ways to encourage it. Therefore, it is difficult to predict whether or not this policy will be pursued in the coming administration.

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·         Yet another way to create a high-skilled manufacturing workforce is to encourage unions to partner with manufacturers on forming apprenticeship programs. Although Trump starred in a TV series called “The Apprentice,” I have not been able to find any statements from his campaign about his attitude toward actual apprenticeships, with the meaningless exception of a tweet he issued in October: “Did Hillary just say she wants more Apprenticeships? I created The Apprentice!” Judging by Trump’s past record as an employer, his attacks on an Indiana union leader, and his appointment of a foe of unions for Labor Secretary, he seems no friend of unions, and Congress certainly has not encouraged them, so this last outcome seems unlikely.

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In conclusion, then, I do not expect the Trump administration to deliver on its promise of a renaissance in low-skill manufacturing jobs. I expect employment in these jobs to remain at its current low level—or worsen if there is an economic downturn.

Should I Sign That Noncompete?

It is a paradox of today’s job market that employers want ever-greater flexibility in their ability to shed workers but simultaneously want to reduce workers’ flexibility in seeking employment. Specifically, employers increasingly are imposing noncompetition agreements (“noncompetes”) that can seriously limit workers’ ability to find jobs elsewhere. According to a White House report (PDF), an estimated 30 million Americans, nearly one-fifth of the workforce, are bound by these agreements, and roughly 37 percent have been so bound at some time during their careers. Perhaps the agreements themselves have not proliferated but merely their enforcement. Whichever is the case, “The law firm Beck Reed Riden LLP found a 61 percent rise from 2002 to 2013 in the number of employees getting sued by former companies for breach of non-compete agreements.”

The White House looked into this matter out of concern that noncompetition agreements can hamper the economic recovery. “Non-competes can reduce workers’ ability to use job switching or the threat of job switching to negotiate for better conditions and higher wages, reflecting their value to employers. Furthermore, non-competes could result in unemployment if workers must leave a job and are unable to find a new job that meets the requirements of their non-compete contract. In addition to reducing job mobility and worker bargaining power, non-competes can negatively impact other companies by constricting the labor pool from which to hire. Non-competes may also prevent workers from launching new companies.”

In some states, most notably California, employment laws make noncompetition agreements essentially unenforceable.  It is thought that the absence of noncompetes is one of the factors that have contributed to the towering success of the Silicon Valley. Job-hopping is a normal part of career building in the tech industry there. In fact, job-hopping is one of the reasons that employers have traditionally tended to cluster together geographically with others in the same industry, even when access to natural resources or transportation infrastructure is not a factor. Think of New York for finance, Nashville for music, or Detroit for automobiles.

Noncompetes reduce the efficiency of these industry clusters. As a result, The New York Times reports that some states are trying to limit the reach of noncompetes in hopes of duplicating one of the factors of the Silicon Valley environment: “Hawaii banned noncompete agreements for technology jobs last year, while New Mexico passed a law prohibiting noncompetes for health care workers. And Oregon and Utah have limited the duration of noncompete arrangements.”

I live in New Jersey and have personal experience with this kind of shackling. In the late 1990s, my employer required that I sign a noncompetition agreement as a condition for receiving a raise. I complied, although it bound me not to compete for one year, and after a downsizing only a few years later, the agreement seriously limited my work as a consultant. The crowning irony was that only a few years after I began consulting, my old employer came back to me in need of my consulting services and presented me with a contract that contained another noncompetition agreement—this one binding me for two years.

I refused to sign it, and with no hesitation or bargaining, they struck that paragraph from the contract. Since then, I have been asked by another employer to sign a noncompete and have again refused, with no adverse consequences.

What should you do if an employer confronts you with a noncompetition agreement? First, you should investigate whether it is enforceable in your state and for your occupation. To be totally sure, you may want to consult a lawyer, but you can get useful preliminary information from a downloadable chart at the website of Beck Reed Ridin, LLP.

It’s usually a good idea to negotiate with your employer over the terms of the noncompete. If you’re lucky enough to have some bargaining power, such as a very desirable skill set, you may be able to convince the employer to strike the agreement entirely. If not, you may be able to get the employer to relax some of the terms. For example, you may suggest altering the agreement to restrict you only in a certain geographic area or only from working for certain employers. You may be able to reduce the duration of the restriction. You may get the employer to accept wording based on the conditions of your future separation—for example, that the restriction will apply only if you quit, not if you are terminated.

Be sure to examine the fine print of any noncompetition clause. (Again, a lawyer may be helpful.) For example, some agreements include the onerous requirement that the ex-employee will have to pay any legal fees that the employer incurs as part of enforcing the agreement. Such additional burdens may also be negotiable before you sign.

Understand that one reason employers like to impose noncompetition agreements is that they fear you will carry company secrets to a competing organization. It is reasonable for the employer to ask you to sign a nondisclosure or confidentiality agreement with wording that is separate from noncompetition.

The Hookup Economy

You hear a lot about the “sharing economy” these days, but I think I’ve found a better term: the hookup economy. A job used to be like a relatively stable relationship between two parties, but nowadays many work arrangements are more like a hookup. The matches between employers and workers are made on the fly, there’s zero commitment from either party, and the connection is fleeting.

It’s hard to criticize Uber and Lyft on this account, because the relationship between a conventional taxi driver and a passenger was always ad hoc and short-lived. The same might be said about ZTailors, launched this week by George Zimmer (who used to tell you that “You’re going to like the way you look—I guarantee it”), which hooks up tailors with customers. But each week brings another Tinder-like app that matches up employers and workers, and some of these are meant to arrange work that used to be done by full-time payroll employees.

For example, Universal Avenue, a Swedish startup, helps businesses recruit salesworkers who work as freelancers. UpWork, Freelancer.com, and Guru.com are matchmakers for workers of many kinds, including designers, writers, engineers, and programmers. TaskRabbit lets you find workers for tasks that may not even fit comfortably into any occupation title, such as assembling IKEA furniture.

In favor of this trend, one might argue that the freelancers who work this way get paid for their time and (where relevant) skills, and they can have a flexible work schedule.

On the other hand, there are legal protections that one expects in an employer-employee relationship that are missing in these hookup work situations. Compared to a payroll employee, a hookup worker has much less legal protection from sexual harassment, racial or age discrimination, or a hazardous work environment (when the work is done on-site).

Listed on one’s resume, this kind of work also does not make much of an impression. This is less of a liability for designers, writers, and other workers who tend to display their output in a portfolio. But for most workers, a spell of doing hookup projects can look like unemployment on a resume.

Of course, doing this kind of work is better than having no income. And in today’s economy, this may be the only kind of work that some people can find. People who are downsized in their 50s or early 60s often have a particularly hard time finding an employer willing to take them on for a payroll job. So I think that hookup work is here to stay.

Where Occupational Birds of a Feather Flock Together

Last week, I blogged about metropolitan areas where the health-care industry dominates. I looked at the trends in the average earnings of health-care professionals in those metros and, for comparison, the trends for health-care professionals nationwide. I found that the Great Recession had no effect on nationwide earnings—they continued to increase at a steady pace—but in the metros where health-care professionals are concentrated, these workers’ earnings took a noticeable dip during the recession years.

I thought it would be interesting to look at some other occupational categories and see how their experiences compared. So I turned to the same database, the Occupational Employment Survey, and identified the metros where occupations in education exceeded 10 percent of the wage-and-salary workforce; where computer and mathematical occupations exceeded 5 percent; and where engineering occupations exceeded 4 percent.

Here are the metros where these occupations dominate:

Metro Area	Education Occupations
Ithaca, NY	15.5%
Gainesville, FL	13.3%
Hinesville-Fort Stewart, GA	13.2%
Champaign-Urbana, IL	12.9%
Corvallis, OR	12.8%
Blacksburg-Christiansburg-Radford, VA	12.3%
Merced, CA	11.7%
Lafayette, IN	11.5%
College Station-Bryan, TX	10.8%
Auburn-Opelika, AL	10.7%
Ann Arbor, MI	10.6%
Athens-Clarke County, GA	10.5%
Yuba City, CA	10.4%
McAllen-Edinburg-Mission, TX	10.4%

Metro Area	Computer & Mathematical Occupations
San Jose-Sunnyvale-Santa Clara, CA	11.6%
Washington-Arlington-Alexandria, DC-VA-MD-WV	7.4%
Boulder, CO	6.7%
Seattle-Tacoma-Bellevue, WA	6.6%
Huntsville, AL	6.5%
Durham-Chapel Hill, NC	6.2%
Austin-Round Rock-San Marcos, TX	5.7%
Trenton-Ewing, NJ	5.5%
San Francisco-Oakland-Fremont, CA	5.5%
Madison, WI	5.5%
Raleigh-Cary, NC	5.2%
Colorado Springs, CO	5.1%

Metro Area	Engineering Occupations
Huntsville, AL	8.3%
Columbus, IN	8.1%
San Jose-Sunnyvale-Santa Clara, CA	5.7%
Warner Robins, GA	5.2%
Norwich-New London, CT-RI	5.0%
Bremerton-Silverdale, WA	5.0%
Kennewick-Pasco-Richland, WA	4.8%
Palm Bay-Melbourne-Titusville, FL	4.5%
Detroit-Warren-Livonia, MI	4.4%
Holland-Grand Haven, MI	4.3%

Next, I graphed the 2007–2014 earnings of professionals in the metros where they are concentrated and also nationwide. Here’s what I found:

 

 




The most obvious common element is that the workers in all of the occupationally-concentrated metros experienced earnings downturns during the recession years, whereas across the nation the same kinds of workers experienced no such downturns. Therefore, it appears that what I found for health-care workers last week is not unique to them. Perhaps any concentration of a particular type of worker (and therefore of an industry) increases the wage instability of a metro area.

But I found one interesting way in which the experiences of these occupations differed: For health-care and education professionals, average wages were higher nationwide than in the metros where the workers are concentrated. On the other hand, for computer and engineering professionals, areas where the workers are concentrated offer higher wages.

This finding is consistent with what the urban theorist Richard Florida has written about the “creative class”: Highly creative workers, such as engineering and computer professionals, tend to be most productive where they can work collaboratively. That is why, even with the marvels of 21^st-century communication, the industries that employ creative workers tend to concentrate geographically. Thus we find Silicon Valley for high tech, Hollywood for movies, and Nashville for music. And where these workers are concentrated and more productive, they earn more. The same does not seem to be true for educators and health-care professionals.

I’m not saying that educators and health-care professionals are not creative, but the nature of their work does not demand constant creativity to the degree that engineering and computer careers do. As a result, concentration of these workers may actually lower wages by increasing competition.