The Close Tie Between Energy Consumption, Employment, and Recession

The number of jobs available to job-seekers has been a problem for quite a long tine now—since 2000 in the United States, and longer than that in Europe. If we look at the percentage of the US population who are employed, it is now back to 1984 or 1985 levels.

Figure 1. Total number of individuals employed in non-farm labor, and reported by the US Bureau of Labor Statistics, divided by US resident population, as reported by the US Census Bureau.

I have run into a number of clues about what is happening. In this post, I’d like to discuss what I am seeing. Part of the problem is that high oil costs squeeze the economy, reducing employment. Part of the problem is growing trade with Asia. It is even possible that the Kyoto protocol (which the US did not sign) has something to do with what we are seeing. Let me start by explaining a fairly strange relationship.

A Strange Relationship – A Close Tie Between the Amount of Energy Consumed and the Number of People Employed

Since 1982, the number of people employed in the United States has tended to move in a similar pattern to the amount of energy consumed. When one increases (or decreases), the other tends to increase (or decrease). In numerical terms, R2 = .98.

Figure 2. Employment is the total number employed at non-farm labor as reported by the US Census Bureau. Energy consumption is the total amount of energy of all types consumed (oil, coal, natural gas, nuclear, wind, etc.), in British Thermal Units (Btus), as reported by the US Energy Information Administration.

I have written recently about the close long-term relationship between energy consumption and economic growth. We know that economic growth is tied to job creation, so it stands to reason that energy consumption would be tied to job growth1. But I will have to admit that I was surprised by the closeness of the relationship for the period shown.

This close relationship is concerning, because if it holds in the future, it suggests that it will be very difficult to reduce energy consumption without a lot of unemployment. It also would seem to suggest that a shortage of energy supplies (as reflected by high prices) can lead to unemployment.

Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and Less Energy Consumption

Suppose oil prices rise2. The critical issue is that consumers’ incomes do not rise at the same time. Consumers’ budgets get squeezed, and they cut back on discretionary spending. For example, they may go out to restaurants less, make fewer long-distance vacation trips, put off buying a new car, or contribute less to their favorite charities. Workers in discretionary sectors of the economy tend to get laid off, as a result. We have come to know this as part of recession.

(The impact of an oil price rise will be worse if other fuel prices, such as natural gas, rise as well. It will be mitigated, if natural gas prices are low, as they are in 2012 in the United States. Europe has much higher natural gas prices than the United States. This is big part of the reason why recessionary impacts are now worse in Europe than the United States.)

In the case of high oil prices and lay-offs, less energy of all types–not just oil–is used. Laid-off workers may move in with relatives, and thus reduce their living expenses. Each laid-off worker would have used oil to get to their job, and this will no longer be required. The jobs experiencing layoffs themselves may have required fuel use of various types, such as heat for buildings, fuel for airplanes, or electricity used in making new cars, and this is reduced as well.

There is also likely to be a link to housing prices. Moving up to a more expensive home is a discretionary expenditure. If people’s incomes are squeezed by high oil prices, and some are being laid off, there will be less demand for homes as well. This lower demand can be expected to reduce housing prices, especially in areas where commuting distances are longest (and thus, oil use for commuting greatest). There are also likely to be layoffs in the construction industry, as there is less demand for new homes and new buildings of all sorts.

As I have mentioned previously, James Hamilton (2011) has shown that 10 out of 11 recessions in the United States since World War II were associated with oil price spikes.

High Energy Costs in One Area Tend to Lead to Substitution to Places Where Energy Costs Are Lower

If there is a possibility of international trade, manufacturing and some types of services will tend to move to areas where costs are lowest. Part of these costs are energy costs. A manufacturer with cheap electricity costs will have an advantage over one with higher electricity costs. As energy costs rise (as they have in recent years), they get to be more important in determining where manufacturing will be done.

Besides direct energy costs, wages are another part of the difference in costs from one part of the world to another. Wages tend to be lower in the warmer areas of the world. In part, this is because energy from the sun provides much of the needed energy for heating homes, so there is less need for supplemental energy. This means that wages do not need to be as high for a comparable standard of living.

If we look at recent world energy consumption, we see rapid growth in energy consumption. This pattern is quite different from the US pattern we saw in Figure 2, which was much flatter.

Figure 3. World Energy Consumption based on BP’s 2012 Statistical Review of World Energy

Figure 4 below shows that there has been a striking difference in how energy consumption has grown in various parts of the world.

Figure 4. Energy Consumption divided among three parts of the world: (1) The combination of the European Union-27, USA, and Japan, (2) The Former Soviet Union, and (3) The Rest of the World, based on data from BP’s 2012 Statistical Review of World Energy.

Energy consumption has been quite flat in the grouping of industrialized countries I show first (European Union-27, USA, and Japan). The Former Soviet Union (FSU) collapsed in 1991, and the consumption for those countries has never recovered. Energy consumption for the “Rest of the World” has been increasing amazingly rapidly since 2002. The rest of the world includes China, India, Bangladesh, and many small countries, plus oil exporters, such as Saudi Arabia and Mexico. Although I don’t break it out separately on Figure 4, the increase in energy consumption since 2002 has been especially marked in Asia.

The “bend” in the line for “Rest of the World” energy consumption took place immediately after China joined the World Trade Organization in December 2001. If we look at China’s fuel consumption by itself, we see that its huge rise in energy consumption (Figure 5, below) came mostly from increased coal consumption starting at that time. Oil consumption also increased. Nuclear and renewables are too small to be visible on the chart.

Figure 5. China’s energy consumption by source, based on BP’s Statistical Review of World Energy data.

Other countries, especially Asian countries like India, also ramped up their energy consumption at a similar time. India also uses coal as its primary fuel, with 53% of its energy consumption in 2011 coming from coal (based on BP 2012 data).

While I don’t have employment data for Figure 4 groupings, I do have economic growth data (Real GDP is Gross Domestic Product, adjusted to remove effects of inflation), shown in Figure 6, below.

Figure 6. Three-year average real GDP growth for (1) EU-27, USA, and Japan, (2) Former Soviet Union, and (3) Rest of the World, based on data by Angus Maddison through 2008, and USDA since then.

Figure 6 indicates that the economy of the “Rest of World” has been growing much faster than the EU, USA, and Japan grouping since 2001. In fact the Rest of the World’s growth has been much faster for nearly the entire period shown on the graph. Based on the steeper rise in energy consumption of the “Rest of World,” in Figure 4 compared to the old industrialized countries grouping, this might be the predicted result.

One point that many people miss is that the Great Recession of 2007-2009 was to a significant extent a phenomenon of the older industrialized countries. EU, USA, and Japan all were hit very hard, while the “Rest of the World” almost sailed along. This can be seen in the energy consumption data on Figure 4, and the economic growth data on Figure 6.  The Rest of the World slowed down a bit, but even during that period, its growth rate exceeded the best growth rate of the EU, USA, and Japan grouping during the 1984-2011 period (based on Figure 6).

Is it Possible to Change the Relationship between Energy Consumption and Number Employed?

The answer is pretty clearly, yes, but lower wages may be part of the mix.

Let’s look at how the United States changed its energy consumption, per number of people employed, over time. If we go back to the 1949 to 1972 time period, we also see a close relationship ( R2 = 99%) between US energy consumption and employment, but it is a different close relationship than since 1982, (shown in Figure 2, near the top of this post).

Figure 7. Graph of amounts similar to Figure 2, but for the period 1949 to 1972.

During the 1949 to 1972 period, energy consumption was consistently rising faster than the number of people employed. Oil was cheap, as were other energy sources, so not too much thought was given to how efficiently it was used. Also, as we will see in Figure 9, wages for workers were rising much more quickly (in inflation-adjusted terms) than they have been in more recent times.

About 1972, we discovered we had a big problem:

Figure 8. US crude oil production based on data of the US Energy Information Administration.

Oil had been our largest source of energy, and our own domestic production was dropping quite rapidly. By 1973, the Arabs had discovered our vulnerability, and the 1973 Oil Embargo began, leading to a sharp rise in gasoline prices. The US Federal Government regulated oil prices from 1973 to 1981. At the same time, a major effort was made to switch oil use to another fuel whenever possible. Electricity generation was switched to include more coal and nuclear (based on EIA data), and to remove production using oil. There was great demand for more fuel-efficient cars, leading to the import of cars from Japan (a country that had been making smaller cars for years), and the down-sizing of US cars.

Figure 9. Employment and Energy Consumption using data similar to that used in Figure 2 and 7, but for the 1972-1982 time period.

As a result, the period 1972-1982 was a time when energy consumption was relatively flat, but employment rose. A big part of this rise reflected the addition of women who had not previously worked outside of the home to the work force. With the higher price of oil, salaries did not go as far, so having another family member working was helpful. According to Toosi, the percentage of women who were part of the workforce rose from 43.3%  in 1970 to 51.1% 1980. Wages of women were lower than those of men (Figure 10, below), helping to hold down the average wage.

Figure 10. US Median Wages, separately for males and females, in 2010$. Based on Census Historical Income Tables: People, Table P5 – Regions by Median Income and Sex.

Also, the wages of lower-paid men stopped rising in real (inflation-adjusted) terms. (The wages shown are Figure 5 are median wages–50% of wage-earners earn more than that amount and 50% year earn less.) Wages of high-paid workers, such as business executives and physicians (not shown on the chart), were still rising.

It is hard to tell what the relative impacts were of the many changes that took place in the 1972 to 1982 time period. Clearly, lower average wages (with more women in the work force) and flatter wages were a big part of the change. But there were other changes as  well, including more imported manufactured goods, changes to fuels other than oil, and more efficient use of oil, all contributing to the differences we see between Figure 2 and Figure 7. The US became a net importer during this period as well, and thus began running up external debt (based on US Bureau of Economic Analysis data).

Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing for some. I show the change in the relationship in another way in Figure 11. Here I show (energy consumption/number of people employed). It shows that energy consumption per employed person was rising prior to 1972, came down for a variety of reasons in the 1972-1982 period, and is now pretty close to flat (decreasing slightly).

Figure 11. Total US energy consumption divided by number employed. Energy consumption from US EIA, number of non-farm workers from US Bureau of Labor Statistics.

On a positive note, one factor that has helped keep quality of life up is increased efficiency in using energy. Homes are better insulated now. Home heating and cooling units are more efficient. Businesses have worked hard to keep energy use down, because energy is a major factor in their cost structure. For example, we read about airlines retiring their less fuel-efficient jets. Thus, even though energy consumption divided by number of workers is flat or trending slightly downward, our standard of living has risen considerably since 1970 or 1980.

Another thing that has helped improve living standards is the amount of manufactured goods we are now importing from China and other countries around the world, especially Asian countries. The amount of debt we need to keep amassing to buy all of the goods we buy abroad is a problem, however, because we are not earning enough to pay the full amount of these goods. If we could count on economic growth forever, perhaps we could simply “grow” out of this debt, but this seems increasingly unlikely, for reasons I will discuss in later posts.

The United States Hit Peak Percentage Employed in 2000

If we look at the percentage of the US population who have jobs outside the home (or self-employed farm workers), the trend is quite alarming (Figure 12):

Figure 12. US Number Employed / Population, where US Number Employed is Total Non_Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. (This includes children and others not usually in the labor force.) 2012 is a partial year estimate.

While the percentage of people with jobs was rising between 1960 and 2000, in recent years it has dropped. The recent drop seems to be at least in part related to the shift in energy consumption growth (and jobs) to the “Rest of the World,” which includes China, India, and many other developing countries and oil exporting countries. Jobs that the United States would have had, seem to have been shifted elsewhere.

The percentage of US population employed outside the home or farm has grown for a very long time.  The increase started in the 1800s, as the use of coal allowed a reduction to the number of workers needed in farming, because it allowed more use of metals, enabled the use of electricity, and helped make farmers more efficient. See my post The Long-Term Tie Between Energy Supply, Population, and the Economy. See also Smil, (1994) and Lebergott (1966).  Later, women increasingly joined the work force, especially after World War II.

The combination of rising energy costs (especially oil) and increased international trade gave China and other Far Eastern countries an opportunity to ramp up their manufacturing and service industries (call centers in India, for example). Jobs migrated to China and to other countries with low energy costs (thanks to lots of coal in the mix) and low costs of  living, thanks in part to better solar heating.

There had always been some foreign trade, but the amount of trade increased in the late 1970s, when we started importing smaller cars from Japan, as well as more oil. It increased again later, especially after China entered the World Trade Organization in late 2001. US imports of goods and services increased from $54 billion in 1970,  to $291 billion in 1980, to $616 billion in 1990, to $1.4 trillion in 2000, and to $2.7 trillion in 2011 (US Bureau of Economic Analysis).

Other Observations

Role of World Trade. Figure 4 suggests that world trade makes a huge difference in the amount of energy consumed. If we truly wanted to reduce our energy consumption (which I doubt world leaders are really interested in), we could reduce world trade through taxes on imports, or some other mechanism. The number of people employed would likely drop as well, although perhaps part of the difference could be made up by greater efficiency and by lower wages for individual workers.

The important role of world trade also brings up another issue. If world trade were, for some reason, interrupted or seriously scaled back, this would likely significantly reduce energy consumption (and employment) around the world.

Energy Consumption vs Number of Jobs Patterns by Country will Vary. I have shown US data. Patterns in other countries are likely to vary, in part because of the different specializations (amount of services compared to manufacturing, for example) of different countries, and different wage levels in different countries.

Good Intentions Aren’t Always Helpful. The Kyoto Protocol with respect to Climate Change was adopted in 1997. Figure 4 and Figure 5 suggest that adding China to the World Trade Organization had far more impact, and in the opposite direction. In fact, additional carbon taxes on goods that require high energy input may have encouraged competition in countries without such controls. Furthermore, reduced oil consumption through, say, higher taxes on gasoline, left more oil on the world market, to be used by developing countries. (This is related to “inelastic supply” of oil. Reducing demand in one area leaves more supply for other areas.)

Figure 13. Actual world carbon dioxide emissions from fossil fuels, as shown in BP’s 2012 Statistical Review of World Energy. Fitted line is expected trend in emissions, based on actual trend in emissions from 1987-1997, equal to about 1.0% per year.

Figure 13  shows that while Kyoto Protocol may have helped reduce emissions in some countries, world carbon dioxide emissions have grown more than what would have been expected, based on the 1987-1997 trend in emissions. If the Kyoto Protocol influenced China’s and the rest of Asia’s decision to ramp up exports, this decision would have indirectly affected job availability in the United States, even if the US was not a signer of the Protocol.

The “Smaller Batch” Issue. If there is not enough energy to go around at prices people can afford to pay, recession seems to be nature’s way of fixing the situation. I compare the situation to a chemical formula, or to a cake recipe. If one necessary ingredient is in short supply, the economy behaves as if it is making a “smaller batch”. It contracts in a way that leaves out those who were most marginal to begin with–such as employees of discretionary industries, and borrowers who could only barely make payments on loans (subprime borrowers), and countries with the highest energy costs. Employment is reduced, and unemployed people tend to move in with friends or their family, to cut expenses. This reduces energy consumption.

Increased Wage Dispersion May Reflect Another of Nature’s Coping Mechanisms. In the animal kingdom, any “K-selected species,” such as a dog or cats or primates, (probably including humans), has an inborn instinct toward hierarchical behavior. The manifestation of this instinct tends to be greater as there is greater crowding, and greater competition for resources (Dilworth, 2009). The intent in the animal kingdom is survival of the fittest, with those at the bottom of the hierarchy being starved out, if there is not enough to go around.

It is striking to me that since the mid-1970s, we have seen what could perhaps be interpreted as increased hierarchical behavior in humans and corporations. Wage dispersion has tended to become greater since the mid-1970s, when we started encountering energy supply problems. We have also seen the growth of international businesses. These large businesses have been increasingly favorably taxed, because they can choose tax havens around the world to incorporate. All of these changes tend to concentrate wealth at the top, in large companies and in the wealth of high paid workers. Perhaps all of this is a coincidence, but the timing is striking.

Increased use of part-time and contract jobs might be considered a trend in this direction as well. Job sharing has been proposed as a way of dealing with having an inadequate number of jobs in the older industrialized countries, but this tends to act in the same way (pushes the wages of lower-paid workers down, while leaving the top wages untouched).

Economic Models. Economic models seem not to take into account the very substantial shift in percentage of the population employed. Part of economic growth on the “way up” was growth in the percentage of people employed. If economists miss this change, as well as the fact that the percentage now seems to be headed down, their models will be wrong. Expected economic growth may disappear.

The World War II baby boom generation is now reaching retirement age. This change will tend to push the percentage of population employed down further, all other things being equal.

Impact on Governments. If fewer people are employed, this is a problem for governments around the world. Governments in Europe are particularly affected now, partly because of the generous benefits they offer. The US budget deficit is very much related to this issue as well. I will write more about debt and government funding in another post.

Notes:

[1] The idea of looking at employment in relationship to the economy after reading Mario Giampietro and Kozo Mayumi’s book, The Biofuel Delusion: The Fallacy of Large-Scale Agro-Biofuel Production, Earthscan, 2009.

[2] While total energy costs are important, individual energy costs, such as gasoline cost, are important as well, because there is little short-term substitutability across sectors. For example, coal is not an option for running today’s gasoline-powered cars, and public transport is not an option in most of the US. If there is a long enough lead-time and citizens can afford the transition, substitutions might be made, but it is not something we can count very much in the short term.

Other References

Hamilton, J. D. Historical oil shocks. NBER working paper No. 16790. Feb 2011. Available from http://www.nber.org/papers/w16790.pdf

Toosi, M. A Century of Change; the US Labor Force 1950 to 2050, in Monthly Labor Review, Bureau of Labor Statistics, May 2002. Available from http://www.bls.gov/opub/mlr/2002/05/art2full.pdf

Smil, Vaclav, Energy in World History, Westview Press, 1994.

Lebergott, S. Labor Force and Employment 1800 to 1960, in Brady, D. S., Editor, Output, Employment and Productivity in the United States after 1800, National Bureau of Economic Research. (1966) Available at http://www.nber.org/chapters/c1567.pdf

Dilworth, C. Too Smart for Our Own Good, Cambridge University Press, 2009.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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70 Responses to The Close Tie Between Energy Consumption, Employment, and Recession

  1. Leo Smith says:

    Perhaps its because I am an engineer, that the equations of society as a physical and economic entity seem so simple. Its basic systems analysis.

    What happens is that industrial civilisation representsa feedback system, and for the last 500 years that feedback has been overwhelmingly positive. The more stuff we dug up and burned, the more we could build things to dig up stuff and burn it. And a lot of other useful stuff on top. Like houses , better agricultural production and medical care etc etc. And more people per unit land area. Even if the vast proportion of them were not actually taking part in economic production. In short what you get is consumerism and bureaucracy as ways to engage people not in production, but in consumption of over-abundant production.

    If you now introduce a limit, (effectively negative feedback) in the shape of falling EROI on the overall system, what you get is and overshoot and fall back in basic production per capita. In short people get (materially) poorer. They cannot consume so much. And the whole socio economic system of consumerism start to collapses. You can make them richer in financial terms by printing money, but that simply leads to galloping inflation in energy prices and things that rely on energy to produce. In short whilst I-phones are cheap, food is not. Neither is a house.

    The classic shape of a positive feedback system with time delay running into overall negative feedback with also a time delay is exponential growth followed by overshoot and fall back, and possibly oscillatory behaviour post the peak as the time delays in positive and negative feedback elements fight it out.

    Now examining this in more detail shows where the actual loss of economic activity will bite first. In a consumer society that will always be discretionary spending. The little toys and luxuries . And that reflects into employment in those sectors as well, especially at the lower levels. Managers will fire all their staff before they fire themselves. So the first to feel pain will be the marginal contributors in the service sector. The high street shop selling inessential tat. Society will in the end divest itself (where it is allowed a free market choice) of all except that which its constituent members – that’s you and me – feel they will not give up, until they are forced to. In areas where governments, de facto monopolies and bureaucracies rule, they will not let go until they are forced to by economic necessity. Turkeys/Xmas/vote.

    This brings those de facto monopolies, governments and bureaucracies in conflict with their ‘customer base’. The electorate may not want a taxation regime that forces a service delivered with a huge bureaucratic overhead down their throats, but unless there is a party of credibility dedicated to eradication it, they will still get it. They may not want expensive unreliable ‘renewable’ energy forced down their throats either, but they will still get it. They may not want banks to use their cash flow surpluses to play at the casino, and then hit them with the losses either, but they are not given the choice.
    Not until the very institutions that coerce this wealth out of them collapse because there is no wealth left to coerce..

    For sure this will led to ‘unemployment’ or rather, paraphrasing the man who said ‘the crash isn’t where you lose money, its where you realise how much money you lost years ago when you invested in worthless entities’ it will lead to people realising just how much employment is in fact totally worthless. And how little most people – ourselves included – contribute to producing anything of real value at all.

    The paradigm shift I am convinced we have to undergo, is to realise that wealth production and economic activity has in a post modern post industrial society, very little to do with employment and so called labour at all.

    You can see this in trivial examples. Say that a man has a job to – say – put parking tickets on cars. He gets up, drives his won car to work, collects his kit from an office that is heated, lit and so on, and spends a day wearing out shoe leather, irritating people who are parked where some other bureaucrat in a similar office has decreed they should not park, for often seemingly arbitrary reasons. Those two employees, in addition to being fed. housed. and receiving medical care, are also using up office space and burning valuable energy in the pursuit of their duties.

    You can appreciate that if they stayed at home watching TV, the nation as a whole would probably benefit in real terms. And if they glanced out of their windows from time to time, they would make an efficient ‘net curtain’ police surveillance unit, this making beat officers redundant as well…

    And less vehicles ON the streets leads to less need for parking restrictions too. And less need to repair roads. And less need for childcare centres to take care of the children two now non working parents are capable of bringing up unaided.

    Likewise the non working couple now cook at home, rendering the huge amounts of employment in food processing and fast food outlets unnecessary, as well.

    THIS is Tainter style collapse back to a lower complexity that is FUNCTIONAL, not dysfunctional.

    In short, consumer society is actually a lot of people rushing around doing nothing of any societal value whatsoever, that couldn’t be done at a far lower level of energy burn in a society that had need to do it.

    Its not that rising energy prices and falling consumption will make people redundant, it just reveals how redundant they always were..🙂

    We need a political philosophy that encompasses this principle – I tried to write one actually – that says ‘these things are inevitable: we don’t have choices about whether they will happen, only choices about how we meet the challenge of their inevitability.’

    We managed to hold employment up as we de-industrialised by creating Post war consumerism. People were not ready for a leisure society. They still wanted employment and work – god knows why, I have never enjoyed working for money. Give me a private income any day – but now we can no longer maintain the fiction that most people in the service and public sectors are doing anything useful at all. When push comes to shove, the man who empties my trash can is more important than the advertising executive who persuades me to fill it.The man rearing beef cattle in the next village is more important to me than the council official telling me whether I can paint my windows fluorescent purple or not. Or the government official with a mind to the urban streets he lives in, decreeing that a dog that defecates anywhere but in a plastic bag is an affront to civilisation, whilst 50,000 foxes are crapping all over the shires every day. And are protected from being chased by dogs.

    Pay people to do what’s needful in society and pay people who cant do anything needful to shut the *** up and stay at home and watch Jerry Springer. Or go out and put dog excrement in plastic bags themselves, if they feel so strongly about it.

    In short the paradigm shift is simply expressed: post modern civilisation, if run efficiently, by a few skilled people, can more afford to pay the unemployed than pay the extra cost of employing them. We should embrace structural deep unemployment. Its the way to get rid of useless unnecessary activity in society. By all means reward workers who are needful with very high salaries indeed. But accept that the useless will always be with us. And that whilst consumerism isn’t quite dead, it surely has that smell about it..

    • Thanks for your thoughts. I like your statement,

      Its not that rising energy prices and falling consumption will make people redundant, it just reveals how redundant they always were..

      • Mel Tisdale says:

        You may like the statement Gail, but from my perspective I think it is rather short-sighted. O.K. it might be true to say that many have always been in a sense ‘redundant,’ but at least while they carried out their tasks they were also paid and could thus feed and house their families. If we move to the world Leo seems to prefer, we cast these people on the scrap heap without the ability to feed and house their families. That is a very different situation and if ever the expression that ‘there is strength in numbers’ were true, it would be true then, because there would be a lot of them.

        Where I think Leo does get it right is his statement: “We should embrace structural deep unemployment.” But how? One thing I don’t think we can continue with is the enormous disparity in pay scales, with directors racing ahead of the pack. Having spent many years dealing with mainboard directors and senior managers, I am not convinced that they are worth the extra a lot of the time. Perhaps we need to re-evaluate the tasks people perfom as their contribution to our society and reward them accordingly.

        By way of example, in my training many moons ago I had to work on a production line for a short period. It was only the knowledge that the period was short that enabled me to get through it. Why? Because I am not equipped to do that kind of work, I am too intelligent. (That is not to boast, it is just a simple fact that I have had to live with.) I know that someone who can work for years doing some repetitive or menial task requiring little or no mental agility can do work that I cannot do – so much for intellect. Is this important? Well, it puts into perspective the relative pay rates. A company would find it difficult to survive if it had a main board with little intellectual strength. But it would also find it difficult to survive if the toilet cleaners, security personnel etc. were all highly intelligent and thus could not perfom their allotted tasks for long without screaming some expletive and walking out, which I am sure I would have done if my stint on the production line had been much longer. (Did I learn form it? You bet! I fully understand why a strike, even with its attendant loss of pay, is a blessed diversion from urging the damn clock to move round to clocking off time every damn day of the damn working week. I also learned that a person who enjoys their work will work better and be healthier all round.)

        So when we follow Leo’s exhortation to embrace structural deep unemployment, we should do it with a better way of evaluating people’s contribution to our society. And especially take into account the qualities demanded by every position of employment. In short it is not as simple as saying that there is a hierachy of jobs matched by a hierachy of intellect – in the fullest sense of the word. And while we are at it, we need to take into account the spread of robotics and automation that is replacing so many human operatives because they too will add to the ‘strength in numbers’ that I referred to above.

        If we are not careful, the very real danger exists that we develop a society that only employs people to do meaningful work and in the process create a mob that is underhoused and underfed. I can think of no better ingredients for riots to erupt. In that circumstance we will get the society that remains after the rioting has subsided and it will probably be far from ideal and contain little in the way of trust.

        • Mel Tisdale says:

          Correction to my earlier post: “it is not as simple as saying that there is a hierachy of jobs matched by a hierachy of intellect,” should read “it is not as simple as saying that there is a hierachy of jobs matched by a hierachy of intellect and that the pay for doing a certain job should also follow that hierarchy.”

          Sorry, it was late and I am not the world’s most tallented proof reader.

        • Leo Smith says:

          I think you missed the point.
          Your post is full of the usual socialist rhetoric about people and their value etc etc. The harsh truth is the (current) socio-economic industrial model doesn’t need those people and it doesn’t need ‘work;’ in the conventional sense.

          If you like socialism has priced humans out of the labour market all together. Machines are better, more reliable, more powerful and don’t need pay rises.

          I am merely saying that has to be faced up to.

          What people do, has to be separated from the concept of ‘paid employment’ by ‘an employer’.
          Which makes 90% of socialist ideology totally irrelevant.

          I suggest that the preferable alternative to corralling those people up and tucking them away, is to utterly liberate the workplace from all restrictions bar ones of basic safety, subsidise the whole population, and let things happen as they will.. That means stopping taxing individuals and start taxing the cash flows associated with anti-social activities. Of which doing something for reward, is simply not one.

          You have utterly failed to appreciate that at this point its is simply not possible to actually know who is ’employed’ and who is not. No one is ’employed’. Everyone is a free trader exchanging whatever goods services and skills they have for whatever anyone is prepared to pay in whatever form that payment may take..

          And since we are entering a resource short but people full world, I say that what should be taxed is resource consumption, and the less plentiful that resource is, the more it probably needs taxing.

          In the end its a Tainteresque paradigm shift. Society at the intensely organised and structured level it is now, collapses back to a far less structured and more flexible way of mutual organisation. At a net gain in overall wealth, simply because less is being wasted on ’employment’ and its trappings, and more goes on needful wealth creation.
          .

          • Mel Tisdale says:

            And dare I say that you, too, have missed the point. I do not care particularly what specific structure of society becomes the norm as long as it is equitable, something on which we probably differ. What concerns me is that the world’s finances are in a mess and employment is in short supply. By your own admission you “I have enjoyed every minute of overpowered cars, air flights to exotic locations, and having slightly more money than I realistically knew what to do with. ..” So I imagine that trying to put yourself in a position where, under your free-for-all, unregulated work environment, someone facing redundancy (unpaid) is as a direct result also facing losing their home, their family and a large amount of self-respect would be difficult for you.

            As far as I can see, the promised land you seek is on the opposite bank of a river infested with crocodiles that come in the form of public unrest created by the changes you need to make en route, exacerbated by inflation from quantitative easing and food shortages from climate change (another bone of contention). Please map out for us just how you see the transition from where we are now to where you would see us being when your changes have come into effect. Spell out for us whether in this brave new world that you envision, people will have protection from unscrupulous employers. (I have personally seen a contract of employment from a major retail employer at Heathrow airport that stated that joining a trade union was disallowed, something that is illegal. I also personally know of another company, not so big, but not small by any means, that continued to deliberately underpay employees for their holiday pay despite their settling out of court when an employee took them to a tribunal. And finally I know someone who worked for a chain of retail shops in London that consistently employs foreign students at less than the minimum wage secure in the knowledge that they are so desperate for work they will just accept it. And that is just my limited experience. Scale them up and the place must be teeming with unscrupulous employers even with regulation. Heaven knows what it would be like in your unregulated world. And heaven knows how long the public would tolerate it.)

            Yes, Lou, I do have socialist leanings. Hardly surprising considering that my parents were working class and I grew up at a time when there were so few universities that if anyone in my street went to university, it was the talk of the street. Not just because they had managed to gain an education up to the task, but because the lucky person’s parents could afford the loss of income that their child could reasonably be expected to bring in on leaving school. My life has not be one of “I have enjoyed every minute of overpowered cars, air flights to exotic locations, and having slightly more money than I realistically knew what to do with. ..” It has been more one of hardship and seeing grownups in tears of despair. Sadly Lou, I suspect that there are far more like me than like you, but that is progress for you. I don’t begrudge you your life. I just wish you were not so typically right-wing with all the stereotype knee-jerk positions (e.g. fox hunting, climate change etc. etc.).

            I managed to drag myself up by my boot straps, but have never forgotten my roots. I know what it is like to face redundancy and the subsequent prospect of homelessness, only avoided by fast footwork on the job front (think the turmoil of the British motor industry from the mid sixties onwards). I rather think that given my background you would not be so high-minded about the working class and certainly take more care when suggesting dramatic changes to our society without apparently taking into account just what they could mean on a personal level to those whom it is likely to affect most.

            • Leo Smith says:

              I didn’t mention working in a scrapyard for $5 a day, and being alone in a country with no social security at all, and less than $10 to my name and the clothes that I stood up in either.

              You have NO idea where my life came from.

  2. BC says:

    “In short the paradigm shift is simply expressed: post modern civilisation, if run efficiently, by a few skilled people, can more afford to pay the unemployed than pay the extra cost of employing them. We should embrace structural deep unemployment. Its the way to get rid of useless unnecessary activity in society. By all means reward workers who are needful with very high salaries indeed. But accept that the useless will always be with us. And that whilst consumerism isn’t quite dead, it surely has that smell about it.”

    Leo, bravo! Well said.

    From a net energy and exergetic perspective, the US does not have a problem of “unemployment” or the economist’s euphemism, underutilization of labor, we have an “overemployment” problem contributing to COLOSSAL waste of energy and other resources in which a growing majority of “jobs” are simply paid employment in order to allow one to afford to secure and maintain paid employment, irrespective of the utility, value add, or ecological sustainability.

    With increasing automation and offshoring of employment, and falling net energy per capita, the US economy is no long creating net new private sector living-wage employment, which means the economy is no longer capable of increasing private purchasing power per capita.

    Again, we have a problem of “overemployment”, waste, and lack of income and purchasing power given the scale of debt and waste per capita. We should be accelerating private sector automation across industries and elimination of “jobs”, unserviceable debts, and regressive taxes on labor and production. Instead, we need to gut the tax code, end debt-money and fractional reserve banking, and create a medium of exchange of net energy credits per capita at the lowest possible socially acceptable level of sustainable exergetic equilibrium and at the highest level possible of capital deepening per capita.

    If we were to reduce dramatically, or eliminate in some cases, the per-capita energy waste of auto commuting, for example, and the embedded costs of perpetual debt service/income, war, and compounding financialized returns to the insurance industry from wasteful “health care” expenditures, the US economy could be much smaller, more energy efficient, and more ecologically sustainable, and we could do so while maintaining a socially acceptable level of standard of material consumption and well-being.

    Ultimately, this is not about idealism, utopianism, or political ideology; rather, it’s about the application of the science of biophysics in such a way as to achieve what no doubt a significant majority of Americans would want were they given the choice over today’s system.

    • People need to feel that they are doing something significant to contribute to society (or to contribute to their own upkeep). I think this is one aspect you are missing. While in theory it would work, the people at the bottom of the hierarchy would be marginalized, and suffer much poorer health. Somehow, there must be an alternate path that is at least equally acceptable, and has very high rewards. In fact, people’s need to compete must somehow be met in this alternate path as well.

      • Leo Smith says:

        The Edwardian privately funded gentry had no need to feel they were contributing to society at all. Bertie Wooster may have been a caricature, but the prototypes existed.

        Besides there is nothing stopping anyone who is sitting around from doing anything they feel like doing to help the nation improve.

        The needful paradigm shift is to break the old protestant work ethic and show it for what it was – applicable to an agrarian pre-industrial society, and totally irrelevant in a post modern context.

        This perceptual shift can then look at society holistically, assigning rewards and resources to the necessary parts of it, and paying a dividend to the stakeholders on the profits of it.

        And I say the easier way to achieve that is to create a universal state pension that applies to every single person who has a valid national identity card and was born in the country. (Immigrants don’t get it) Taxation on luxury consumption funds it. Those who make and save, don’t pay tax. Those who spend, do. There is no tax on work, on profit, on savings, only on consumption. The state pension won’t be enough to more than not starve on BUT guess what, with no income tax or paperwork associated with employment, you can earn anything you want, doing whatever you can do, for whoever is willing to pay you, and with no minimum wage (that IS the state pension) the opportunity cost of employment is very low, and with no employee protection rights, so is the cost of laying off. So you have a subsided (by the state pension) utterly flexible labour force that can be deployed into any area. And by virtue of this implicit subsidy, can compete with foreign workers too, since the sale of their luxury goods is essentially taxed to pay the local workforce. Then let free market forces do their thing.

        That’s the socially acceptable way to do it. The other way is to push all your unemployed and unemployables into prison, projects, ghettoes and trailer parks, and set fire to them.

  3. David L Hagen says:

    Gail
    See further evidence of the fuel-unemployment link at:
    Petroleum And Gasoline Usage Charts for June, July, August; Unemployment vs. Gasoline Usage Analysis
    Based on gasoline usage, the economy has stalled or there is some other force in play, not related to improved gas mileage.
    and at:
    Petroleum Numbers Hint at Recession
    James Beck (of EIA) privately observes:

    These numbers do not tell me that we are in a recovery. Despite increases in distillate and KJet demand in 2010 and 2011, and in gasoline in 2009 and 2010, these were well short of recovering from the decline in 2008/09. The decline year-over-year in these three core transportation indicators suggest a slowing in the economy if not a recession.

  4. Ikonoclast says:

    Certainly, excess consumerism has to be retrenched in a world of limited resources. The entire advertising and marketing industry is criminally stupid as it is geared to tempt people to further over-consume at the very time we are hitting the limits.

    Blogging on sites like this can give one a false sense of what the public are thinking. If you watch a bit a television (punishment I know) you see the public are being beguiled with ludicruous escapist entertainment which is often about magic and magical powers or it is the low common denominator voyeurism of “reality” television shows. In between, there are endless ads for cars, clothes, make-up, junk food and junk drinks.

    People are into massive double-think. They are vaguely aware of climate change and peak oil as these issues sometimes appear on the news. Then they go back to their diet of consumer ads and consumer goods and I suspect few sit back and think, “Well, this is very contradictory.”

    In my country, Australia, the government and most of the people are into total double-think about coal-mining. On the one hand, an ineffectively low carbon tax is introduced and people mouth platitudes about saving the planet. On the other hand politicians and business people are boasting about the big new mutli-billion dollar coal mines being opened and how these will continue our economic boom by bringing in billions of dollars of revenue.

    I guess I keep coming back to on of my themes which is that (unfortunately) a series of salutary disasters will have to occur before people take global warming and sea level rise seriously as well the more imminent fresh water crisis and food shortage crisis. The crisis will first take the form of food shortages in the poorest parts of the world. Countries on the brink include (but are not limited to) many countries in MENA (Middle East and North Africa) plus Pakistan, Bangladesh and possibly even India and China.

    • Consumerism is indeed a problem. I don’t watch TV–I am just not tuned into this kind of thing. I rented a car yesterday, and had the person behind the counter give me a hard time because I wanted the cheapest car with no optional upgrades. He kept telling me how much more comfortable I would be in a big car.

      I am not sure we really know how this will all play out. I agree that the poor are very vulnerable, but others could be affected as well. Broken supply chains will be a problem in many places, I would expect.

  5. yt75 says:

    On a conceptual level, you might also want to look at the work done by JM Jancovici, on the same principle as the Kaya equation, but with Energy instead of CO2 :
    http://www.manicore.com/anglais/documentation_a/transition_energy.html
    in pdf :
    http://www.manicore.com/fichiers/energy_transition.pdf
    Basically it consists in writing (in the context of a country or the world):
    GDP=GDP
    So :
    GDP=(GDP/ENY)*ENY (ENY being the whole energy consumed)
    So above GDP/ENY can be caracterized as the amount of GDP created by energy unit, or the energy efficiency, so that increasing GDP means either increasing energy efficiency or the overall energy input.
    You can also write :
    GDP/Population = (GDP/ENY)*(ENY/Population)
    So that the income per capita is a factor of the golbal energy efficiency times the energy input per capita.
    Associated graphs and timelines on JM Jancovici pages

    Otherwise about :
    “and the 1973 Oil Embargo began, leading to a sharp rise in gasoline prices.”

    Isn’t it really time to get out of this myth or group lie (first oil shock=oil or Arab embargo) a bit ?!!!

    – The embargo lasted 3 months, it was only towards a few countries (holland in Europe) and NOT EVEN EFFECTIVE from KSA to the US

    – The first oil shock was about :
    – The US oil production peak in 71 (and some fuel shortages started at that time)
    – Due to above, the need for the majors of a higher barrel price to start more expensive plays (Alaska, GOM, North Sea)
    – Don’t forget that above ability to develop more expensive oil plays meant higher market share for the majors outside OPEC, or if you prefer “less dependency on
    FOREIGN OIL” (does that ring a bell ?)
    – in parallel and before the will of producing countries to get a higher share of each barrel revenues

    – US Diplomacy (in accordance with oil majors interests) **PUSHED FOR** higher oil prices especially through Akins and Kissinger

    These are esaily and documented verifiable facts, no “conspiracy theories” there, but maybe you also don’t believe that operation Ajax happened in 53 ? that Madeleine Albright didn’t recognise/apologised for it ?

    Shouldn’t a web site finite ressources issues and especially oil and peak oil, try to have a minimal honesty with respect to the associated geopolitics ?

    Don’t you think things would be a bit different if more than 1% or so of Americans knew the US passed its oil production peak in 71 ? Would candidate promise 20 millions barrel in that case ? (after having written very clearly about peak oil).

    Using “arab embargo” as a label, a name for the first oil shock (or “oil embargo” to make it softer), might be practical (it for sure has been), but it remains A COMPLETE JOKE.

    And by the way it was also “practical” for Saudi Arabia, allowing them to show the “Arab street” that they were “doing something” for the palestinian. And the Saudis for sure would have been highly pissed if it had been known that tankers kept on going during the embargo to the US (Army in vietnam in particular). Some republican senators started to raise “strong voices” about the embargo, Akins asked the permission to tell them what was going on, he did, they shat up, there was never any leaks, as reported by himself in interviews below (part 2) :
    http://parolesdesjours.free.fr/petrole.htm
    (documentary “la face cachée du pétrole”, only available in French and German to my knowledge, adapted from the book by the same title by Eric Laurent)

    • Thanks for reminding me about those relationships. Number of jobs is related, but not quite the same thing.

      I was thinking when I talked about the US oil peaking that I was pointing out that that was the real problem. There were other follow-on problems, but they would not have possibly have happened, with the decline in US oil supply.

      • yt75 says:

        Gail,
        Yes indeed above is basically mixing the work(as in jobs) part and energy part in the economy output. Some people are looking at these respective parts (and basically at the fact that looking at the input energy only from a “cost share” perspective is most probably not the right way to look at it). For instance I got a few papers from Reiner Kümmel, but didn’t find the time to look at them yet. A presentation from him at ASPO 2012 below :

        Otherwise regarding the first oil shock, I still think the “tragic” thing in this story is that “oil embargo” or “arab embargo” has simply become a *name* or label for it, making it truly difficult to look at the actual historical and geopolitical/economical facts around it, facts that remain highly unknown or covered up by this label (even if in the end it doesn’t change much regarding current situation).

  6. Pingback: The Close Tie Between Energy Consumption, Employment, and Recession | Doomstead Diner

  7. Don Stewart says:

    Let’s engage in a little thought experiment relative to employment and the cost of energy.

    Begin with China at the time Frank King visited very early in the 20th century and wrote Farmers of Forty Centuries. In terms of the efficient utilization of natural energy (water, wind, the sun, the soil food web which sequestered and made available the nutrients plants require to be healthy and to grow, mineral energy, gravity, and atomic forces), the Chinese reached a degree of sophistication which has never been equalled. Even Biosphere in Arizona was not, I think, their equal.

    The Chinese population at the time was perhaps 250 million, of whom perhaps 25 million were underemployed. Thus, when a train arrived at the station, a large number of porters would descend on the travelers offering to carry luggage and transport the traveler in human powered conveyances. If the population had been 225 million, then probably very few, and better paid, porters would have appeared.

    The trains were powered by coal, but train travel was expensive beyond the reach of most Chinese. (Lest we look down on them. In my early childhood a popular song by Doris Day celebrated a ‘sentimental journey home’, wherein our heroine has ‘spent each dime I could afford’ to buy her ticket.)

    Now, suppose that energy at today’s prices had suddenly become available to those Chinese. Don’t you think that an industrial sector would promptly have arisen? And that sector would have employed all those people who were employable. And then would have begun to suck in the agricultural laborers who could make more money in the more lucrative industrial world.

    Of course, time rolls along and populations increase (as we know from biology and Malthus) and technological advances reduce the death rate and mute the force of natural selection. By the 21st century, declining net industrial energy per capita plus the much larger population plus the loss of the highly efficient ancient methods of harvesting natural energy plus the degradation of the environment will all conspire to create underemployment again.

    In theory, it is possible for China to get back to 225 million people employed in an economy which is living on natural energy. I do not think that there have been any significant technological advances in the use of natural energy (although Permaculture people might dispute that). If we grant the Chinese a gradually declining net industrial energy, then a gradual employment and population decline back to 225 million is possible. All kinds of frictions in the social and economic spheres can be imagined which would make a collapse more likely than an orderly decline.

    Don Stewart

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