Retail Gets a Knockout Punch

Employers are increasingly concerned about whether their current business model is compatible with a fast-changing external market.  With technological change increasing its pace, employers are worried that they don’t have the right staff or technology to adapt to the new economy.

This New York Times article from April 16, 2017 describes a sharp turn of events in the retail sector in the US.  Online shopping is savaging the bricks-and-mortar retail sector.  There has been a gradual, decade-long shift from physical retail outlets to sites like Amazon.  But right now things look more dramatic.

In labour economics there is a key concept that labour demand is a derived demand.  When the demand for certain business outputs increase, the demand for workers who deliver those outputs also increases.  It is not so in this case.  The technology of online shopping gets products into your home while employing fewer workers.  This means that shopping revenues can increase while retail jobs decrease.  From October to the time of the article, 89,000 people had been laid off in the retail sector in the US.  The job losses themselves are larger than total employment in the coal sector.

The article poses the concern that “job losses in retail could have unexpected social and political consequences, as large numbers of low-wage retail employees become economically unhinged, just as manufacturing workers did in recent decades.  About one out of every 10 Americans works in retail.”

This situation raises more questions than it answers.  Will we be able to employ former retail workers in a different part of the economy?  For those businesses that are thriving in the current environment, what will be the onus on them to cover the cost of the downside?  What if you lost your job and went to find temporary work in the retail sector, and discovered you couldn’t even find that kind of work.

Disgruntled workers are already sending mixed signals at election time.  That blowback is arising from two decades of job losses mostly in the manufacturing and resource sectors.  Now the disruption is making its way into more sectors and the change is happening more quickly.

Could it be that the dynamic between technology, globalization, dis-employment, and volatile voting patterns is going to become even more dramatic?