Thursday, April 12, 2012

Low-Wage Jobs and the Stalled Recovery

Growth at the Bottom

Slower-than-expected employment growth in March 2012 has brought the halting pace of economic recovery into sharp focus again. Nearly three years since the recession officially ended in June of 2009, 12.7 million people are still out of work and unable to find a job—a figure that rises to 22.8 million if workers who have given up looking but still want to work and those employed part-time because of the poor economy are included.

Demand for goods and services has been slow to recover—consumer spending has been hampered by a loss of housing wealth, continued high unemployment, and economic insecurity while government spending has been hamstrung by political infighting in Washington. The job growth that has occurred has been largely concentrated in very low wage occupations.

Economic theory—and common sense—tells us that high unemployment will persist until demand picks up. Businesses are not going to increase the pace at which they hire workers until the pace of spending increases.

Despite the obvious employment gap that results from the shortfall in spending, some observers contend that it is a mismatch between the skills of unemployed workers and the skills employers require that is responsible for the continuing high unemployment. Many of the ills of the labor market have been attributed to a supposed hollowing out of the job distribution—to “job polarization.”

Indeed, the claim that middle-skill/middle-income jobs in the United States are disappearing while jobs at the top and bottom of the occupational ladder are growing has been put forward as the explanation for four decades of wage stagnation for men.

Today, the claim that employers have good jobs but can’t find workers with the right skills to fill them has gained currency in the popular press. Yet such an imbalance between supply and demand would cause wages to rise in those occupations, and no such increase in pay can be observed.

Now a new study attributes the jobless recoveries following recent recessions to such job polarization. The study’s authors argue that jobs in the middle of the skill and income distribution disappear during recessions and fail to come back during recoveries. How real is job polarization?

The job polarization thesis is widely attributed to work by David Autor and his colleagues. But as Autor makes very clear, it is only the decade of the 1990s that can be characterized by a hollowing out of middle-skill jobs. In that decade, according to Autor, employment growth was most rapid in high-skill jobs, was modestly positive in low-skill jobs, and was modestly negative in middle-skill jobs.

From 1999 to 2007, in contrast, Autor finds that employment growth was concentrated in the bottom third of the skill distribution, a pattern that has persisted through the recovery from the 2007-2009 recessionand that is expected to persist to 2020.

Looking at the nature of job growth as economic recovery took hold, the National Employment Law Project found that lower-wage occupations—retail sales persons, office clerks, food prep workers, and stock clerks topped this list—grew by 3.2 percent from the first quarter of 2010 through the first quarter of 2011, and mid-wage occupations grew by 1.2 percent, while higher-wage occupations declined by 1.2 percent. Occupational projections to 2020 tell a similar story.

The Bureau of Labor Statistics projects that five of the top six occupations with the most job growth from 2010 to 2020 will be low-wage jobs that require little or no post-high school education—retail sales persons, home health aides, home care aides, office clerks general, and food prep and serving workers. Personal care aides and home health aides are also the two fastest growing occupations according to these projections.

Thus the job polarization of the 1990s has been replaced in the last dozen years by job growth that is dominated by occupations in the bottom tier of the skill and wage distributions. This trend is likely to continue in the absence of policies that increase demand more broadly in the economy and that improve wages and working conditions for the millions of workers—mainly women—in the occupations that are growing. Low wages in the expanding occupations limit gains in consumer spending and hamper more robust job growth.