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Thursday, October 11, 2007

David Wessel: Why the Job Market Is Sagging in the Middle

On average, it's bad to be average:

Why the Job Market Is Sagging in the Middle, by David Wessel, WSJ: You don't need to be a Ph.D. economist to know something big is happening in the job market. The salaries of Wall Street's financial engineers are surging while wages in industrial companies stagnate. Manufacturers complain about "skill shortages" while cutting payrolls. ... Computers seem to have infiltrated every job, yet demand for unskilled, low-wage immigrants doesn't abate. ...

There is still strong demand for high-end workers -- the stars of finance, software, law, sports and entertainment -- as well as for the highest-skilled factory workers. The only news is the intensity of that demand, which is pushing up pay for those at the top.

But ... demand is [also] increasing for some workers at the low end of the pay scale: the ones who wipe brows in hospitals, care for kids, clear tables at bistros and stand guard in office-building lobbies. In 1980, about 13% of workers without any college education were working in such personal-service jobs, according to calculations by David Autor... In 2005, 20% of them were.

The losers? "The sagging middle," says Princeton University economist Alan Krueger.

As Harvard economists Lawrence Katz and Claudia Goldin put it recently, "U.S. employment has been polarizing into high-wage and low-wage jobs at the expense of traditional middle-class jobs."

Here's the hypothesis evolving among these and other academics. Technology and globalization are boosting demand for the most-educated workers, those prized for abstract or conceptual skills. Top hedge-fund managers aren't being replaced by computers; they're harnessing them, to their great profit.

By contrast, technology and globalization are eroding demand for workers who do routine tasks in factories and offices, many of whom are high-school or even college grads. The voice-mail system does away with switchboard operators; back-office software eliminates bookkeepers; robots replace assembly-line workers. Or the work is shipped overseas to a foreign factory or an office linked to the U.S. by fiber-optic cables.

But technology and globalization are not eroding demand for personal-service workers. Those tasks can't be done by computer or shipped offshore. The services have to be delivered here in the U.S. -- and in person -- either by natives or by immigrants.

Indeed, as the folks at the top make more money, more of them want nannies, gardeners, personal trainers and gourmet chefs. These workers are indirect beneficiaries of the upward flow of wealth. Their wages have been rising while those of midlevel factory and office workers, though still higher.., are stagnating. ...

So what, if anything, should the U.S. do about this? That's a harder question.

Economists warn that shoring up the middle by shielding manufacturing industries from imports or otherwise meddling with the market would cost consumers heavily. Some, certainly not all, suggest letting the market be, and using the tax code to transfer money from the biggest winners. Others suggest "professionalizing" personal-service jobs, perhaps encouraging unionization, to boost wages. Unlike factory jobs, advocates reason, these jobs can't be moved offshore or automated if employers have to pay more.

The more popular solution -- at least among economists -- is a familiar one: Educate all workers so they are better at interpersonal or abstract skills (the jobs of the future) as opposed to dial-turning or keyboard-pounding (rapidly disappearing jobs of the past).

I was thinking today that when I was a little kid, my mom worked in a Del Monte peach factory running one of the slicers. I was seven or eight, I think, and she had to wear a white dress, hair net, gloves, a whole factory costume when she went to work in the late summer heat. She didn't much like it, especially the 3-10 p.m. shift she had for awhile. We didn't live too far away and the smell of peaches in the late summer was overwhelming, almost as bad as the smell from the prune dryer we lived close to when I was a bit older. I don't much care for canned peaches in heavy syrup - the product they made at the factory - because of it. Prunes either, but maybe the smell isn't the whole reason for that.

Anyway, it's all a bit vague now after so long, but I can remember that at some point there was a strike and a big picket line out in front of the factory, and I can distinctly remember how angry my mom was when someone crossed the picket line. It was different then. I can't imagine the workers at a peach canning factory going on strike now, but it was fairly routine at that time (early 1960s) for workers to picket. It seems like there was always one group or another marching with signs announcing unfair business practices and demanding better wages or conditions, and I was taught as a kid to respect those lines.

There was also a difference in the employee-employer relationship, at least as I observed it growing up in a working class family (my dad worked at a parts counter at a tractor store at that time). There seemed to be an understanding that workers had families to raise. Somehow, my parents - a worker at a parts counter and a peach factory worker - owned a house in a decent neighborhood and while it was tough some months, we had health care through my dad's job and most of the middle class trappings (even if we did get a color TV much later than the neighbors). He didn't work at a great big place or anything, probably ten to twenty employees total, but they still had health care, etc. It's hard to imagine two workers my parents age (in their later 20s) working at those jobs and being able to afford those things today.

I know the empirical evidence doesn't give a lot of weight to the union story for preventing inequality, but looking back it's hard not to believe that the evidence somehow misses an ethic that was present then, something larger than unions alone, something that is less present today, a social relationship between employers and employees that kept employers from pushing wages as low as they possibly could go. Things weren't all rosy and wonderful then, far from it, and there's some chance I'm remembering "good old days," but I do believe society's expectation of what an owner is obligated to do for workers has changed.

Whether that's good or bad depends upon what comes next. Our social institutions are clearly in upheaval as the obligations I felt as a kid are being shed in the name of global competition and other forces of change. Perhaps we'll replace our old institutions with newer ones, with health care systems that are even better than we had before, systems that serve everyone instead of just those lucky enough to work in the right firms or be part of the right social groups. Perhaps we'll find schemes to share the gains broadly, to provide retirement security, access to education, protection from job losses, and so on - that's a process that is currently unfolding. I'm hopeful, and we seem to be collectively aware that change is needed on a variety of fronts, but change is never easy and, if it comes at all, it is often frustratingly roundabout and slow. I don't expect this time to be any different.

    Posted by on Thursday, October 11, 2007 at 12:33 AM in Economics, Social Insurance | Permalink  TrackBack (2)  Comments (120)


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