The Shrinking Middle Class?

If the trends over the last 25 years continue, as is likely, when the economy finally starts to recover and create new jobs, many of those who lost jobs during the downturn will find that the jobs available to them are not as attractive as the jobs they left:

The middle-age, middle-income squeeze, by Stephanie Schorow, MIT News Office: ...Dramatic shifts in the U.S. labor market in the last 25 years are relegating older workers -- even those with a college education -- to lower-wage jobs... This trend appears likely to steepen in the current recession, as employers accelerate the rate at which they shed nonessential positions.

In a paper co-authored with graduate student David Dorn, "This Job is 'Getting Old'...,"... Autor analyzes a phenomenon that he refers to as the "hollowing out" of the U.S. job market from 1980 to 2005.

"One of the most remarkable developments in the U.S. labor market of the past two and a half decades has been the rapid, simultaneous growth of employment in both the highest- and lowest-skilled jobs," Autor says. European labor markets echo this shift.

Automation, computerization and offshoring are reducing the number of middle-wage, skilled occupations -- stock clerks, inspectors, telemarketers, payroll workers, sales agents and software programmers -- Autor finds. These jobs are particularly vulnerable to automation because their core tasks follow well-understood routines that can increasingly be codified in software and executed by machinery.

Ironically, many jobs that require less formal education -- such as construction workers, janitors, truck drivers, auto mechanics, home health workers and wait staff -- are more difficult to automate than these white-collar positions because they demand physical flexibility and rapid adaptation to unpredictable circumstances (e.g., oncoming traffic, unhappy customers). Humans excel at this form of flexibility while current technology falls short. Demand also remains high for high-wage, high-skill jobs, such as attorneys, physicians, engineers and top managers -- all of which perform analytic, interpersonal and problem-solving tasks requiring both expertise and intellectual flexibility.

As the labor market "hollows out," workers who in a previous generation would have occupied middle-skill, white-collar positions must increasingly find their fortunes elsewhere -- either in high-skill, high-education professional, technical and managerial positions, or in less-educated manual labor and in-person service jobs. Autor's data indicate that since 1980, older workers with at least some college education are increasingly doing what was once thought of as "non-college" work, i.e. non-routine, but not highly skilled jobs.

According to data compiled by Autor and Dorn, the share of college-educated workers found in low-wage, non-routine occupations rose from 19.9 percent to 23.6 percent from 1980 to 2005. Moreover, the average age of those with college education working in such jobs rose by 6.7 years during this time. ... And as computers and offshore sourcing continue to reduce jobs in areas such as accounting and sales, this trend has accelerated. ...

Autor also suspects employers facing rising health costs and falling profit margins are more likely to hire young people because of the higher health care costs associated with older workers.

Thus, Autor's findings underscore the importance of both career retraining and, potentially, public assistance with health coverage in softening the brunt of the economic downturn on older workers. But they also challenge assumptions about the long-term value of a college education.

Higher education, particularly an advanced degree, is still the best way of ensuring future income, Autor says. However, "the degree to which a college education insulates you from downturns and from loss of prestige and earning power of your occupation is unfortunately smaller than it used to be."