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Wednesday, July 07, 2010

Take a Bad Job and Make it Better

Richard Florida says we can improve service sector jobs:

America needs to make its bad jobs better, by Richard Florida, Commentary, Financial Times: A growing chorus of commentators ... argue that the US economy can no longer create meaningful numbers of high-paying jobs, especially for less skilled workers who lack college or more advanced degrees.
There is no question that millions of high-paying jobs have been eliminated and private sector job creation has been anemic. ... Periods of crisis ... such as the current one are when new categories of jobs are created as old categories of jobs are destroyed. The key to a sustained recovery is to turn as many of these – as well as existing lower-paying jobs – into better, family-supporting jobs.
Consider this simple fact: the US economy remains on track to generate 15m new jobs over the next decade, according to the most recent Bureau of Labor Statistics projections, more than double the 7.4m that have been lost during the economic crisis.
Roughly half of these jobs – 6.8m of them – will be well paid to begin with: high-skill, high-wage work in the knowledge, professional and technical sectors. Interestingly,... four in 10 knowledge workers do not hold college degrees...
The other half of 15m newly created jobs – 7.1m of them – will be much lower-paying, low-skill work in the routine service sector... Although some such jobs, at call centers for example, have proven vulnerable to offshoring, a great many are not: it is impossible to cut hair, serve food or care for the elderly from Bangalore or Mexico. The problem is that on average, service workers earn only half of what factory workers make – and only a third of what professional, technical and knowledge workers are paid. The key is to upgrade these jobs and turn them into adequate replacements for the higher-paying blue-collar jobs that have been destroyed.
It has happened before..., the blue-collar jobs we pine for were not always good jobs: we made them good jobs. ... Some of this was due to the power of unions. Most of it was because of the enormous improvements in productivity wrought by improved technologies and management techniques.
The same thing can and must happen in the service sector. ... A century ago the US government set up an Agriculture Extension Service, designed to provide technical assistance to farmers. In our own day programmes such as the Malcolm Baldridge Award for Quality and ISO certification initiatives help to spread ideas throughout the manufacturing sector. Service jobs are the last frontier of inefficiency, providing abundant low-hanging fruit for the innovation and productivity improvements that can undergird higher wages. Yet they have no comparable assistance.
Thousands upon thousands of corner stores, dry cleaning shops, day care centers, restaurants and hair salons open and close every year. But while governments bend over backwards to help high-tech start-ups and university spin-offs, they do next to nothing for new service companies. This is part of the reason such companies have a high rate of failure. ...
President Barack Obama should ... push measures that would help service businesses learn what it takes to succeed – from advice about business planning, to budgeting and sales, to quality management and marketing, to efforts to engage employees and develop their skills. Such a movement is badly needed. Without it, those who warn of a jobless future in America are much more likely to be proved right.

Setting aside whether or not such programs would be effective, an implicit assumption is that higher productivity will turn into higher wages. However, although this relationship was once fairly solid -- changes in productivity translated into real wage gains -- it has not held up in recent decades. The growth in wages has lagged behind the growth in productivity:

productivity growth is supposed to yield improved economic outcomes via higher real wages. Yet ... labor's share of output has been steadily decreasing since the early 1980s. This downward trend was interrupted by gains evident during the tech bubble of the mid-1990s. Apparently, only during that brief, shining moment of generational technological change did the productivity story work as we believe it should, at least since the early 1980's.

Gains in productivity won't work the wonders described above if they don't translate into gains in real income for the working class. The fact that wages are not keeping up with productivity, something that should happen when markets function well, indicates something is awry in the distribution of gains in the economy. The cause of this is the source of much controversy, and some say nothing is awry at all -- it's just that the "skill premium" has increased substantially causing the distribution of income to become more skewed. But some of the highest rewards for increases in productivity went to people in the financial industry, and we know now that those productivity gains weren't really there -- the rewards were based on an illusion rather than something real. And I don't think the change in the skill premium is the whole story in any case. The reduction in the ability of labor to bargain on an equal footing with employers due to the decline in unions and other forces also played an important role in holding down real wages in recent decades.

    Posted by on Wednesday, July 7, 2010 at 01:17 AM in Economics, Income Distribution, Productivity, Unemployment | Permalink  Comments (74)


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