Yes, we’re creating jobs, but how’s the pay?
Update: The December job numbers released this morning continued the same trend described in yesterday’s column. Of the 200,000 new jobs created last month, 78,000 – or nearly 40 percent — were in transportation, warehousing and retail, sectors known for low pay and seasonal hiring. In a far more positive sign, manufacturing gained 23,000 workers in December after four months of little change. A vast expansion of that trend would benefit the middle class tremendously.
WASHINGTON — Between now and November, middle class Americans are going to hear an enormous amount of bragging about job creation.
Mitt Romney will tout his role in the creation of Staples, The Sports Authority and Domino’s, three firms that he says created 100,000 jobs. Barack Obama will say 2.9 million jobs have been created since March 2010, and highlight a surge of 140,000 new private sector jobs in November.
The central question for middle class Americans, however, is: What quality of job is being created? The November job surge, for example, occurred primarily in retail, leisure and hospitality, sectors known for low wages. The other high-growth areas were professional services and health care, where higher education is a central determinant of income. Manufacturing and construction, one of the few areas left in the American economy where members of the middle class without elite educational pedigrees can find strong wages, were moribund. The following chart from the Bureau of Labor Statistics breaks down the numbers.
In a rare moment of bipartisan agreement, Republicans and Democrats both recognize the problem. After years of Democratic politicians complaining about a lack of social mobility for Americans, The New York Times reported this morning that Republican candidates are complaining about the problem as well.
Presidential candidate and former Pennsylvania Senator Rick Santorum warned this fall that movement “up into the middle income is actually greater, the mobility in Europe, than it is in America,” according to The Times. Wisconsin Congressman Paul D. Ryan, a leading House conservative, recently wrote that “mobility from the very bottom up” is “where the United States lags behind.”
The story reported that at least five large studies in recent years have found the United States to be less mobile than comparable nations. A Swedish research project found that 42 percent of American men raised in the bottom fifth of incomes stay there as adults. In Denmark, the number was 25 percent. In Britain, it was 30 percent. At the same time, only 8 percent of American men at the bottom rose to the top fifth. That compares with 12 percent of the British and 14 percent of the Danes.
A Canadian study found that just 16 percent of Canadian men raised in the bottom tenth of incomes stayed there as adults, compared with 22 percent of Americans, The Times reported. Similarly, 26 percent of American men raised at the top tenth stayed there, but just 18 percent of Canadians.
Economists argue that a central tool in reviving the middle class – and creating social mobility – is the creation of better-paying middle class jobs. Like so much else, that task is enormously complex. Scholars say the reduction in pay is the product of worldwide economic trends, from technological change to globalization, that are difficult to counter. Harry Holzer, an economist at Georgetown University, tracked which parts of the economy featured high paying jobs over time. The percentage of well-paying jobs provided by the manufacturing sector fell by half – from roughly 27 percent in 1992 to 13.5 percent in 2003.
Holzer notes that the nature of business in the United States changed over the last several decades. In the past, large, capital-intensive manufacturing companies faced relatively little competition from overseas and depended on workers in the United States.
“Big, stable, highly profitable and not very competitive means a bigger pie,” Holzer said in an interview. “The simplest thing to do is to cut a bigger slice of the pie for workers.”
That business model has disappeared. Globalization caused American firms to face fiercer competition from foreign companies. And technological change allowed American firms to ship manufacturing overseas but still tightly monitor quality. Overall, companies have gained the upper hand on workers, who are increasingly easy to replace.
Paul Osterman, an MIT professor, agreed that those dynamics are irreversible. But he argued that some changes in American business norms unnecessarily accelerated the elimination of middle class jobs. Executives once praised for creating jobs are now rewarded for eliminating them.
“Think about who gets their picture on the cover of Fortune.” he said. “It used to be the ones that were admired were the ones who treated their workers as a family. Now it’s all about re-engineering, downsizing and shareholder value.”
Osterman said research shows that companies have reduced the amount of training they give their workers. He advocates tax incentives that would encourage companies to retrain employees.
Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and a former economic adviser to Vice President Joe Biden, said the U.S. should not repeat the mistake it made after the last two downturns: building a recovery on a financial bubble.
“A lot of money shuffling at the top, a lot of arbitrage, which has very little to do with adding productive capacity to your economy,” he said. “A better way would be to add jobs that produce value, manufacturing jobs.”
He advocated that the American government adopt a manufacturing policy similar to the one Germany employs, where public-private partnerships target areas where German firms could gain global market share. Such an approach is anathema to many, though not all, business leaders.
The political debate, meanwhile, remains polarized. Democrats see government jobs as a tool in strengthening the middle class, arguing that police, teachers and sanitation workers stabilize the economy. Republicans see government jobs as relentlessly growing cancer that stifles the private sector.
Bureau of Labor Statistics data shows that overall government employment steadily grew from the 1940 to the 1970s, according to Bernstein. Since then, it has declined slightly.
Chart: Jared Bernstein, Data: Bureau of Labor Statistics
Hoping for constructive debate in a presidential election year is naive. And bipartisan commissions are notoriously ineffective. But I wish the National Academy of Sciences or some other nonpolitical group could be tasked with creating a Simpson-Bowles-like effort to examine ways to create better paying jobs. GE’s Jeffrey Immelt and other American executives who have doubled-down on American manufacturing could be included. So could retired Democrats and Republicans willing to move beyond party orthodoxy.
Study after study shows that a dearth of high-paying jobs is dividing our society, politics and middle class. We are falling behind the Canadians, British, and Europeans, as well as the Chinese and Indians. An honest debate over what mix of approaches might save us would be a godsend.