Good Jobs, Bad Jobs (part 2)

September 27, 2012

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In my first post about Arne Kalleberg’s Good Jobs, Bad Jobs, I described the author’s general framework for understanding the increasing polarization of work. He considers many factors: the social and economic forces that have transformed the economy (globalization, new technologies), the composition of the labor force (by education, race, gender, etc.), the mediating role of other institutions (government, financial institutions, unions), and the organization of work itself (“high-road” and “low-road” employment strategies). Now I want to take a closer look at work polarization, starting with changes in the distribution of occupations.

Kalleberg ranks broad occupational groups according to measures of job quality. He confirms that occupations in the middle range have lost workers, while occupations at the high and low ends have added workers. For example, a lot of the losses have involved semiskilled machine operators and administrative support workers, where new technologies have reduced the need for labor. My Dad’s first job after college was as a statistical clerk, armed with only a slide rule and an adding machine. When I taught statistics a generation later, my students and I had computers to do the busywork. When I later became an independent financial planner, my desktop computer provided all the administrative support I needed.

Remember the old IBM slogan, “Machines should work; people should think”? Many optimistic social scientists of the 1960s and 70s expected technological change to improve the quality of work, eliminating the drudgery and expanding the creativity. Workers could take the benefits of their high productivity as higher wages and/or more time off the job. Part of this vision has come true. High-end occupations–managerial, professional and technical–have expanded. But they haven’t expanded enough to employ all the workers displaced by technological obsolescence or outsourcing. In the long run, new technologies may create as many jobs as they destroy; in the short run, destroying a good job may be easier than creating one. Capitalists are job destroyers as much as job creators, as the current political debate over Bain Capital illustrates. Getting the same work done using fewer American workers can be easy with new technologies and a global supply of labor. Doing something new and paying someone a good wage to do it is more challenging. It may involve taking more risk, making an investment in worker training, and finding a market for a new good or service. Much of the work worth doing has social–not just individual–benefits, so the demand may not be there without some financial commitment from the taxpayers.

The phenomenal growth of low-wage service jobs results partly from the growth in the number of workers who are available for such jobs. This in turn results from a combination of labor-force characteristics (so many workers who lack the skills required for higher-level work) and work organization (too many companies adopting “low-road,” cost-cutting approaches to labor instead of “high-road” investments in human capital). These factors are reinforced by the demand for cheap services in a society with so many low-income households. Of the ten occupations with the largest projected job growth from 2006 to 2016, seven are low-wage sales or service jobs (such as retail salespersons, food preparation and service workers, home health care aides, and janitors).

Kalleberg’s findings on wages are consistent with those of other researchers: More workers at the high and low ends and fewer in the middle. Between 1973 and 2009, real (inflation-adjusted) wages for workers in the 95th percentile have increased from $39 to $55 per hour for men, and from $24 to $41 per hour for women. At the median (50th percentile), wages have increased slightly for women ($11 to $14) but have stagnated for men (around $18). In the 20th percentile, wages have also increased a little for women ($8 to $9), but have fallen for men ($12 to $10). And at the bottom, the minimum wage of $7.25 has not been adjusted for inflation, and so it has declined in real value since its peak in the 1960s.

Wage disparities have increased the correlation between educational level and income. The economic advantage of a college education has increased, although the cost and the debt one incurs has too. The United States ranks relatively high on average education and other measures of skill, but it also ranks high on the proportion of workers in very low-paying jobs. Other countries have had more success in maintaining decent wages. Kalleberg says,

Institutions matter for wage-setting: inequality tended to be greater in liberal market economies such as the United States, Britain, and Canada, which have relatively weak unions and decentralized patterns of wage-setting, whereas inequality was relatively low in countries such as France and Germany, which have relatively centralized wage-setting mechanisms and stronger unions.

This more sociological view contrasts with the economic theory of skill-based technical change (SBTC), which attributes wage disparities primarily to individual worker qualifications, without much regard for institutional variables.

Kalleberg also finds increasing inequality in the availability of benefits, especially health insurance and defined-benefit pension plans. The United States is unusual in its reliance on employers to provide such benefits at their discretion, rather than making them rights of citizenship. As stable employment relations and the social contract between management and labor have broken down, this system provides fewer reliable benefits, especially for workers at the low end. The proportion of workers covered by defined-benefit pension plans has been cut in half since 1980. Defined contribution plans like 401(k)s shift the risk of poor investment performance to the individual worker.

One particularly discouraging aspect of job polarization is the effect it has had on racial inequality. Whatever progress we have made in combating racial discrimination has been counteracted by the economic forces and decisions that have tended to polarize the labor force. Occupational segregation by race declined a bit in the 1970s, but stopped declining after that. Many of the jobs that had helped other ethnic groups move into the middle class–especially manufacturing jobs with modest skill requirements but good wages–are no longer available, and what good jobs there are have higher educational requirements. To make matters worse, minorities (and women) who do have college educations still don’t obtain their proportional share of the good jobs, suggesting that discrimination remains a problem at the high end of the occupational spectrum.

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Posted by Ed Steffes

The Servant Economy (part 2)

September 14, 2012

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My last post about Jeff Faux’s The Servant Economy presented a prolog to the main story. It described the rise of a strong manufacturing-based economy with a thriving middle class in the mid-20th century. But most of the book concerns the decline of that economy and its replacement by one that seems unable to create wealth for as many of our people. Since 1979, two-thirds of all the income gains in the U.S. have gone to the richest 10% of the population, compared to only one-third in the previous three decades. Real wages and benefits for non-supervisory workers rose 75% between 1947 and 1973, but less than 4% between 1979 and 2005. Median household income continued to rise slowly, but that was mainly because so many households sent more than one worker into the labor force. The other way that households got ahead was by going more deeply into debt, especially because of the high cost of health care, education and housing. In 1970, it took the average worker 41.5 hours to earn enough to make the monthly payment on an average-priced house; in 2000, it took 67.4 hours.

Between 1980 and 2006, the manufacturing sector declined from 21% to 12% of GDP, as jobs were automated or offshored. The mirror image of that decline was the rise of the financial sector from 12% to 20% of GDP. “Finance replaced manufacturing as the driving force of the American economy.” And what did bankers and investors choose to finance? Massive amounts of consumer debt, for one thing. Leveraged buyouts of existing companies from which short-term profits could be extracted by cutting wages or selling off assets, for another. And speculative bets on future asset prices, such as the housing bubble. The financial sector became both more powerful and less connected with the production of real wealth. Why bother with the long-term risk of investing in new products, let alone new industries like clean energy, when you can see so many ways of making a quick and easy buck?

In theory, the flow of capital toward cheaper foreign labor was supposed to benefit everybody. Countries with less-skilled populations could assemble manufactured goods at the lowest cost, providing jobs there and inexpensive goods for consumers around the world. Countries like the United States would keep more of the higher paying jobs requiring more education and training. It hasn’t quite worked out that way. As economist Alan Blinder pointed out, any task that can be done with a computer can be done anywhere, and large countries like India are rapidly  producing educated workers. The CEO of Intel said that “Intel can thrive today and never hire another American.” So what kinds of jobs are we creating? Primarily personal service jobs, since they are hardest to export. Most of the rapidly growing service occupations–like restaurant workers, retail salespeople, and home health care aides–are fairly low in educational requirements and pay. Rich people can afford to hire maids, nannies, gardeners, and fitness coaches. Busy middle-class families may want more hired help too, but will be unwilling or unable to pay very much for it. Of course, good jobs remain in professional services, but many of those depend directly or indirectly on public funding. (Faux doesn’t make this point, but private capital investment in health and educational services is limited by the fact that the individuals needing the service often can’t afford to pay for it personally. Development and maintenance of our human capital is something we agree to do together.) Getting a good education may be necessary to get a good job, but it’s not sufficient unless the country is investing in the tasks that make use of that education. In general, private capital investment decisions are tending to create manufacturing economies overseas and a “servant economy” at home.

Much of Faux’s book tells how the nation’s political governing class–Republicans and Democrats alike–encouraged or acquiesced in the creation of the servant economy. To put it most simply, they sacrificed the economic vitality of the middle class for other priorities, especially protection of unregulated capitalism and maintenance of the world’s largest military establishment. Faux tells the political story of the last half-century mainly as a series of policy mistakes.

Lyndon Johnson’s decision not to raise taxes to pay for the unpopular Vietnam War increased inflation and weakened foreign confidence in the dollar, as did the growing excess of imports over exports in the 1970s. With the price of gold rising, the Nixon administration had to stop redeeming dollars for gold and devalue the dollar. Oil-producing nations responded by curtailing production in order to boost the price of oil. President Carter’s Chairman of the Federal Reserve, Paul Volcker, fought inflation by raising interest rates and slowing the economy, but the initial result was “stagflation,” a combination of inflation and recession. The energy crisis and trade deficit did encourage some discussion of whether the country needed a new “industrial policy,” but economic conservatives prevailed, and markets were allowed to take their course. Ronald Reagan got elected in 1980 largely by blaming government social spending for inflation. Then he ran up a large deficit of his own by cutting taxes and increasing military spending. He also deregulated the Savings & Loan industry, facilitating the wave of fraud and mismanagement that required a $200 billion taxpayer bailout. Bill Clinton agreed with the Republicans that “the era of big government is over,” and he cooperated with them on cutting spending, adding a work requirement to welfare, deregulating banking, refusing to regulate derivative securities, and encouraging offshore production through free trade agreements. George W. Bush turned the Clinton budget surplus into a new deficit by cutting taxes and increasing military spending, limiting the government’s options for responding to a new economic crisis.

All this set the stage for the speculative housing bubble of the 1980s and the financial crash of 2008. Among the contributing factors were “the 30-year flattening of incomes, which drove consumers to take on more debt in order to keep up with the expanding American dream,” the eagerness of mortgage brokers to make subprime loans at high interest without the traditional banker’s concern about the borrower’s ability to pay, the marketing of financial derivatives rated as low-risk but relying ultimately on shaky mortgages, the corruption of accounting and rating firms by the companies offering the risky securities, and the availability of foreign capital to help finance the boom, due to the trade deficit and the dollars it put into foreign hands. When the bubble burst, U.S. taxpayers had to borrow more money in order to finance a Wall Street bailout.

In Faux’s view, the economic outlook remains gloomy. Both political parties depend heavily on Wall Street for campaign contributions, making new limits on its ability to speculate or move capital overseas unlikely. The U.S. continues to spend almost as much on its military as the rest of the world combined. Reductions in the federal debt will fall most heavily on domestic spending, limiting the country’s capacity to make new investments in infrastructure, energy or education. The main weakness of Faux’s book is that it is more negative than positive, providing little detail about the policies he would like to see. Usually he limits himself to statements like these:

National adjustment to our new condition requires economic redevelopment: improving the basic capacity of the economy to compete in a way that generates rising living standards….The United States is obviously not a third-world country. But its future, like that of a third-world country, depends on its ability to build infrastructures, to educate its people, and to set national priorities….A country’s economic development is a political process as much as an economic one.

The investments that President Obama’s American Recovery and Reinvestment Act made in infrastructure and clean energy are a start, but Faux notes that they had to be marketed as part of a short-term stimulus package to get Congressional approval. We don’t yet have any consensus supporting an expanded role for government in overseeing national economic development.

The most important first step that Faux recommends is a Constitutional amendment to reverse the Citizens United decision, establish that corporations do not have the free-speech rights of persons, and allow strict limits on campaign spending. That would presumably pave the way for a government less under the control of the rich and the financial industry, and more responsive to the rest of society. How that might translate into better American jobs is a question that will occupy policymakers for some time to come.

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Bill Clinton’s Democratic Vision of Economy

September 6, 2012

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In his nominating address at the Democratic National Convention last night, Former President Bill Clinton defended President Obama’s economic record by relating it to a broader Democratic approach to economic growth and job creation. He described the Democratic economic philosophy this way:

We Democrats — we think the country works better with a strong middle class, with real opportunities for poor folks to work their way into it, with a relentless focus on the future, with business and government actually working together to promote growth and broadly share prosperity. You see, we believe that “we’re all in this together” is a far better philosophy than “you’re on your own.”  It is.

….It turns out that advancing equal opportunity and economic empowerment is both morally right and good economics. Why? Because poverty, discrimination and ignorance restrict growth. When you stifle human potential, when you don’t invest in new ideas, it doesn’t just cut off the people who are affected; it hurts us all. We know that investments in education and infrastructure and scientific and technological research increase growth. They increase good jobs, and they create new wealth for all the rest of us.

I hope the key idea here–that “advancing equal opportunity and economic empowerment is both morally right and good economics”–receives the attention and discussion it deserves. It implies that certain kinds of assistance to people who are economically struggling is a good investment, not just a handout that undermines competition by rewarding failure and punishing success (taxing the rich to help the poor), as laissez-faire economics would have it. Here the choice between a new progressive vision and the prevailing conservative philosophy seems clear. However, as Clinton acknowledged, neither side in a debate is right all the time. When someone claims that a particular government program is an investment in economic growth, I think that fiscal conservatives may reasonably subject that claim to careful scrutiny.

Clinton used job-creation statistics since 1961 to defend the Democratic record. In the 24 years with Democratic presidents, 42 million private-sector jobs were created; in the 28 years with Republican presidents, only 24 million. Of course, one doesn’t have to hold the President solely responsible for the job market, but a lot of people like to do that, so they might as well have the numbers. Clinton defended the Obama record by pointing to the millions of jobs saved or created by the American Recovery and Reinvestment Act and the rescue of the automobile industry, and he pointed out that we would have had more if Congressional Republicans hadn’t blocked his American Jobs Act. Acknowledging that a lot of people haven’t felt the improvement yet, he summarized the Republican case for replacing the President this way:

In Tampa, the Republican argument against the president’s re-election was actually pretty simple — pretty snappy. It went something like this: We left him a total mess. He hasn’t cleaned it up fast enough. So fire him and put us back in.

Then he made the case for the President’s re-election:

He inherited a deeply damaged economy. He put a floor under the crash. He began the long, hard road to recovery and laid the foundation for a modern, more well-balanced economy that will produce millions of good new jobs, vibrant new businesses and lots of new wealth for innovators.

Clinton emphasized the connection between creating jobs and helping people acquire the education and training to do them:

Of course, we need a lot more new jobs. But there are already more than 3 million jobs open and unfilled in America, mostly because the people who apply for them don’t yet have the required skills to do them. So even as we get Americans more jobs, we have to prepare more Americans for the new jobs that are actually going to be created. The old economy is not coming back. We’ve got to build a new one and educate people to do those jobs.

As reasonable as that seems, the education-jobs connection requires some qualification. Keynesian economists argue, with a lot of factual support, that demand for goods and services drives the employment rate much more than the skills of the labor force. If demand is low, even more educated workers will lose jobs; if demand is high, even less educated workers can find them. If the issue is the quality of jobs rather than just the number of jobs, an educated labor force is more important, but even there labor demand is crucial. If the jobs being created don’t require much skill, as many of today’s service economy jobs don’t, then an increase in education and training could just result in more skilled workers waiting on tables. Statements like Clinton’s, as common as they are, raise troubling questions about the future of work.

The Romney-Ryan campaign has devoted a large portion of its advertising to two particular charges against the President: that he cut Medicare in order to fund Obamacare, and that he ended the work requirement for welfare recipients. President Clinton tried to set the record straight. On Medicare:

Look, here’s what really happened. You be the judge. Here’s what really happened. There were no cuts to benefits at all. None. What the president did was to save money by taking the recommendations of a commission of professionals to cut unwarranted subsidies to providers and insurance companies that were not making people healthier and were not necessary to get the providers to provide the service.

And instead of raiding Medicare, he used the savings to close the doughnut hole in the Medicare drug program and — you all got to listen carefully to this; this is really important — and to add eight years to the life of the Medicare trust fund so it is solvent till 2024.

On welfare reform:

When some Republican governors asked if they could have waivers to try new ways to put people on welfare back to work, the Obama administration listened because we all know it’s hard for even people with good work histories to get jobs today. So moving folks from welfare to work is a real challenge.

And the administration agreed to give waivers to those governors and others only if they had a credible plan to increase employment by 20 percent, and they could keep the waivers only if they did increase employment. Now, did I make myself clear? The requirement was for more work, not less.

Clinton discussed the problem of deficit reduction at some length, contrasting President Obama’s “balanced approach” (increasing revenue and cutting spending) with the Romney-Ryan proposal for additional tax cuts to be offset by closing unspecified tax loopholes. He argued that one of three things would happen under the latter plan: (1) middle-class taxes would have to rise to pay for tax cuts for the wealthy, (2) the loss of revenue would require drastic cuts in all domestic spending, damaging the programs that “empower the middle class and help poor kids”, or (3) the deficit would soar, as it did under the last two Republican administrations that pursued the same policies.

The former President ended by contrasting two kinds of futures:

My fellow Americans, all of us in this grand hall and everybody watching at home, when we vote in this election, we’ll be deciding what kind of country we want to live in. If you want a winner-take- all, you’re-on-your-own society, you should support the Republican ticket. But if you want a country of shared
opportunities and shared responsibility, a we’re-all-in-this-together society, you should vote for Barack Obama and Joe Biden.

Moving forward together through cooperation was a major theme throughout the speech. Yet Clinton also rejected the idea that Democrats are against free enterprise or individual initiative, implicitly recognizing that competition also has its place. If the ethic and the economy of cooperation sound so refreshing at the moment, maybe it’s because the Republicans have become so exteme in their support of rugged individualism. Or maybe the kinds of big challenges we face require a more collective response.

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