The thinning out of the labor market middle

by on April 2, 2013 at 2:02 am in Current Affairs, Economics, Uncategorized | Permalink

The US has gained 387,000 managers and lost almost 2m clerical jobs since 2007, as new technologies replace office workers and plunge the American middle class deeper into crisis.

Data from the Bureau of Labour Statistics divide the US workforce into 821 jobs from dishwasher to librarian. They show rapid structural shifts – on top of a cyclical unemployment rate of 7.7 per cent – that may increase income inequality.

One probable cause of rising inequality is new computing technologies that destroy some middle-class occupations even as they create jobs for highly skilled workers who can exploit them.

The number of clerical workers such as book-keepers, tellers, data entry keyers, file clerks and typists has been falling, pointing to a structural decline. The number of retail cashiers has also dropped – indicating that internet shopping and self-checkout systems may be eroding another occupation.

Employment growth came from healthcare, management, computing and food service jobs. The number of personal care aides is up 390,000 since 2007. Demand for people who figure out how to replace clerical workers – such as operations managers, management analysts and logisticians – grew substantially.

…But salaries for many of the fast-growing occupations are lower than those they are replacing. The average wage for a clerical job in 2012 was $34,410 compared with $24,550 for a post in personal care. The average computing wage was $80,180 and $108,570 for managers.

The FT story is here.

I would add this.  It is often a mistake to think that “cyclical” and “structural” explanations of unemployment are conceptually separate.  When there is a liquidity crunch, as there was in 2008-2009, business owners must plan rather rapidly for the future, and decide which capabilities they will hold on to and build up, and which they will let go of and let rot.  It is as if a big part of future plans is suddenly compressed into current decisions.   Some unemployment will result, but it is both cyclical and structural at the same time.  A separate point is that the “structural” features will help determine how much of a nominal wage decline may be required to maintain or restore employment.  Furthermore in many search models the distinction between structural and cyclical unemployment is also not easy to define.

dirk April 2, 2013 at 4:24 am

Given the amount of people who have exited the workforce completely (and gone on disability or whatever), does it continue to make sense for economists to consider the definition of the “unemployed” as those currently looking for a job? It seems to me that it doesn’t.

Scott Sumner claims that immigration, outsourcing and mechanization don’t create unemployment, but, wow, sure seems like it. Particularly if we consider how many have moved onto “disability” because the available jobs are above their skill level.

Used to be when people lost their jobs due to mechinization many other jobs were created. Economists seem to have blind faith that that process will continue. But will it? It sure doesn’t seem like it if we consider all the people leaving the labor force permanently these days.

Ray Lopez April 2, 2013 at 5:39 am

Good points. The Age of The Machines will mean that eventually all jobs will be automated. Deep Blue beat the world champion in chess, Garry Kasparov, in 1997 (BTW how about Vassily Ivanchuk’s performance yesterday, knocking off both WC contenders!–VI is a kingmaker); IBM’s Watson beat the human Jeopardy! champion recently; legal and medical decisions can be safely automated; auto-pilot flies better than pilots in most weather and then there’s Google Cars, robot vacuum cleaners and lawn mowers, and robotic warriors and drones. When and if computers replace economists, using their own data to give equally good (or bogus, or accurate, or otherwise) predictions, then we’ll hear the economists lament about redistribution problems.

Andrew' April 2, 2013 at 6:29 am

“Scott Sumner claims that immigration, outsourcing and mechanization don’t create unemployment”

As a first step, how do they not? Maybe the guys designing the equipment…or maybe you just buy another machine that was mostly designed 20 years ago.

Andrew' April 2, 2013 at 7:23 am

In the long run, if mechanization reduces cost those can be re-allocated eventually. But the long-run might be a long-ass time. You’ve got half of a world of labor to sop up (as they slowly copy our capitalism), or you have to mechanize to keep up with competitors who are sopping up offshore labor. And at the end of the rainbow, maybe we just have more people driving up the prices of the natural resources because the catchup growers are not contributing to novel innovations. Economists are equilibrium analysts.

Bruce Cleaver April 2, 2013 at 9:48 am

This, precisely. The catch-up period may well be 10 years, or 15, or more. Certainly long enough for discouraged workers to rot.

Rick Richardson April 2, 2013 at 10:47 am

I think 15 years is optimistic. The reason for this is the displaced middle is not prepared to occupy the more skilled positions that will supposedly be created by mechanization. The majority of current high school curricula (in the U.S at least) seems to be preparing students for this disappearing clerical and labor work rather than the higher level positions that require abstract thought and mathematical modelling.

JWatts April 2, 2013 at 11:04 am

The majority of current high school curricula seems to be preparing students for this disappearing clerical and labor work rather than the higher level positions that require abstract thought and mathematical modelling.

I don’t think that’s a fair assessment. Currently we are sending 70% of US high school graduates to College. The one’s that aren’t going to college are on average in the lower 1/3rd of intelligence for high school graduates. How good are these individuals ever going to be at ‘abstract thought and mathematical modelling’?

If anything the US isn’t graduating enough plumber, carpenters, mechanics, welder, etc. How often does a guidance counselor sit down with a student today and tell her, yes you can be a mediocre software programmer, but on the other hand a high end welder makes more money?

Brian Donohue April 2, 2013 at 9:33 am

I dunno. This comment section sometimes drips with elitist attitudes of all stripes. People aren’t just a burden to the brainy- each one is a resource and locus of potential.

Maybe “what are we gonna do with all these people?” will be a problem in the future, but it hasn’t been so far, despite centuries of sandwich-boarding on the subject.

Andrew' April 2, 2013 at 10:06 am

Hey, I’m not the one who repressed half the world for a century or making decisions to outsource. I’m the guy who said the first thing the government should do is study its contribution to the fixed cost of employment and make countercyclical regulation the top priority! ;)

John April 2, 2013 at 12:39 pm

Dirk writes:
“Particularly if we consider how many have moved onto “disability” because the available jobs are above their skill level.”

I’m curious, Dirk, how many have done that? Do you have some gfigures?

dirk April 2, 2013 at 1:42 pm
ohwilleke April 2, 2013 at 5:00 pm

Unemployment isn’t the only thing to keep an eye on, but it is a meaningful and important measure. One way to realize that is to acknowledge that policies that shrink the size of the workforce, by encouraging people who can find economic support by other means to stay in or return to school, take time out from work to have children or retire, still sound like sensible economic strategies (indeed, greatly underused ones in the last few years).

Similarly, encouraging employers to have larger work forces by having fewer existing workers work overtime, or shifting to more vacation days per year, and/or by reducing or freezing pay across the board rather than laying off workers, still sounds like a positive choice. Minimizing unemployment rates alleviates suffering in a way that maximizing aggregate payrolls or profits does not.

dirk April 3, 2013 at 2:18 am

Thanks. That’s helpful. I now get the point that “unemployment” measures something specific and that it would be unhelpful to conflate it with other things.

Still, those “other things” seem more important now than they did during the past century.

Steve Sailer April 2, 2013 at 4:30 am

Good thing we let in all those unskilled illegal immigrants just before 2008-2009.

Rahul April 2, 2013 at 5:43 am

Yep.

And naive American businesses have been voraciously hiring unskilled illegals as cashiers, book-keepers, tellers, data entry keyers, file clerks and typists.

Andrew' April 2, 2013 at 6:57 am

That’s a bold statement.

Steve Sailer April 2, 2013 at 6:57 am

And we all know that unskilled illegal immigrants have lots of children who turn out to be solar energy innovators or whatever job Tom Friedman is advising everybody to get this half-year. If unskilled illegal immigrants turn out instead to have only semi-skilled children and grandchildren, that would violate the Declaration of Independence, so we know we don’t have to worry about that.

Rahul April 2, 2013 at 7:27 am

Well, I sure hope that the children of illegals we let in “just before 2008-2009″ are not depressing the job-market yet. That’d be a tad too Dickensian.

Unskilled illegals may be a huge problem or not. But to posit them as causes for the job-crunch described in Tyler’s current post is a total non sequitur.

anon April 2, 2013 at 11:29 am

+1

anon April 2, 2013 at 11:50 am

And we all know that unskilled illegal immigrants have lots of children who turn out to be

We don’t “know” anything about what “unskilled illegal immigrants [who] have lots of children” are capable of. Similar arguments have been made for a long time, e.g., in the late 1800s and early 1900s everyone “knew” we shouldn’t let the Chinese into the US – they dressed funny, ate weird food, were drug addicts, and they didn’t assimilate. Also about the Irish and the Jews and the Poles, etc., etc., ad nauseum.

Maybe we could all learn something from Ronald Coase when he said: “I’ve been wrong so often I don’t find it extraordinary at all.”

Your certainty about these matters is precious.

Steve Sailer April 2, 2013 at 9:08 pm

“We don’t “know” anything about what “unskilled illegal immigrants [who] have lots of children” are capable of.”

I hear this all the time, but for somebody from L.A. like me, it’s just silly and ignorant to say we don’t have any evidence yet.

Telles and Ortiz of the UCLA Chicano Studies Center published in 2008 a longitudinal study of 1500 Mexican-Americans in Los Angeles and San Antonio from 1965-2000: “Generations of Exclusion.” Fourth generation Mexican Americans (i.e, their grandparents were born in America) had a 6% college graduation rate.

j r April 2, 2013 at 1:52 pm

What exactly do we all know? Enlighten us with your encyclopedic knowledge of how dysfunctional brown people are.

Your unearned snark is second only to Prior_Approval in MR’s comment section.

The Anti-Gnostic April 2, 2013 at 3:18 pm

We know that brown people will go to great lengths to avoid living in countries run by other brown people.

@Anti_Gnostic April 2, 2013 at 9:03 pm

for now…

Morgan Warstler April 2, 2013 at 8:51 am

Sailer, is a racist and a bigot. A capitalist thrives turning over rocks looking for deals in the labor market, they don’t worry about Sailer’s lazy kids getting to be lazy.

For the record I can SOLVE illegal immigration, have open borders, get millions to self-deport, put 30M to work, fix the ghetto, and prove there is no great stagnation:

http://www.morganwarstler.com/post/44789487956/guaranteed-income-auction-the-unemployed

Sailer won’t comment, because my plan ruins his hateful bias.

Note him in his hidey hole.

Andrew' April 2, 2013 at 10:30 am

If you want to see the government get competent with breathtaking speed make immigration a revenue source.

The Anti-Gnostic April 2, 2013 at 3:51 pm

That is the wrong way to look at it. ‘Revenue’ hardly makes government competent. Rather, if you want to see an efficient market for trans-national labor movement, then you need to make immigration a matter of private contract rather than letting employers game public policy to privatize the profits and socialize the costs.

The Arab emirates manage to have huge numbers of immigrants relative to their citizens because immigration there is basically a matter of contract with the royal family–the literal owners of the country. The emir’s citizen-subjects don’t have to argue about, e.g., public health for immigrants because there is none. If you bring an employee into the emirate, then it’s up to you to provide health insurance, not the taxpayer. And if your immigrant is dysfunctional or you fire him or he runs up a lot of debt he can’t pay, then he’s on the next plane out.

Rahul April 2, 2013 at 3:56 pm

I like the novelty of this comment. For once someone’s using a role model other than cliched Scandinavia.

UAE! Why aren’t other nations more like it. Indeed.

The Anti-Gnostic April 2, 2013 at 4:12 pm

I don’t know why anyone would ever use Scandinavia as an example of successful immigration policy. The climate is completely unsuited for African and Arab immigrants–they get vitamin D deficiencies and respiratory infections; they commit a huge share of the violent crime including rapes, a classic tactic of more-masculine invaders; and there is very little assimilation which, let’s be frank, really means out-marriage.

S April 2, 2013 at 10:32 am

Sound like you really hate the guy.

Rahul April 2, 2013 at 1:32 pm

Yeah! How odd!

Rahul April 2, 2013 at 4:37 am

>>>US has gained 387,000 managers and lost almost 2m clerical jobs<<<

Don't managers count as "middle"? How is that thinning out of the middle?

Shouldn't a loss of "tellers, data entry keyers, file clerks and typists " be more a thinning at the bottom? I'm always confused as to what counts as middle versus bottom in the American hierarchy.

celestus April 2, 2013 at 8:57 am

Per the article the average income for managers is >$100k. If you look at personal income, that’s no 1% but it’s definitely the 10%. And the average income for clerical is given as $34k, which looks to be about the 60th percentile. So, middle.

joan April 2, 2013 at 5:02 am

As long as you define an income that is 150% of poverty for a family of four as middle class you miss the underlying problem. that is wages (inflation adjusted) are less now than they were 40 years for both clerical worker and home heath aids as well as carpenter,s, truck drivers, factory workers etc.
http://visualizingeconomics.com/blog/2013/3/4/wages

Claudia April 2, 2013 at 6:58 am

“It is often a mistake to think that “cyclical” and “structural” explanations of unemployment are conceptually separate.”

Whether or not it’s straightforward to measure or stick in search models, the distinction is relevant for the appropriate policy response. The Fed’s statutory mandate of promoting “maximum employment, stable prices and moderate long-term interest rates” http://www.federalreserve.gov/faqs/money_12848.htm requires a view on what is structural (maximum) employment. Other types of policies like education, immigration reform, etc would be needed to address structural employment.

Also Vice Chair Yellen’s recent speech (http://www.federalreserve.gov/newsevents/speech/yellen20120411a.htm) provides some contra to the points made in the article (one short excerpt):

“… Some observers question just how large the shortfall from full employment really is and hence worry that further increases in aggregate demand could push up inflation. Their concern is that a large part of the rise in unemployment since 2007 is structural rather than cyclical. I agree that the magnitude of structural unemployment is uncertain, but I read the evidence as supporting the view that the bulk of the rise in unemployment that we saw in recent years was cyclical, not structural in nature. Assessments concerning the degree of slack in the labor market are highly relevant to an evaluation of the appropriate stance of policy, so I’d like to review my reasoning in some detail.”

I agree this is not an easy decomposition plus both the structural and the cyclical are moving targets, but I strongly disagree that it is a mistaken question to engage.

(Also the compression of long and short run planning in a liquidity crunch is making some serious claims about expectations and adjustment, that would be great to see referenced.)

Claudia April 2, 2013 at 7:05 am

Oops that was not a “recent” speech … here’s one from this year: http://www.federalreserve.gov/newsevents/speech/yellen20130211a.htm : Yellen: “I see the evidence as consistent with the view that the increase in unemployment since the onset of the Great Recession has been largely cyclical and not structural.” I would recommend this one if you’re interested in this topic, it’s a very good speech.

PEG April 2, 2013 at 7:28 am

1. So great we encouraged so many people to learn paper pushing in college instead of a trade.

2. Still the best 2:26 minutes of economic policy I know of (especially the last 15 seconds): https://www.youtube.com/watch?v=-PFY-Zm8j0E

anon April 2, 2013 at 11:37 am

+1000

(How did I miss seeing that video before your link? But really should have been bi-partisan.)

Also like your animated gif “showing the rise and fall of music distribution media” here:
http://noosphere.io/2013/02/26/the-rise-and-fall-of-music-distribution-media/

Steve C. April 2, 2013 at 7:51 am

Over the course of my career in management, the amount of my time spent managing v. Administering has declined from 90% to 60%.

Frederic Mari April 2, 2013 at 8:00 am

I am, of course, in the “this is mostly a cyclical issue, with some on-going structural trends dating back forever” camp.

But I am quite willing to compromise to Tyler Cowen’s position and, iirc, Kevin Drum was quoting someone making more or less the same point – i.e. the present crisis is mostly cyclical but exposing some underlying structural issues.

I do have a question, though. “A separate point is that the “structural” features will help determine how much of a nominal wage decline may be required to maintain or restore employment”.

Why do we have to believe that nominal wage declines will suffice to restore employment? I mean, sure, I am willing to employ a lot of people at $0.00/hour but anything else and I’ll have to think twice. I suspect companies are giving slashing costs the priority ( http://theredbanker.blogspot.com/2013/03/refreshing-macro-part-4-profit-matters.html ) and thus the nominal wages decline, far from spurring some investment and growth, will only feed into the morass – a corporate version of the Paradox of Thrift…

David Jinkins April 2, 2013 at 10:42 am

I just saw Andrea Waddle, a graduate student at Minnesota, present a paper making this very point. She has a model in which firms are slowly outsourcing jobs to China, with the slowness due to adjustment costs. When a recession hits, adjusting suddenly becomes cheaper, and a bunch of jobs go abroad, never to come back.

Great minds think alike.

kebko April 2, 2013 at 12:31 pm

I presume that you agree that an improving China is good for the global economy. Do you have a model where a place like China grows and makes the world a better place without having the appearance from the US that ” a bunch of jobs go abroad, never to come back”?

Rahul April 2, 2013 at 1:30 pm

Doesn’t that depend upon how much of a zero sum game growth is. Or is not.

Brian Donohue April 3, 2013 at 9:00 am

Maybe. But growth, real growth, is by definition not zero sum. All else equal, growth is good, growth means more.

Maybe you’re saying “is there a fixed amount of growth to go around?” And the answer, of course, is no. We have ample evidence in human history of long stretches of essentially no growth, and a couple of recent centuries of something else.

kebko April 2, 2013 at 12:27 pm

Does anybody relate personally to the notion of “plunge the American middle class deeper into crisis”? I checked around the Hooverville we are camped in this month, and people here didn’t report such hopelessness about their own prospects, so I think that might be a bit of an overstatement.

Oh, and look! They found some expanding occupations that have lower reported wages than some declining occupations! Because creative destruction is a big scary monster, that’s why. It’s why every town is ringed by a shantytown of former shoe cobblers and typists.

uffy April 2, 2013 at 3:43 pm

They can’t let on that they’re feeling hopeless since their adult children still live with them.

Ethan A April 2, 2013 at 10:57 pm

Modern technology has given rise to many amazing inventions such as smart phones, WIFI, and many other important everyday items that have greatly impacted our lives. Without the advancement of technology we would still be living in the dark, not being able to live out our lives to the fullest. It has helped us gain a large absolute advantage in harvesting food, lumber, and water that our families depend upon for survival. But I do agree that technology can sometimes overstep its boundaries and hinder us instead of aid us. The fact that the United States has lost close to two million clerical jobs since 2007 due to advances in technology is concerning. This loss in jobs such as secretaries and office workers could devastate the middle class. Without these jobs many middle class families will continue to struggle to recover from the depression that hit out country in 2008-2009, therefore also affecting our economy from recovering as well. Although the loss of these jobs does open a door to some whose skills allow for them to take advantage of these new technology’s and advanced careers, the economy will still suffer as a whole. This issue of replacing the middle class American worker with fewer higher skilled workers and newer technology is that it may be more efficient for the business, but it harms the economic recovery by creating structural unemployment.

rosa April 3, 2013 at 1:14 pm

. ‘Revenue’ hardly makes government competent. Rather, if you want to see an efficient market for trans-national labor movement, then you need to make immigration a matter of private contract rather than letting employers game public policy to privatize the profits and socialize the costs.

The Arab emirates manage to have huge numbers of immigrants relative to their citizens because immigration there is basically a matter of contract with the royal family–the literal owners of the country. The emir’s citizen-subjects don’t have to argue about, e.g., public health for immigrants because there is none. If you bring an employee into the emirate, then it’s up to you to provide health insurance, not the taxpayer. And if your immigrant is dysfunctional or you fire him or he runs up a lot of debt he can’t pay, then he’s on the next plane out.

Floccina April 4, 2013 at 3:57 pm

There is all kinds of work that could be done.

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