Thursday, October 23, 2014

Amid job gains, a muddled economic portrait

There’s a vicious cycle at work. Low confidence dampens hiring; this weakens the recovery and undermines confidence.

Posted on June 18, 2014 at 4:16 p.m.

Last week, I pointed out that the job market is sending mixed signals. On the one hand, it’s clearly improved. We’ve passed the pre-recession employment peak. There are 8.8 million more jobs than at the low point. The unemployment rate has dropped to 6.3 percent. At the same time, the number of unemployed, 9.8 million, remains high, and 7 million people who have dropped out of the labor force — they’re not looking for work — say they would like a job. Another 7.3 million part-time workers say they’d like more hours.

Definitely a mixed picture.

There’s also a second aspect to this muddled portrait — job quality. Critics have argued that the increase in employment has occurred disproportionately among low-paid workers. Job gains, it’s said, are concentrated in low-wage sectors: fast-food restaurants, retail stores, hotels and temporary help.

“As a result of unbalanced employment growth, the types of jobs available to unemployed workers, new labor market entrants, and individuals looking to move up the career ladder are distinctly different today than they were prior to the recession,” says a widely cited analysis from the National Employment Law Project (NELP), a left-leaning research and advocacy group.

The NELP compared industries with low hourly wages (from $9.48 to $13.33), mid-level wages ($13.73 to $20) and high wages ($20.03 to $32.62). It found that low-wage sectors accounted for 44 percent of job growth from February 2010 — the low point in employment — until April 2014. This was double the share of lost low-wage jobs, 22 percent, during the Great Recession. By contrast, job increases in mid-wage and high-wage industries were only 26 percent and 30 percent of the total, much lower than their shares of job losses, 37 percent and 41 percent.

Two things seem to be occurring here.

First, there’s a long-term, gradual shift toward low-wage jobs. All sectors seem to expand over time, but low-wage jobs are increasing at a faster pace. In December 2000, low-wage jobs accounted for 32.6 percent of all private-sector employment; by April 2014, the share was 35.4 percent. Over the same period, the high-wage share slipped from 33.7 percent to 32.7 percent. Because there’s turnover among existing workers, the choices facing job candidates are less skewed than implied by new employment alone.

Second, hiring patterns in this recovery aren’t exceptional. Firms with low-wage workers have regularly represented a higher share of new jobs in recent decades — that’s why their proportion of overall employment has crept up. Economist David Altig of the Federal Reserve Bank of Atlanta examined recoveries back to 1970 and found that low-wage industries “have consistently produced 40 percent to 50 percent” of job gains. However, the share in this cycle is on the high side, he noted.

One reason, says the NELP, is that the financial crisis hit some well-paying jobs in housing, finance and construction especially hard. They haven’t fully recovered. But low-wage employers may also be more flexible, says NELP policy analyst Mike Evangelist. They can adjust their workforces more quickly to changing demand.

“It’s not surprising that these firms are adding workers,” he says. “These workers are somewhat disposable. [Companies] can hire them quickly and get rid of them quickly.” Training expenses are not high; wages and fringes are by definition modest. Turnover is high, so companies can often achieve reductions without firing workers. The reluctance of companies to add higher-paid workers with steeper training costs may reflect a lack of confidence in the recovery.

There’s a vicious cycle at work. Low confidence dampens hiring; this weakens the recovery and undermines confidence. More high-paying jobs would be helpful in their own right. They would reduce anxiety and raise purchasing power. As important, they might signal that businesses — finally — think the recovery is for real.

Robert Samuelson writes a weekly economics column for The Washington Post.

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