Job Polarization

Two subjects today: the election and job polarization.

The Election

According to the most recent Gallup poll, registered voters prefer Governor Romney to President Obama 48% to 46%.  But, what’s interesting is that in their poll of likely voters, Governor Romney has a 51% to 45% vote.

Of course, we all know that the popular vote doesn’t matter – it’s the Electoral College that matters.  (Personally, I’m not a fan of the Electoral College at this point.  I don’t like the pandering to the swing states and the fact that voters in some states don’t matter.  For example, Democrats in Texas don’t matter; Republicans in California don’t matter either.)  As a result, President Obama is currently expected to win.  If you look at some of the online markets (where you can bet on the winner), you’ll see that he’s favored to win (60% to 40%).  Of course, some of the states are close (and getting closer) and this could certainly change.

Regardless of which side you’re on, you really should take 20 minutes (yes, I know that’s a long time) and watch both candidates’ presentations from the Alfred E. Smith Dinner.  At this event, each candidate makes a ten minute presentation in which they joke about themselves and each other.  If you go to this link, you’ll find the video of Governor Romney and then a separate video (in the same article) of President Obama.  If you watch this, here’s my prediction…you’ll dislike the “other candidate” (whoever you’re not voting for) less.  Here’s the link.

Employment Polarization and Income Inequality

This week, I read a short Fed paper titled, “Job Polarization and Rising Inequality in the Nation and the New York – Northern New Jersey Region.”  It was written by two New York Fed employees (senior economist Jaison R. Abel and vice president Richard Deitz) – that’s why it also focused on New York and New Jersey.  But, I’m only going to write about the national part.

The reason that this is important is that it describes one of the important problems in the labor market – jobs in the middle are going away.  At the same time, we’re creating high-skill jobs (which is a good thing) and low-skill jobs (that have to be done locally because they are service jobs).   A middle-income lifestyle is becoming more difficult to attain without a college degree.

This is not a problem that will be fixed by economic recovery or growth.  I read another paper (that also just came out) that argued that most of these middle-skill jobs are lost during recessions (and they don’t return during recovery).  So, recovery may stop the losses, but it doesn’t return everything to “the way it was.”   My pessimistic view (and saying “My pessimistic view” might be redundant in my case) is that neither President Obama nor Governor Romney will be able to do anything to change our education system.  The problems are much deeper than how much we spend or what incentives we offer.

With all that said, here are the key ideas from the paper.  As usual, most of this is lifted directly from the paper and represents the authors’ work (not mine):

Economic Forces Behind Job Polarization

1. Over the past three decades, we’ve seen a much larger increase in high-skill jobs and low-skill jobs, but not middle-skill jobs.  This is referred to as job polarization.

2. Technological change and globalization are the two main forces behind polarization.  (Automation and relatively low-cost labor from other countries have displaced routine work done by middle-skill workers.)

3. Technology has generated opportunities for those who create technology or those who use it in their job.  But, middle-skill workers, whose tasks are well defined and easily codified, have been displaced by technology.

4. Middle skill jobs in manufacturing have been displaced by lower cost labor.

5. Low-skill jobs have been protected because many service jobs require physical proximity or face-to-face contact.

6.  In addition to globalization and technology, a third factor has driven the polarization.  The third factor is the increase in demand for services (as the U.S. has become richer).  Middle-skill jobs are often goods-producing.  High-skill and low-skill jobs are often service jobs. (Health care is a good example.)  Service sector jobs are less susceptible to displacement by technology or global competition.

Job Polarization in the United States

1. High skill jobs tend to require cognitive skills, abstract thinking, coordination of activity and decision making.   See Chart 1 below.

2. Middle-skill jobs are susceptible to displacement.

3. From 1980 – 2010, the number of jobs doubled for the high-skill group and nearly doubled for the low-skill group.  By contrast, the upper-middle group grew at 46% and the lower-middle skill grew by 20%.  See Chart 2 below.

The Widening Gap in Wages

1. The gap in wages between those at the top of the skill distribution and those at the bottom has widened.  This has largely been driven by wage growth for the highest paid group.  See Chart 4 below.

2. Workers in the high-skill group increased productivity.  Technology and globalization have complemented the tasks they perform.

3. In addition, the supply of college graduates has failed to keep pace with growing demand for them.   (This has also led to higher wages for high-skilled workers.)

4. Low skill wages have actually increased more than middle-skill wages.  If middle-skill workers start looking for low-skill jobs, that extra supply should push wages down.  But, their higher productivity may warrant higher wages.  In addition, higher demand for services may increase wages.

One final note about the paper…it seems to me that the paper classifies jobs as high, middle or low-skill based on the salary that job pays.  I’m not sure that this is perfect.  For example, I’m not sure that I would classify public school teachers as middle-skill.  Rather, I think that there salaries are commensurate with higher-skill workers, but they are adjusted lower for the fact that they don’t work summers (and their pensions have historically been more generous).

Have a great week.

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