Opinionator: Are the Good Jobs Gone?

Tom Edsall on politics inside and outside of Washington.

Among those paying serious attention to the economic dilemmas facing the United States and other advanced nations, uncertainty is the only constant.

President Obama faces powerful forces not under his control. The susceptibility of these forces to governmental action is hard to fathom, and in any case many of the best ideas appear to be politically impossible. What can he do? He will have to gamble more on the adaptability of American workers and their employers to achieve the core of his agenda than on his constrained ability to legislate.

Instead of attempting to win approval of a massive overhaul of public and private sector practices, Obama is likely to use the bully pulpit to try to establish a climate of public opinion more favorable to major public intervention.

Obama outlined his goals in his second inaugural address:

For we, the people, understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it. We believe that America's prosperity must rest upon the broad shoulders of a rising middle class. We know that America thrives when every person can find independence and pride in their work; when the wages of honest labor liberate families from the brink of hardship.

Economists are of many minds on the question of whether government policies can reverse negative trends.

David Autor, an economist at M.I.T., argued in an email to The Times that "we're not going to rapidly reverse the tide with any conceivable policy that a mainstream political party or even a mainstream economist would adopt." Autor believes that "middle-skill jobs," the source of employment crucial to lessening inequality and enhancing economic and social mobility, "are not," as some argue, "slated to disappear."

In a paper, "The Task Approach to Labor Markets: An Overview," Autor writes:

To take one prominent example, medical paraprofessional positions—radiology technicians, phlebotomists, nurse technicians, etc.—are a numerically significant and rapidly growing category of relatively well-remunerated, middle skill occupations. While these para-professions do not require a college degree, they do demand one to two years of post-secondary vocational training.

The middle-skill jobs that are likely to grow, Autor says,

will combine routine technical tasks with the set of non-routine tasks in which workers hold comparative advantage—interpersonal interaction, flexibility, adaptability and problem solving. Medical para-professions are one leading example of this virtuous combination, but this example is not a singularity. This broad description also fits numerous skilled trade and repair occupations—plumbers, builders, electricians, HVAC installers, automotive technicians—marketing occupations, and even modern clerical occupations that provide coordination and decision-making functions rather than simply typing and filing.

Along similar lines, Lawrence Katz , an economist at Harvard, wrote in response to an emailed inquiry from The Times:

This is not the first wave of (wage) polarization (resulting from) technological change. Economic history suggests educational and institutional advances can allow for balanced prosperity in the face of such changes in labor demand. Of course, it is less clear today whether economic history is a better guide to the future than science fiction stories about robots and new technologies that range from Star Trek positive to a world of dystopian futures. I would probably bet on economic history but it will require new educational advances on the scale of inventing the modern high school in the early 20th century, providing universal access without tuition and rethinking labor market institutions to support "high road" strategies by firms.

Adaptation to market pressures is a common theme today among economists. Michael Spence, an economist at N.Y.U. who won a Nobel Prize in 2001, recently wrote in a Project Syndicate column:

In fact, it is possible that we are entering a period in which major adaptations in employment models, work weeks, contract labor, minimum wages, and the delivery of essential public services will be needed in order to maintain social cohesion and uphold the core values of equity and intergenerational mobility.

In response to a follow-up inquiry, Spence wrote that he is

pessimistic and uncertain in the short term because the adaptations are large. Public sector investment is likely to be lower than it should for a considerable period because of fiscal constraints and problems. Longer term, I think values will shift, people will invest in being better prepared for the new work environment.

Kenneth Rogoff, also an economist at Harvard, places his faith in the restorative power of market forces, acknowledging that

until now, the relentless march of technology and globalization has played out hugely in favor of high-skilled labor, helping to fuel record-high levels of income and wealth inequality around the world.

Rogoff goes on to argue, however, that technology may work in the future to reduce income inequality, especially in the field of education:

Surely, higher education will eventually be hit by the same kind of sweeping wave of technology that has flattened the automobile and media industries, among others. If the commoditization of education eventually extends to at least lower-level college courses, the impact on income inequality could be profound.

In addition, Rogoff writes:

Many commentators seem to believe that the growing gap between rich and poor is an inevitable byproduct of increasing globalization and technology. In their view, governments will need to intervene radically in markets to restore social balance. I disagree. Yes, we need genuinely progressive tax systems, respect for workers' rights, and generous aid policies on the part of rich countries. But the past is not necessarily prologue: given the remarkable flexibility of market forces, it would be foolish, if not dangerous, to infer rising inequality in relative incomes in the coming decades by extrapolating from recent trends.

Changes forced by market pressures, according to Rogoff, will not be easy to take:

Many (if not necessarily all) central banks will eventually figure out how to generate higher inflation expectations. They will be driven to tolerate higher inflation as a means of forcing investors [to put their money] into real assets, to accelerate deleveraging, and as a mechanism for facilitating downward adjustment in real wages and home prices.

The reduction in the number of mid-range jobs — a reduction that restricts mobility and increases inequality – results from factors now deeply ingrained in the marketplace which do not lend themselves to obvious remediation.

In an article that will soon be published in the American Economic Review, "The Growth of Low Skill Service Jobs and the Polarization of the U.S. Labor Market," Autor and David Dorn, at the Center for Monetary and Financial Studies, show the continuing decline in mid-skill mid-pay jobs, and the growing segmentation of the employment marketplace into high and low-end jobs.

Fig. 1

Panel A shows the growth in the number of high and low end jobs, in contrast to the decline or stagnation in the growth of middle-range jobs. Panel B shows that pay has increased substantially at the high end, moderately at the low end and very little in the middle.

These workforce developments are now a worldwide phenomenon. This suggests that adaptations to the current asymmetry in wage distribution will be challenging.

Andrew McAfee of M.I.T. provided me with new data and charts showing sustained productivity gains accompanied by declining manufacturing employment in countries as diverse as the United States (Figure 2) and China (Figure 3).

Fig. 2.

The red line tracks the number of employees in industrial production in the United States from 1972 to the present, and the blue line tracks productivity (output per hour) gains.

Fig. 3

The blue line tracks manufacturing employment in China from 1990 to 2008 and the red line tracks gains in manufacturing value added in billions of dollars.

Figure 4 illustrates how productivity (blue line) and real G.D.P. (grey line) have steadily outpaced increases in employment (red line) and median household income (green line) over the six decades from 1953 to 2011.

Fig. 4.

Obama's assault on inequality and on the lack of employment growth has encountered stubborn resistance and has failed so far to meaningfully address the divergence between the top .01% and everyone else.

Annie Lowrey pointed out in The Times last week that despite Obama's legislative successes, inequality has worsened during his administration. His successes include winning passage of the Affordable Care Act, which will provide health care to some 30 million largely poor men, women and children; legislation raising the top income tax rate from 35 to 39.6; an increase in the tax rate on unearned income that flows largely to the affluent; and an extension of the earned income tax credit for the working poor.

To those who say Obama has not done enough for the poor, his current budget proposal calls for:

A minimum wage increase from $7.25 to $9 an hour indexed to inflation.
Creation of a "preschool for all" that would provide education to low and moderate income 4-year-olds.
An end to the "carried interest" tax provision benefiting hedge fund operators.
Making the American Opportunity Tax Credit, which helps people pay college tuition, permanent.

Nonetheless, the measures Obama has seen enacted, and those he has proposed, are inadequate to deal with the forces driving the gap between rising productivity and the stagnant or falling standard of living of the majority of American workers.

Despite the president's efforts, Lowrey writes, "the plight of the middle class has gotten worse since Mr. Obama took office." Real median income is eight percent below pre-recession levels and middle-class jobs continue to be replaced by low-wage jobs. Research by the National Employment Law Project shows that "low-wage occupations account for 21 percent of job losses during the recession and 58 percent of job growth during the recovery" while "middle-wage occupations account for 60 percent of recession losses and only 20 percent of recovery growth." At the top, research updated on Jan. 23, 2013 by Emmanuel Saez, an economist at the University of California, Berkeley, "shows that the real income of the 99 percent has fallen during the recovery, but surged 11 percent for the top 1 percent of earners."

Obama is unlikely to achieve top-rank historic status based on his legislative agenda. What he does have is a shot at using the platform of the presidency to jumpstart the process of economic adaptation by strengthening public awareness. People need to understand that the economic problems facing the country – wage polarization, inequality and lost middle class jobs – are structural, not just cyclical.

As consciousness of the depth and scope of the difficulties facing this country and other developed countries grows, their populations will be more receptive to exploring and testing the kind of institutional changes in education, fiscal policy and corporate employment practices that have the potential to restore and widely distribute the benefits of growth.

Obama's legislative record may not be on the scale of the New Deal or of the Great Society. After his success with health care legislation, his mark will rest instead on shifting the national mindset. As a political candidate, Obama has played a crucial role in the creation of a solidified progressive coalition. As president, he has more power than anyone else to set the terms of the national debate. He can nurture greater empathy for workers, encourage majoritarian opposition to the conservative anti-regulation-anti-tax agenda, and reactivate dormant instincts of self-determination among the previously marginalized. It won't be the first time he has faced long odds.