Amy Valle is caught in a labor-market recovery that’s forcing some Americans to settle for less. Before she lost her job as a full-time health-department case worker last November, she was making $23 an hour. Now she’s paid $10 an hour as a part-time assistant coordinator in an after-school program.
“From here on out, it will be a struggle,” said Valle, 32, whose husband lost his $50,000 government job and still is out of work after a year. “I don’t feel like there’s any place we can go to get what we were getting paid.”
The improvement in the unemployment rate to 9 percent in January from a two-decade peak of 10.1 percent in October 2009 masks a new reality: Many of the jobs people are taking as the economy rebounds offer lower pay, fewer hours and worse benefits than some of the 8.75 million positions that disappeared because of the recession, according to Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto.
This may restrain income growth, limiting bigger gains in consumer spending, which accounts for about 70 percent of the U.S. economy. It also underscores Federal Reserve Chairman Ben S. Bernanke’s contention that wages, which increased 1.7 percent on an average hourly basis last year, have acted as a constraint on inflation, allowing the central bank to keep interest rates at record lows to sustain growth.
“In the last recovery, we were adding management jobs at this point, and this time it’s disappointing,” said Ashworth, who published a report on Jan. 27 about pre- and post-slump employment based on data from the Bureau of Labor Statistics. “The very best jobs, we’re still losing those.”
Projections from the bureau reinforce his pessimism. While the number of openings for food preparation and serving workers, including those at fast-food restaurants, will grow by 394,300 in the decade ending in 2018, the median wage is only $16,430 including tips, based on 2008 data. Meanwhile the number of posts for financial examiners, who earn $70,930, will expand by just 11,100.
“We have to be sad that the economy has suffered a diminution of its power to create high-paying and more interesting jobs,” said Edmund Phelps, who won the Nobel Prize for economics in 2006 and directs the Center on Capitalism and Society at Columbia University in New York.
Lowe’s Cos., the second-biggest U.S. home-improvement retailer, typifies the reshuffling of the U.S. workforce. The Mooresville, North Carolina-based chain said Jan. 25 it is eliminating 1,700 managers responsible for store operations, sales and administration as profit growth trails that of larger Home Depot Inc. in Atlanta. Meanwhile, Lowe’s said it will add 8,000 to 10,000 weekend sales positions and is creating a new assistant store manager position.
Such shifts are one reason why many households remain frugal, even as their spending is forecast to grow 3.2 percent this year, compared with 1.8 percent in 2010, according to the median forecast of economists surveyed by Bloomberg News from Feb. 2 to Feb. 8. A more-robust labor market would provide an even bigger lift, according to Ashworth.
“In addition to the paucity of net jobs being created, the poor quality of those jobs is another reason to expect income growth to remain muted, which in turn will constrain consumption,” he wrote in the Jan. 27 report.
Valle in Oswego, Illinois, is having trouble keeping up with the monthly bills now that she’s earning much less than the $41,860 a year she got at her old job. She has eliminated the telephone land line, cut back on cable TV and reduced food spending.
“We can maintain like this for a while, but I’ll get real nervous if my husband has his unemployment insurance taken away,” she said.
‘Tried and True’
Consumers also are becoming more picky, with “trusted, tried and true” brands poised to benefit, such as Cupertino, California-based Apple Inc., Nike Inc. in Beaverton, Oregon, and Dearborn, Michigan-based Ford Motor Co., said Marshal Cohen, chief industry analyst at market researcher NPD Group Inc. in Port Washington, New York.
Sixty-four percent of respondents to NPD surveys are looking for such brands and only 36 percent want to experiment, a significant change from before the economic slump, when 57 percent were looking to experiment, Cohen said.
“During the recession, the consumer would buy the cheapest paper towel they could find,” he said. “Now that they’re emerging out of it, what you’re seeing is a return back to trusted products, saying ‘I want my Quicker Picker-Upper,’” referring to the marketing slogan for Bounty paper towels, a brand of Cincinnati-based Procter & Gamble Co.
Even though the economy began expanding in the third quarter of 2009, private employers continued to cut workers through February 2010. Companies last year eliminated about 550,000 jobs in management and 250,000 in construction, occupations with average hourly salaries of $38.34 and $21.03, according to Ashworth. In the same period, businesses added about 900,000 positions in production and 500,000 in services, which average $16.27 and $11.57.
The trend is troubling for the country’s long-term prospects, Phelps said.
“Businesses aren’t innovating as much, they’re not as forward-looking as they used to be,” so companies that “find a reason to pay pretty well just don’t seem to require all those relatively high-paid workers they once did,” he said.
The health-care industry is one example, the BLS said in a December report on the occupational outlook. As costs continue to rise, “tasks that were previously performed by doctors, nurses, dentists or other health-care professionals increasingly are being performed by physician assistants, medical assistants, dental hygienists and physical-therapist aides.”
Bernanke and the Fed’s Open Market Committee are waiting for proof of a durable pickup in employment as they continue their plan to buy $600 billion in Treasury securities through June and keep the benchmark federal funds rate near zero. With about 13.9 million people out of work in January, the labor-force participation rate has fallen to the lowest level since 1984, and 6.2 million people have been looking for jobs for more than half a year, according to the Labor Department.
It will be “several years before the unemployment rate has returned to a more normal level,” because output growth likely will “be moderate for a while” and businesses are “reportedly still reluctant to add to their payrolls,” Bernanke told the House Budget Committee on Feb. 9.
Michael Greenstone, a former staff member for the White House Council of Economic Advisers, says it’s “premature to “make too much of where the particular job creation is occurring,” because the “immediate issue is that there are too many people” out of work.
‘Scourge of Society’
“I’m not in favor of ditch-digging, but the first thing is to get more people employed,” said Greenstone, an economics professor at the Massachusetts Institute of Technology in Cambridge and director of the Brookings Institution’s Hamilton Project in Washington. “Unemployment is a scourge of society right now, and it has to be the front and center issue.”
Job hunters are adapting to the new reality, with 60 percent prepared to settle for a full-time position they don’t really want, said Dennis Jacobe, chief economist for Washington-based Gallup, according to a survey he conducted last month.
Ken Niswonger, 51, a machine builder by training, spent five months on the hunt for work after losing his job in October 2009. Unable to find anything in his field, he enrolled in a college computer-security program to learn new skills.
“I’m hoping I can find something entry-level,” he said, adding that he’ll have to begin his search for an information-technology job before he completes his program. “I’m well aware I might not get what I used to make,” he said. “Who knows? Might get a job at $12-14 an hour; that’s not even $30,000 a year.”