Where Have All The Good Jobs Gone?

As Labor Day approaches, the economy is generating jobs--4 million since President Clinton was elected--but too few good ones. If anything, the trends of the 1980s have intensified: astronomical earnings gains for the economy's superstars. In the middle: relentless downsizing, with new pressures on once-secure professionals as well as depletion of solid blue-collar jobs. At the bottom: growing part-time and temporary hires, low-wage jobs in services, especially retailing, and dismal starting wages.

Economists disagree about the cause and cure of these trends. For Harvard economist Robert Z. Lawrence and Stanford University's Paul R. Krugman, writing in the April Scientific American, the loss of good jobs is mainly a story of "technological shocks"--rising productivity in manufacturing replacing workers with machines.

But unlike the earlier shift from farm to factory, the total supply of good jobs has not increased because the service-sector jobs that replaced factory jobs often have lower productivity rates. In the Lawrence-Krugman analysis, trade is mostly irrelevant, as is the structure of industry.

This view is challenged in the Brookings Papers on Economic Activity by Harvard economists Jeffrey D. Sachs and Howard J. Shatz, who acknowledge the role of trade in eroding high-paying manufacturing jobs and wages.

Other economists emphasize structural changes in the economy. Lawrence Mishel and Jared Bernstein of the Economic Policy Institute, David Howell of the New School for Social Research, and Edward Leamer of the University of California at Los Angeles, believe that a combination of new global competition, deregulation of the domestic economy, lower minimum wages, and weaker unions have altered the historic balance of bargaining power between management and labor. The effect of trade is not just on the jobs it displaces directly, as Lawrence and Krugman contend, but on the entire wage structure.

JANITORS AND CLERKS. If this argument is correct, simply raising the skill level of the American worker won't solve the problem of bad jobs and bad wages. "Skill levels are up, but compensation is down," Mishel says. "Productivity is rising, but the median wage is falling."

Mishel and Howell document evidence of a decline of what economists call "return-to-skills." Workers, they argue, have become better educated and trained but are not being rewarded for it as reliably as in the past. Mishel reports that "since 1989, college-educated workers are no longer increasing their advantage over other workers." Further, say Mishel and Howell, there is little evidence that industry is adding technology or increasing demands for skills at rates faster than in the past.

So the question remains: Is the problem of good jobs mainly one of human capital--a deficiency of skills that workers offer employers? Or is it on the demand side, with "bad" jobs and wages being offered by employers? Or is it also structural, with institutional changes in the economy permitting employers to capture the benefits of freer global markets without having to share them with employees?

In the human-capital view, there is a mismatch between workers' low skills and the advanced skills demanded by the high-tech economy. But according to the Bureau of Labor Statistics, the occupational categories generating big job numbers are the same depressing ones of the past decade--fast-food worker, janitor, retail sales clerk. Nor does supply create its own demand. If we suddenly doubled the number of engineers, we wouldn't have more engineering jobs, only a glut of engineers.

MIDLIFE CRISES. In his most recent paper, Lawrence agrees that economists who stress technology must also look harder at "labor-management relations and work organization." A generation ago, employees were sometimes overpaid relative to their "worth," thanks to unions, higher minimum wages, and corporate norms about rewarding loyal service. But the 1990s are weak on loyalty or sentimentality. Middle managers speak bitterly of the "50-50 rule." If you are over 50 years of age and you make more than $50,000, your job is at risk.

Today's labor market is more like a textbook free market. That implies more efficient deployment of resources and higher growth. But paradoxically, in the bad old days of "rigid" labor markets, rates of productivity and overall economic growth increased at nearly twice the rate of the past two decades. Those "rigidities" also yielded social contracts, job security, and a living wage--which translated into reliable purchasing power, hence reliable capital investment, and higher growth.

So what should policymakers do? If you believe the problem is mainly one of skills, we need a heroic effort to upgrade education and training. If trade and union-bashing have eroded employee bargaining power, the answer is a new workplace contract, more symmetrical trade rules, and labor-law reform. And if slow growth has caused productivity gains to displace jobs rather than raise living standards, the Federal Reserve should reconsider its aversion to growth. My own view is that we need progress on all three fronts.

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