(Bloomberg Opinion) -- A hallmark of the U.S. economy’s record expansion has been steady growth in employment. Judging from the jobless rate, in fact, the labor market is the best it’s been in half a century. But what is missing in the focus on the numbers is a severe and troubling deterioration in the quality of jobs created.
A close look at labor trends in recent decades reveals that while the U.S. jobs market has expanded, the caliber of the positions created in the largest chunk of the workforce has steadily and significantly declined, leaving Americans working fewer hours on average, and in lower-paying positions. These changes to what we call job quality as distinguished from quantity — which largely align with the growth in the service economy at the expense of manufacturing — account for much that now ails the American economy and, as a consequence, society more broadly.
Until now, good metrics for tracking this aspect of U.S. employment have been lacking. And so we at Cornell University — alongside a team drawn from the University of Missouri Kansas City, the Coalition for a Prosperous America, and the Global Institute for Sustainable Prosperity — developed a new index for assessing the underlying health of the jobs market. The Cornell-CPA U.S. Private Sector Job Quality Index tracks the ratio of high-wage/high-hours jobs to low-wage/low-hours jobs on a monthly basis, going back to 1990 (the earliest date for which comprehensive data is available). We use weekly income as our measure of quality because what matters to employees, their families, and our broader economy is what workers take home from their jobs every week, not just what they earn every hour over the fewer hours they work.
What does the index show? Since 1990, the index has steadily fallen. It has done so by as much as 16.1% at the nadir of the financial crisis and lingers to this day at 14.4% below 1990. Much of this decline stems from a change in the mix of available jobs in America, but much also stems from the reduction in the number of hours of work available on jobs in many sectors. Unpacking both of these phenomena – changes in what people do on the job and changes in how many hours of work their jobs afford them – is instructive.
The most prominent change to the U.S. private sector job situation in recent decades is the dramatic loss of goods-producing jobs – something that most Americans are at least intuitively aware of. Back in the 1960s, 42% of private-sector production and non-supervisory jobs (the largest part of the labor market) involved manufacturing, construction, or mining and logging – in short, making things. Today, that figure stands at a mere 17% of these P&NS positions.
As our “making” economy miniaturized, our service economy grew as a percentage of overall jobs. This occurred steadily all the way until the Great Recession of 2007-2009, when something unprecedented happened: service jobs plateaued at around 83% of all P&NS jobs. Essentially, the U.S. hit “peak service” – the maximum share of jobs that the service economy could provide, given the obvious necessity that at least some jobs remain in the domestic goods-producing sectors. But we haven’t reached quality’s nadir – for within the services sector, job quality still is declining.
Increasingly, a greater share of job gains are occurring within the lowest quality job subsectors – in particular retail, leisure and hospitality, administrative, waste management, and health-care and social assistance services. While not all the positions in these subsectors are low quality, both the average job and the vast majority of the positions in these subsectors offer less than the mean weekly income of all U.S. P&NS jobs. In fact, the percentage of P&NS jobs created in just these four subsectors corresponds almost exactly to the percentage of goods-producing jobs lost in America from 1990 through today. We have, in other words, replaced most of our highest quality jobs not merely with lower quality jobs, but with lowest quality jobs.
One particularly telling comparison is emblematic of the change: In 1990, with 80 million fewer people than today, the U.S. had 12.7 million manufacturing jobs (not including construction and natural resources) and 5.9 million jobs in eating and drinking establishments. Today, with a population one-third larger than in 1990, the country has only 9 million manufacturing jobs and 10.7 million jobs preparing and serving food and beverages. The average weekly income yielded by these jobs is $373, compared to $922 for manufacturing.
Taken together, the large and still growing number of low-quality jobs offer an average of only 30 hours of work a week, while the dwindling number of high-quality jobs offer an average of 38.3 hours of work per week. It is worth thinking about what this implies in the aggregate: Were all current low-quality jobs offering the same number of hours per week as high-quality jobs, it would be the equivalent of creating 12.6 million new jobs (11% of the existing P&NS jobs base).
In other words, headline unemployment might be low, but effective under-employment of Americans, measured by the quality of their jobs in the private sector, is rampant and still worsening. U.S. labor is in this sense being devalued via systemic underutilization. And, unsurprisingly, this devaluation has fallen hardest on the holders of low-quality jobs – now the majority cohort. If you wonder where flagging effective demand, growing private-sector debt, and still worsening inequality and populist outrage are coming from, you need look no further.
This underutilization is showing up in increasing income inequality. In earlier periods, incomes of the low- and high-quality cohorts grew at roughly the same rate, however disparate their levels relative to each other. But beginning around 2003, the growth in income of the ever-smaller high-quality cohort took off and is currently still accelerating relative to incomes from lower quality jobs. Even with hourly wages in the lower-quality sectors recently showing some welcome signs of life relative to those in high-quality sectors, the increasing number of low-quality jobs with limited hours is a big drag, which shows up in our job quality index.
What led us here? Globalization and outsourcing of manufactured goods is certainly one culprit. But our decades-long curtailment of federal spending on repairing and building new domestic infrastructure, with all the well-paying construction and materials manufacturing jobs that such spending entails – certainly hasn’t helped. Whatever the causes, they should concern us all. When workers are denied access to real full-time employment, they find themselves direly deprived even of basic security, let alone dignity.
Some pundits will no doubt attribute changing jobs landscape to the advent of a “gig-economy” – a meme that has gained currency with the media – in which workers are holding down multiple jobs. But the data does not bear this out. Today, the percentage of multiple jobholders in the U.S. is at or below 5% of all workers, near historic lows.
To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Alpert is founding managing partner of Westwood Capital and a senior fellow and adjunct professor at Cornell Law School’s Jack G. Clarke Institute for the Study and Practice of Business Law.
Robert C. Hockett is the Edward Cornell Professor of Law at Cornell Law School, a senior consultant at Westwood Capital and a founding director of the Program on the Law and Regulation of Financial Institutions and Markets at the Clarke Institute.
©2019 Bloomberg L.P.