October 25, 2010

The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and Earnings – Summary of article by David Autor

The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and Earnings

David Autor, MIT Department of Economics and National Bureau of Economic Research

The Hamilton Project

Introduction:

“Between December 2007, when the U.S. housing and financial crises became the subject of daily news headlines, and March of 2010, the latest period for which data are available, the number of employed workers in the United States fell by 8.2 million, to 129.8 million from 138.0 million. In the same interval, the civilian unemployment rate nearly doubled, to 9.7 percent from 5.0 percent, while the employment-to-population ratio dropped to 58.6 percent from 62.7 percent—the lowest level seen in more than 25 years. Job losses of this magnitude cause enormous harm to workers, families, and communities.

A classic study by economists Lou Jacobson, Robert LaLonde, and Daniel Sullivan found that workers involuntary displaced by plant downsizings in Pennsylvania during the severe recession of the early 1980s suffered annual earnings losses averaging 25 percent, even six years following displacement. The nonpecuniary consequences of job losses due to the Great Recession may be just as severe. Studying the same group of workers with the benefit of 15 more years of data, labor economists Daniel Sullivan and co-author Till Von Wachter show that involuntarily job displacement approximately doubled the short-term mortality rates of those displaced and reduced their life expectancy on average by one to one and a half years. Thus, long after the U.S. unemployment rate recedes into single digits, the costs of the Great Recession will endure.

Despite the extremely adverse U.S. employment situation in 2010, history suggests that employment will eventually return and unemployment will eventually subside. But the key challenges facing the U.S. labor market—almost all of which were evident prior to the Great Recession—will surely endure. These challenges are two-fold. The first is that for some decades now, the U.S. labor market has experienced increased demand for skilled workers. During times like the 1950s and 1960s, a rising level of educational attainment kept up with this rising demand for skill. But since the late 1970s and early 1980s, the rise in U.S. education levels has not kept up with the rising demand for skilled workers, and the slowdown in educational attainment has been particularly severe for males. The result has been a sharp rise in the inequality of wages.

A second, equally significant challenge is that the structure of job opportunities in the United States has sharply polarized over the past two decades, with expanding job opportunities in both high-skill, high-wage occupations and low-skill, low wage occupations, coupled with contracting opportunities in middle-wage, middle-skill white-collar and blue-collar jobs. Concretely, employment and earnings are rising in both high education professional, technical, and managerial occupations and, since the late 1980s, in low-education food service, personal care, and protective service occupations. Conversely, job opportunities are declining in both middle-skill, white collar clerical, administrative, and sales occupations and in middle-skill, blue-collar production, craft, and operative occupations. The decline in middle-skill jobs has been detrimental to the earnings and labor force participation rates of workers without a four-year college education, and differentially so for males, who are increasingly concentrated in lowpaying service occupations.

This paper analyzes the state of the U.S. labor market over the past three decades to inform policymaking on two fronts. The first is to rigorously document and place in historical and international context the trajectory of the U.S. labor market, focusing on the evolving earnings, employment rates, and labor market opportunities for workers with low, moderate, and high levels of education. The second is to illuminate the key forces shaping this trajectory, including:

  • The slowing rate of four-year college degree attainment among young adults, particularly males
  • Shifts in the gender and racial composition of the workforce
  • Changes in technology, international trade, and the international offshoring of jobs, which affect job opportunities and skill demands
  • Changes in U.S. labor market institutions affecting wage setting, including labor unions and minimum wage legislation

The causes and consequences of these trends in U.S. employment patterns are explored in detail below, but the main conclusions can be summarized as follows:

  • Employment growth is polarizing, with job opportunities concentrated in relatively high-skill, high-wage jobs and low-skill, low-wage jobs. 
  • This employment polarization is widespread across industrialized economies; it is not a uniquely American phenomenon.
  • The key contributors to job polarization are the automation of routine work and, to a smaller extent, the international integration of labor markets through trade and, more recently, offshoring.
  • The Great Recession has quantitatively but not qualitatively changed the trend toward employment polarization in the U.S. labor market. Employment losses during the recession have been far more severe in middle-skilled white- and blue-collar jobs than in either high-skill, white-collar jobs or in low-skill service occupations.
  • As is well known, the earnings of college-educated workers relative to high school-educated workers have risen steadily for almost three decades.
  • Less widely discussed is that the rise in the relative earnings of college graduates are due both to rising real earnings for college workers and falling real earnings for noncollege workers—particularly noncollege males.
  • Gains in educational attainment have not generally kept pace with rising educational returns, particularly for males. And the slowing pace of educational attainment has contributed to the rising college versus high school earnings gap.”

 

Read the whole paper at the Brookings Institute website.

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