2012 September 09 Sunday
Job Growth Out Of Recession Concentrated At Bottom

What declining living standards look like:

While a majority of jobs lost during the downturn were in the middle range of wages, a majority of those added during the recovery have been low paying, according to a new report from the National Employment Law Project.

I've seen this report spun against the theory of the rise of the Zero Marginal Product (ZMP) Worker (workers too useless to be worth employing) I think this pattern is consistent with the ZMP problem. I can see two explanations why: First, it makes more sense for employers to automate the higher paying jobs first if the cost per hour saved is similar. Automate the $20 per hour manual labor job and leave the $9 per hour manual labor job for when the cost of automation drops even further. Second, some of the higher paying jobs became lower paying when demand for them dropped.

Over the last 40 years more people moved up than down as the middle class hollowed out. But the more recent pattern (see above) has been for a growth in jobs at the bottom. I see this as a last step until (increasingly nimble) robots get so cheap that robots become cheaper than minimum wage fast food kitchen workers. Human laborers at McDonald's will become even more sparse than as human laborers at gasoline stations. You'll key in your order, slide a card, and in a few minutes food will slide down out of an opening.

I think manufacturing provides a picture of what the future will be like. In manufacturing only employment for advanced degrees increased and employment for those with bachelors degrees went down by a fairly small amount. Below the bachelors degree level employment plummeted and continues a sharp descent.

Update: Here's another curious fact about the US economy: most of the employment growth is for older workers. That paints a bleak picture for younger workers.

Since January 2010, job seekers age 55 and up have accounted for 70 percent of all employment gains in the US. Viewed over the past decade, the pattern is even more stark. That older group has added some 10 million employees to its ranks, even as employment among other age groups has actually declined by more than 4 million.

What I'd like to know: Are skilled older workers winning over less skilled younger workers? Why the disproportionate job growth for the older? Desperation due to lack of money to retire on? Or something else?

The growth in jobs only at the bottom translates into lower household incomes as compared to the top of the last business cycle.

The decline looks even worse when comparing today’s incomes to those when the recession began in December 2007. Then, the median household income was $54,916, meaning that incomes have fallen 7.2 percent since the economy last peaked.

Welcome to the era of declining living standards. The decline has many causes. It will not be fixed by either political party's proposed policy changes. We are now living in the longest period of lowered incomes since the Great Depression. When world oil production starts going down the decline will get much worse.

Share |      By Randall Parker at 2012 September 09 03:22 PM  Economics Labor


Comments
bbartlog said at September 10, 2012 8:34 AM:

I would guess that a number of factors contribute to the older workers being hired more. First of all, younger people suffer a bigger hit to their future prospects if they take a non-career job. Someone who is out of college and looking for work in their field might be able to land a job as (say) assistant manager at Applebee's, but they may feel that they're giving up on their actual field in doing so. Maybe they're right; I don't know how straight and narrow your resume has to be these days in order to get a job in your field, but I could imagine that a couple of years of retail or restaurant work would deep six you.
Older workers of course would mostly be looking just at the dollars and cents. At 55 you're not going to be advancing anywhere anyway, you just need to pay the bills.
Similar arguments would apply to perceived status and dating/marriage opportunities. Given the degree to which people are judged by their work, I expect that a young man who was an unemployed lawyer/scientist/musician (in theory) and so on would probably have higher status than an employed retail clerk or other service worker. Better to be poor and still have prospects than have a little money and fixed low status...

Billy said at September 10, 2012 2:20 PM:

I think I'll just do away with college altogether and open up my own business.

Oh wait! I forgot that nowadays that is near impossible. With so many laws that make it impossible comply with, I'm starting to think that America really is turning into a dictatorship. I hear the police's new thing is closing up lemodade stands owned by little girls on their own front yards.

DirkY said at September 11, 2012 2:27 AM:

I much prefer younger workers. They will take lower wages and don't have bad habits learned at big inefficient organizations. They also have less medical leave and much lower medical insurance costs. Even better, the ones 22-25 are covered by their parents' insurance. Also the ability to learn new software quickly.

I also have invariablely had issues with obedience and deference when hiring men older than me. I don't really blame them I'd feel bad too being supervised by someone younger than me.
Older women dont have this problem in my experience, though I speculate single childless women might.

Generally though I hire people like myself: white, upper middle background, smart enough to choose a public college to minimize education debt, very high grades while there. Paul Graham has an article on how homogenity is more efficient than diversity because of better and more intuitive intra group communications.

Maybe the jobs these old people are getting hired at are McJobs where showing up on time and behaving respectfully toward customers is not taken for granted.

The main low wage job trend I've noticed is that a lot of places that used to have obvious illegals who barely spoke English now have Mexican Americans without accents.

Half Sigma said at September 12, 2012 11:06 AM:

It's likely that older workers just aren't retiring, rather than that they are suddenly finding more jobs. And the later retirement may very well be because they have to financially support their unemployed adult children.

Randall Parker said at September 12, 2012 8:45 PM:

Half Sigma,

I'm guessing that low interest rates are one of the factors keeping people in the labor force longer. Also, they have less equity in their houses due to housing price declines. Plus, bouts of unemployment have cut into their savings.

What I wonder: How many people are holding back from retirement because they are suspecting their government-provided benefits could drop while they are retired. People really ought to fear this. The USG is on an unsustainable course.

dbjudd said at September 13, 2012 8:22 AM:

Randall:

So, you agree with Lenin, that Capitalism will increase productivity until you don't need any workers and you create armies of unemployed. This doesn't seem to be a workable system. Do you have any suggestions?

Half Sigma said at September 13, 2012 10:40 AM:

"What I wonder: How many people are holding back from retirement because they are suspecting their government-provided benefits could drop while they are retired."

The phenomenon you described in your blog post is all about people not retiring. It's a lot easier for an older worker to stay employed than it is for a younger worker to break into the job market.

And the reasons are as you described. They lost savings because the value of their houses and their stocks have declined. Low interest rates create the appearance of less investment income. Fear about the future. But also, as I suggested, some of them also need money to support their adult children who can't break into the job market.

Half Sigma said at September 13, 2012 10:47 AM:

However, I should add that only a miniscule number of people, if any, are holding back from retirement because of anything they read on a conservative blog or heard from Ron Paul.

Randall Parker said at September 15, 2012 8:59 AM:

dbjudd,

Some problems do not have a large scale solution. You've got to find ways to deal automation on your own. I'm working much harder and ambitiously.

Workable system: Um, if the system can survive it is workable. My guess is the capitalists and their top managers and engineers will move to a small number of countries and basically leave behind useless masses.

Another possibility: Demand for manual labor could rise if energy to power machines becomes too expensive. Though that won't raise living standards at the bottom. The higher cost of energy will cause a much larger decline in living standards.

Half Sigma,

Yes, the percentage worried about continued government-provided benefits is very small. But I know smart people who do not expect to get much from government-provided benefits.

Ronnie Mac said at September 16, 2012 12:39 PM:

Randall wrote: "My guess is the capitalists and their top managers and engineers will move to a small number of countries and basically leave behind useless masses."

Are you sick or what. So according to you if you're not a capitalist you are part of the useless masses.

Randall, you're a sad cartoon character.

Randall Parker said at September 16, 2012 5:39 PM:

Ronnie Mac,

I wrote that from the perspective of the capitalists at a future time when they no longer need manual laborers or even average ability mental workers. When robots and really smart people do almost everything that the owners of capital want done then everyone else really will become useless to the owners of capital.

See the trends in manufacturing employment. Big increases of people with advanced degrees (I bet a lot of Ph.D. specialists in machine learning) and sharp declines that get sharper at lower skill levels.


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