It’s long been clear to me that one big reason that Americans give lousy grades to the current economic recovery is that it’s been dominated by employment gains in lousy jobs. So it was great late last week to see strong confirmation provided by the Financial Times‘ Matthew Klein – who in the process showed that the problem has much deeper roots than my work has suggested. Klein also makes clear that this discouraging job creation pattern deserves much blame for lagging American productivity growth – which is crucial for the sustainable improvement in the nation’s living standards.
In a September 8 post, Klein demonstrated that since 2000, 94 percent of the net new jobs created by the U.S. economy came in education, healthcare, social assistance, bars, restaurants, and retail stores. When you weight these industries by their sizes, you find that their hourly pay has averaged 30 percent lower than in the rest of the economy – as per this chart he provides:
But the low-pay story hardly stops there. To add insult to injury, since jobs in retail, restaurants and bars typically involve shorter hours than in other sectors, weekly pay in these parts of the economy is fully 40 percent lower than in other industries. And these low-pay industries have been become such important American job creators that their relative growth has depressed the entire workforce’s weekly pay by three percent since 2000.
Further, in case you’re wondering, the employment trends have accelerated during the current recovery.
Even worse for the U.S. economy, especially over the longer term, the sectors producing all these lousy jobs have been sectors with big productivity problems. According to Klein, 96 percent of the net new jobs created in America since 1990 have come in industries known for low productivity (like construction, retail, and bars) or where low productivity is simply suspected, but understandably so, since they don’t feature much competition. (Healthcare, education, government, and finance fall into this category).
And of course, this evidence demonstrates the converse proposition, too – job creation has lagged during both these periods (and nosedived since 1990) in manufacturing, historically the economy’s productivity growth leader. And since it rebounded strongly after a recessionary crash dive, manufacturing output has stagnated at best.
As I’ve written, productivity is the subject economists generally regard as the most difficult to study, especially because it’s so hard to measure in services (which comprise most of the economy on a standstill basis), and especially when those services and their development are based on emerging technologies.
But one aspect of the productivity growth slump does seem to be rendered much less mysterious by Klein’s analysis: When an economy lets so much of its most productive sector stagnate at best, that’s sure not going to help its productivity.