MORE bad news for the middle class: when the economy
recovers, jobs in the middle won't. That is the conclusion of an important new
study that connects a long-term trend in the labour market with the business
cycle of recession and rebound.
Nir Jaimovich, an economist at Duke University, and Henry E
Siu, an economist at the University of British Columbia, take as their starting
point one of the most important continuing changes in Western developed
societies.
That shift is what economists, most notably David Autor of
the Massachusetts Institute of Technology, have called the
"polarisation" of the job market. Maarten Goos and Alan Manning,
extending the research to Britain, have more colourfully dubbed it the dual
rise of "lousy and lovely" jobs.
Their point is that thanks to technology, more and more
"routine" tasks can be done by machines. The most familiar example is
the increasing automation of manufacturing.
But machines can now do "routine" white-collar
jobs, too - things like the work that used to be performed by travel agents and
much of the legal "discovery" that was done by relatively well-paid
associates with expensive law degrees.
The jobs that are left are the "lovely" ones at
the top of the income distribution – white-collar jobs that cannot be done by
machines, like designing computer software or structuring complex financial
transactions.
A lot of "lousy" jobs are not affected by the
technology revolution, either – nonroutine, manual tasks like collecting the
garbage or peeling and chopping onions in a restaurant kitchen.
An extensive body of economic research has shown that job
polarisation is happening throughout the Western developed world.
It accounts for many of the social and political strains we
have experienced over the past three decades, particularly the increasing
divide between the people at the top and at the bottom of the economic heap,
and the disappearance of those in the middle who were once both the compass and
the backbone of our societies.
What's new about Jaimovich and Siu's work is that they have
found that job polarisation isn't a slow, evolutionary process. Instead, it
happens in short, sharp bursts.
The middle-class frog isn't being gradually boiled; it is
being periodically grilled at a very high heat. Those spurts of change are
economic downturns: Jaimovich and Siu have found that in the United States
since the mid-1980s, 92% of job loss in middle-skill occupations has happened
within 12 months of a recession.
"We think of recessions as temporary, but they lead to
these permanent changes," Siu told me.
"The big puzzle about business cycles is: why have we
had these jobless recoveries over the past three recessions? These jobless
recoveries are because you have these middle-skilled jobs that are being wiped
off the table."
Economists are often in the business of collecting empirical
evidence of the trends many of us civilians have long experienced in our daily
lives. That turned out to be the case when Siu shared his research findings
with his family.
"I told my father-in-law, who used to be an executive
in the oil industry," Siu said.
Historical perspective
"He said: 'That is exactly what happened. Every
vice-president had a secretary, then they fired them during the recession. But
after the recession we had to pair up, and two vice-presidents had to share one
secretary'."
Another example may have been hinted at in the March US jobs
report. Those figures showed a decline of 34 000 jobs in the retail sector
despite recent improvements in store sales. Some economists attributed that
apparent mismatch to the power of technology, in this case e-commerce.
"That is certainly in line with our findings," Siu
said. "Salespeople are one of the prime examples of routine jobs."
The Jaimovich-Siu paper concludes that "jobless
recoveries are evident in only the three most recent recessions, and they are
due entirely to jobless recoveries in routine occupations.
"In this group, employment never recovers beyond its
trough level, nor does it come anywhere close to its pre-recession peak."
This is, Siu told me, "a stark finding". David E
Altig, the research director at the Federal Reserve Bank of Atlanta who has
written a blog post about the paper, echoed that view.
"One of the things you certainly note is that this is
the mother of all jobless recoveries," he told me.
Siu urged me not to be too gloomy. "In the broad sweep
of history, technology is good," he reminded me. "We've been
wrestling with this for 200 years. Remember the Luddites."
That is an important point. All of us, even the hollowed-out
middle class, would be much worse off if the Luddites had won the day and the
Industrial Revolution, whose latest wave is the past three-and-a-half decades
of technological change, had never taken hold.
But it is also true that every seismic shift, including the
current one, has winners and losers. And for the losers, adapting to today's
world of lousy and lovely jobs may be even harder than it was for the artisans
of the Luddite era to thrive in the Machine Age.
"What might be different today is two factors,"
Siu told me. "The pace of technological change is so much faster, and we
live in such a complex society, that it is harder than ever to switch to a new
occupation."
All of us are awaiting an economic recovery. We should be
braced for one that offers scant comfort to the middle class.
- Reuters
* Chrystia Freeland is the editor of Thomson Reuters
Digital.