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Portfolio > Economy & Markets

The job market's missing middle

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(Bloomberg View) — Why are so many people unhappy about a U.S. economy that has generated more than 12 million jobs over the past five years? One explanation: A lot of those jobs don’t pay very well.

The latest U.S. employment report illustrates a persistent contrast between the labor market and the broader economy. Non-farm employers added an estimated 160,000 jobs in April — less than forecasters expected, but still more than enough to compensate for natural growth in the labor force. The unemployment rate has remained at a low 5 percent (or even lower) for seven months straight.

Yet this apparently ample demand for workers hasn’t generated the wage growth needed to drive consumer spending higher. The average hourly wage was up 2.5 percent from a year earlier, a bit better than in previous months but still nearly a percentage point short of the pace that prevailed before the recession.

Why the disconnect? One possibility is that the mix of jobs being created has been skewed toward low-paying types of work. This could hold average wage growth down even amid strong overall employment gains and decent raises in individual sectors.

To get a sense of whether this has been happening, I split the total number of private-sector jobs into three wage groups — high, medium and low, currently paying an average of about $16, $24 and $35 an hour, respectively. I then tracked each group’s cumulative job losses and gains through the recession and recovery. Here’s how that looks:

The result is troubling for the American middle class. Low-wage jobs have accounted for the largest share of the recovery, exceeding the pre-recession peak by more than 4 million. Growth was particularly strong in activities such as waiting tables or caring for the infirm and elderly. High-wage professions such as management consulting and computer-systems design have gained, too, but not as much.

Meanwhile, the center has suffered: As of April, the number of middle-wage jobs was still more than 250,000 short of the pre-recession peak.

Interestingly, the demand for workers in low-wage sectors (possibly with the help of minimum-wage increases in some states) does appear to be having some effect on pay: The weighted average hourly wage for the group was up 3 percent in March from a year earlier, compared with just 1.8 percent for high-paying sectors and about 2 percent for the middle. Still, that’s not enough to offset the shift in job growth toward the lower end of the distribution.

The data fit well with the picture of “polarization” in the U.S. labor market described by economists such as David Autor at the Massachusetts Institute of Technology. Various types of manufacturing jobs, for example, were among the biggest losers in the middle group, supporting the idea that globalization and automation have taken the largest toll on middle-skill jobs. That leaves jobs that require either a lot of education or the kind of high-touch, personal attention that a robot or an overseas call center can’t provide.

So while millions of people have gotten back to work since the economy hit bottom in mid-2009, it’s not surprising that a lot of them aren’t too pleased about it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

See also:

How Americans blow $1.7 trillion in retirement savings

5 charts that show what Americans really pay in taxes

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