The job market is improving faster for the least skilled

Some pessimists worry that we are merely creating “McJobs” for the least skilled. Others worry that most of the new jobs require lots of skills, leaving the unskilled without good prospects.  Most pessimists worry about both problems, even if it isn’t internally consistent.  Just as pessimists worry that machines will take the place of workers in Japan, and that there won’t be enough young people to take care of the elderly.

I’m an optimist; so let me take a stab at this Matt O’Brien comment that Tyler Cowen linked to:

Of course, “us” is a relative term. Unemployment fell from 3.3 to 3.2 percent for people with a bachelor’s degree or more, and from 5.7 to 5.5 percent for those with some college. But it actually rose from 6.3 to 6.5 percent for people with only a high school diploma, and from 8.9 to 9.1 percent for those without one.

In other words, our polarized labor market isn’t getting any less so. The Cleveland Fed points out that routine jobs disappeared during the Great Recession, and haven’t come back during the not-so-great-recovery — which partly explains why our economic upswing, such as it is, has been much less dramatic for the least educated.

I certainly agree with Matt that the labor market is kind of lousy, despite the recent record set in employment.  But I also think one month is too short of time to draw any conclusions.  Let’s look at how the job market has improved for each of these groups, compared to the worst of the recession.  In each case, I look at unemployment rates for people above age 25 (because that’s all I could find, and because it seems more consistent):

Less that high school:   17.9% —> 8.5%

High school grad:   11.9% —>  6.1%

Overall:   9.2% —>  4.9%

Some college:    8.8% —>  5.5%

College grad:   5.3% —> 3.0%

The reduction in the unemployment rate has been much bigger for the less skilled workers.  You’d expect that given that they started at a much higher rate. Unemployment cannot go below zero.  But it’s also true that even the relative change has been considerably bigger for the less skilled.  The least skilled workers saw their unemployment rates fall by more than in half.  The high school grads by nearly half. The two college groups saw unemployment fall by even less.

Obviously in an absolute sense the less skilled are doing far worse.  But their abysmal job situation actually seems to be improving faster than for the more skilled groups.  It’s an easy mistake to make.  When I was young I often heard people say, “the rich get richer and the poor get poorer.”  Confusing levels with changes.  Actually, in 1969 the poor and working class had been gaining on the rich for 40 years.


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33 Responses to “The job market is improving faster for the least skilled”

  1. Gravatar of Mark A. Sadowski Mark A. Sadowski
    7. June 2014 at 07:08

    Scott,
    Off topic. (I suggested Marcus Nunes turn this into a post.)

    Simon Wren-Lewis is at it again:

    http://mainlymacro.blogspot.com/2014/06/what-we-do-know.html

    “While the reasons for the Great Recession may still be controversial, the major factor behind the second Eurozone recession is not: contractionary fiscal policy, in the core as well as the periphery. So this is something we really do know.”

    It only because of the continuous issuance of preposterous statements like this by people who should know better, that the causes of the Great Recession are even controversial. Not only is this something we do not know, it is something that we know is not true.

    The second Euro Area recession was clearly monetary in origin. The ECB raised the MRO rate from 1.0% to 1.25% in April 2011 and then to 1.5% in July. The six quarter second recession started the following quarter. The Euro Area was never near the zero lower bound in interest rates and the ECB chose to raise the policy rate in the face of projections that core inflation would remain below target and the output gap would remain high for at least the next two years.

    The US makes a useful comparison. The Fed kept the fed funds rate near zero throughout 2010-2013 and elected to do a second round of QE in late 2010 to mid-2011 and to start a third round in late 2012. The ECB has yet to initiate even a single round of QE.

    According to the April 2014 IMF Fiscal Monitor the US increased its cyclically adjusted primary balance (CAPB) by 4.7% of potential GDP between 2010 and 2013 (bottom half Table 2):

    http://www.imf.org/external/pubs/ft/fm/2014/01/pdf/fm1401.pdf

    The five core Euro Area nations that Simon Wren-Lewis considers (France, Netherlands, Belgium, Austria and Finland) increased their CAPB by a weighted average (according to 2010 nominal GDP) of 2.6% of potential GDP from 2010 to 2013. The GIIPS increased their CAPB by a weighted averaged of 5.0% of potential GDP from 2010 to 2013.

    Between 2010 and 2013 nominal GDP (NGDP) increased by 12.3% in the US, by 6.2% in the core Euro Area nations and decreased by 1.8% in the GIIPS. Between 2010 and 2013 real GDP (NGDP) increased by 6.6% in the US, by 1.4% in the core Euro Area nations and decreased by 4.1% in the GIIPS.

    It would have made absolutely no sense for any of the Euro Area nations to be doing fiscal stimulus when the ECB was nowhere near the zero lower bound and in fact raising the policy interest rates. Moreover the US economy has easily outperformed the economies of all of these countries in both nominal and real terms despite being at the zero lower bound in interest rates, and doing roughly the same amount of fiscal austerity as the GIIPS.

    The one thing that the Great Recession, in tandem with the Great Depression, has made absolutely clear is that the liquidity trap is a myth promoted by those with a agenda no matter how much empirical evidence there is to the contrary.

  2. Gravatar of Mark A. Sadowski Mark A. Sadowski
    7. June 2014 at 08:31

    It’s a blog post.

    http://thefaintofheart.wordpress.com/2014/06/07/what-simon-wren-lewis-thinks-he-knows-is-not-true/

  3. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    7. June 2014 at 08:49

    I think we’ve found something to make Thomas Piketty sleep more easily;

    http://www.voxeu.org/article/gender-and-labour-market

    ‘The first country to implement gender quota laws was Norway in 2003, followed by Spain, Finland, Iceland, and France. One study of the impact of female presence on boards on firm performance exploits the Norwegian reform, which requires listed companies to achieve 40% female board representation within two years. The research finds important effects of female board representation, notably that the constraints imposed by the quota implied a decline in stock prices and operating profits.’

    Forget about an 80% income tax rate, nip the inequality in the bud.

  4. Gravatar of ssumner ssumner
    7. June 2014 at 11:01

    Thanks Mark, That’s a very good post.

    Patrick, Very interesting.

  5. Gravatar of anon/portly anon/portly
    7. June 2014 at 15:11

    Of course if you think of a rate of unemployment as “falling towards zero” it makes sense to say that the least skilled are doing relatively better. But if you think of a rate of unemployment as “falling towards zero cyclical unemployment” then maybe it doesn’t. Wouldn’t college grads be cyclically overemployed at some unemployment rate (for them) above zero?

    Speaking of consistent world-views, isn’t it at least sort-of the case that a person who believes that the labor theory of value is insightful is also the least likely to believe that the cost of a machine or robot is reflective of its embedded labor? (Which I think is necessary to believe a version of the “this time the machines are going to put us out work” theory, although undoubtedly I’m wrong about that).

  6. Gravatar of Brian Donohue Brian Donohue
    7. June 2014 at 16:10

    Great post, Scott. You are an oasis of sanity.

  7. Gravatar of benjamin cole benjamin cole
    7. June 2014 at 16:18

    Nice post. The key is to keep AD strong, good for labor, good for profits.

  8. Gravatar of ssumner ssumner
    7. June 2014 at 19:02

    Anon, I can’t answer the labor theory of value question.

    There are lots of different possible ways to interpret the unemployment data. I tried to provide a broader perspective that Matt’s column, and I think I succeeded. But I’m not sure my data is definitive either. At the very least, someone reading my post would have an additional set of facts to consider.

  9. Gravatar of Peter N Peter N
    7. June 2014 at 20:04

    “Some pessimists worry that we are merely creating “McJobs” for the least skilled. Others worry that most of the new jobs require lots of skills, leaving the unskilled without good prospects. Most pessimists worry about both problems, even if it isn’t internally consistent.”

    It’s not? Just replace “unskilled” with “middle skilled” and you have quite a good description of the recovery.”

    From the NY FRB Liberty Street Economics May 21:

    “It turns out that during the recession, the vast majority of jobs that were lost in the nation and across the region were middle-skill jobs, such as construction workers, teachers, machine operators, and administrative support workers. These jobs have not come back during the recovery.

    These patterns primarily reflect three trends. First, they show that the decades-long process of job polarization—that is, a loss in middle-skill jobs combined with job growth at the upper and lower ends of the skills distribution—has continued through the latest business cycle. Second, ongoing weakness in housing has meant that there has been little bounceback in construction jobs. Finally, fiscal pressures in the public sector, which accelerated after the recession as stimulus spending wound down, have resulted in fewer teachers and cuts in state and local government jobs.”

  10. Gravatar of TravisV TravisV
    7. June 2014 at 22:59

    [Sigh]

    “The people of Germany in a free election selected the Nazi Party because they made great promises that appealed to them because they were desperate and destitute. And why is that? Because Germany was bankrupt,” he said.

    Mourdock, who has stoked outrage with incendiary comments in the past, then alluded to the 70th anniversary last week of the D-Day invasion during World War II, saying, “The truth is, 70 years later, we are drifting on the tides toward another beachhead and it is the bankruptcy of the United States of America.”

    http://www.indystar.com/story/news/politics/2014/06/07/richard-mourdock-says-nation-going-way-hitlers-nazis/10165743

  11. Gravatar of Saturos Saturos
    7. June 2014 at 23:31

    When I was young I often heard people say, “the rich get richer and the poor get poorer.”

    They still say that. Gives me an aneurysm every time.

  12. Gravatar of ssumner ssumner
    8. June 2014 at 05:03

    Peter, That may be, but it’s not the issue I was discussing. I’m a bit skeptical of the idea that the labor market is hollowing out. The wage distribution (log scale) still looks like a bell curve.

  13. Gravatar of TravisV TravisV
    8. June 2014 at 07:10

    Benjamin Cole wrote a great new post:

    http://thefaintofheart.wordpress.com/2014/06/08/three-times-friedman

    I didn’t know about Friedman’s interpretation of the 1958 recession. Always glad to learn new things!

    But I’m curious: what did Friedman view as the primary cause(s) of the recessions of the early 1990′s and early 2000′s?

    I don’t recall him being outspoken that they were primarily caused by the Fed. Is that what Friedman actually believed?

  14. Gravatar of Kevin Erdmann Kevin Erdmann
    8. June 2014 at 08:25

    Some of this nonsense comes from fixed-pie thinking. There are currently relatively few workers in their 30s and 40s and more workers in their 20s 50s and 60s. So there are an unusual number of workers with 40 years of experience leaving the labor force and new workers entering the labor force. The causality runs more from worker availability to job creation than the other direction. In fact, it’s the only direction the causality could run in a remotely functional economy. One more example of markets creating fitting outcomes and getting blamed for some bogus non-problem.

  15. Gravatar of Mike Sax Mike Sax
    8. June 2014 at 12:08

    “Some pessimists worry that we are merely creating “McJobs” for the least skilled. Others worry that most of the new jobs require lots of skills, leaving the unskilled without good prospects.”

    I don’t know that both can’t happen at the same time where the skilled jobs are only open to a small number in the economy and more and more ‘middling’ jobs that used to pay quite a bit are eliminated and people are forced into the service sector. In my own experience back in 2001 was that lots of us in the ‘white collar’ jobs became unemployed and while we eventually got jobs again they were of a much lower quality. Even if you have a certain skill set they erode if too much time goes by until you get a job that uses them.

    It does seem to me that what we’ve seen since that time-and Morgan’s Auction the Unemployed idea stems from this same premise-is that even when the economy creates new jobs to create the old ones, we need less of the ‘white collar’ jobs than before. Basically Morgan admits that most people won’t make enough money in their job to make anywhere near what a liberal calls a livable wage. Your preference for a wage subsidy comes from this same premise.

    The labor market seems to become more bifurcated in that you have very highly skilled jobs and then you have unskilled service jobs and not much in between. I admit I don’t have data behind this-just my own sense of what I’ve seen the last 13 years-I know economists get kind of indignant about ‘intuition’-is that we just don’t need nearly so many white collar jobs as we used to thanks to automation and also outsourcing. The amount of people needed in the highest skilled jobs keeps decreasing.

  16. Gravatar of Mike Sax Mike Sax
    8. June 2014 at 12:09

    I mean ‘creates new jobs to replace the old ones’

  17. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    8. June 2014 at 14:21

    ‘…what a liberal calls a livable wage.’

    Usually ignoring that people do in fact live on those wages.

  18. Gravatar of Morgan Warstler Morgan Warstler
    8. June 2014 at 20:13

    Saxie,

    It’s all really quite silly.

    The fact that humans can’t LIVE on what they earn, is mostly driven by the fact we have much more luxurious notion of what LIVING entails.

    If we call living:

    1. fans, but no A/C.
    2. 600 sqft. instead of 1K.
    3. NEVER eating out.
    4. Rice and beans with little meat.
    5. Aspirin and Xrays.

    Then MANY people can earn their way. Just like in the 1960′s.

    But now we have broadband and MRIs, and fast food on food stamps, and well you get the idea.

    my point is we ought to BE GLAD we have increased our notions of what people deserve, but we CANNOT convince ourselves that just because we want them to deserve it, we will think they are worth it when we use their labor.

  19. Gravatar of Major-Freedom Major-Freedom
    9. June 2014 at 03:01

    Mark, it is people like you who need to look in the mirror and realize that the charges you are making against those promoting an agenda no matter what the data says, applies to you.

    Preposterous statements include not only the one Wren-Lewis made about fiscal policy insufficiency causing the European recession, but also the statement you made that it was caused by insufficient money printing.

    You and Wren-Lewis are in the same boat of failing to consider past data PRIOR to the recession. Both of you have a vested interest in ignoring that data. The European recession was caused by the same factor that caused the US recession: Too much credit expansion, artificially low interest rates, and real capital malinvestment.

    The post 2008 period was a consequence of real economic contraction which was associated with, but was not caused by, tightening MARKET driven lending and spending.

    You want to promote your money printing agenda regardless of the data, and you are contributing to the “controversy” of causes for the recession.

  20. Gravatar of Brian Donohue Brian Donohue
    9. June 2014 at 03:58

    Morgan, very well put.

  21. Gravatar of ssumner ssumner
    9. June 2014 at 04:55

    Travis, Friedman tended to blame most recessions on unstable monetary policy.

    Kevin, Very good point.

    Mike, You said:

    “Some pessimists worry that we are merely creating “McJobs” for the least skilled. Others worry that most of the new jobs require lots of skills, leaving the unskilled without good prospects.
    I don’t know that both can’t happen at the same time where the skilled jobs are only open to a small number in the economy”

    You’ll have to explain to me how the following two things can both happen:

    1. Most jobs requite lots of skills.
    2. Only a small number of jobs require lots of skills.

    You said:

    “Basically Morgan admits that most people won’t make enough money in their job to make anywhere near what a liberal calls a livable wage. Your preference for a wage subsidy comes from this same premise.”

    No it doesn’t.

  22. Gravatar of LK Beland LK Beland
    9. June 2014 at 05:25

    Morgan

    I would argue that being able to buy and operate one 99$ window A/C unit in a 600 sf apartment or house should probably be included in “living”, especially for older folks that could otherwise die in a heat wave.

    Otherwise, I think you make a good point.

  23. Gravatar of Mark A. Sadowski Mark A. Sadowski
    9. June 2014 at 06:07

    Major Freedom,
    Derp, derp, and um, derp.

  24. Gravatar of Mark A. Sadowski Mark A. Sadowski
    9. June 2014 at 06:17

    Scott,
    Off Topic.
    A conversation between me and Wren-Lewis has been ongoing in his comment thread. At the very least he’s responding.

    Gavyn Davies has a fairly unhelpful article in which towards the end says:

    http://blogs.ft.com/gavyndavies/2014/06/08/can-the-great-recession-ever-be-repaired/

    “Can anything be now done to reverse these losses in capacity? It is becoming increasingly clear that monetary policy alone will not work. Before too long, financial market bubbles will prevent that.”

    The way to prevent losses in potential output is to keep NGDP growing at a stable rate. It’s obviously too late to undo that.

    But the reference to “financial market bubbles” is totally unsubstantiated. In his defense, Davies has written a lot recently on this topic, although I personally think his arguments have been logically incoherent. But for infrequent readers he should probably have at least provided links to his previous arguments, no matter how specious.

  25. Gravatar of Edward Edward
    9. June 2014 at 06:19

    Major freedom,
    Don’t you get tired of your own ranting, occasionally? :-)

  26. Gravatar of Morgan Warstler Morgan Warstler
    9. June 2014 at 06:24

    LK, you are of course right… my friend andy breitbart used to do a hilarious routine, about 15K people dying in France during the 2003 heat wave. It was gallows humor, but the punchline was people could survive without A/C but you couldn’t do it if the state sent all the doctors go on vacation in August.

    Greenspun’s article is GREAT:

    http://blogs.law.harvard.edu/philg/2014/06/07/keynes-predicted-everything-except-how-greedy-people-are/

  27. Gravatar of Anthony Anthony
    9. June 2014 at 07:34

    Could it be useful to look at human consumption patterns through the perspective of Jevon’s Paradox? As technology increases make consumption more efficient, are people incentivized to increase their consumption with more luxury items that are now affordable, rather than decreasing their consumption by sticking with their same bundle of inferior goods at lower prices?

  28. Gravatar of Anthony Anthony
    9. June 2014 at 07:38

    My comment pertaining to debate in defining the “living standard.” Could this effect contribute to a rising normal living standard in a society that is above and beyond a survival living standard?

  29. Gravatar of Major-Freedom Major-Freedom
    9. June 2014 at 08:07

    Mark:

    Yes, that is a good characterization of how your posts appear. Derpitude derived from faith in monetary socialism where the overlords are supposed to know more than the market as to what aggregate spending and interest rates ought to be. Derp indeed.

    Edward:

    The reason why you are unsure as to why, is the reason I do it. And also, is not what Mark said a rant? Guess your criteria is if you agree with it, then it’s not.

  30. Gravatar of Major-Freedom Major-Freedom
    9. June 2014 at 08:28

    Mark:

    “The way to prevent losses in potential output is to keep NGDP growing at a stable rate. It’s obviously too late to undo that.”

    This is also destructive to capital formatio, because it also hampers the quality of capital investment. One of the biggest holes in your approach is that you focus on aggregates and sums, but ignore the importance of type, location, and temporal trajectory of capital. This hole is of course communicated as “let the market decide these issues”, which sounds fine superficially, but what it neglects is the fact that monetary socialism in all of its forms, yes even the newest best denomination of the church called NGDPLT, hampers that very process. The free market works, but if there is no free market in money, then what is true for a free market will NOT apply to our economy. NGDPLT would hamper the quality of capital investment. It would hamper the ability of investors to allocate capital in the most optimal temporal trajectory, to the extent that NGDPLT is associated with credit expansion, which of course it would be given that the Fed would invariably be goosing credit as it engages in OMOs, just like it has been thus far with PCE targeting.

    “But the reference to “financial market bubbles” is totally unsubstantiated.”

    Serious question: How many years did it take for your cognitive dissonance regarding central bank engineered financial bubbles to turn into this grotesque denial of economic reality? Financial bubbles are not only substantiated, and not only deserving of absence of scare quotes, but obviously so. It does not require explicit “substantiation” every time it is mentioned. Again, you’re trying to stir up controversy where there shouldn’t be any.

  31. Gravatar of Mark A. Sadowski Mark A. Sadowski
    9. June 2014 at 18:40

    Major Freedom,
    Derpity derp.

  32. Gravatar of ssumner ssumner
    10. June 2014 at 06:03

    Mark, Thanks for that update. I’m a bit skeptical of the hysteresis argument. It certainly has some force, but I think the permanent losses are overstated.

    Anthony, I definitely agree that people try to keep up with the new technology.

  33. Gravatar of Major-Freedom Major-Freedom
    11. June 2014 at 16:31

    Mark:

    Yes, I would agree with you if economics is too sophisticated for you to understand.

    But again, I am not sure why you want to keep publicizing it.

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