02 April 2013

Structural Change In The U.S. Job Market

The US has gained 387,000 managers and lost almost 2m clerical jobs since 2007, as new technologies replace office workers and plunge the American middle class deeper into crisis.
Data from the Bureau of Labour Statistics divide the US workforce into 821 jobs from dishwasher to librarian. They show rapid structural shifts – on top of a cyclical unemployment rate of 7.7 per cent – that may increase income inequality.
One probable cause of rising inequality is new computing technologies that destroy some middle-class occupations even as they create jobs for highly skilled workers who can exploit them.
The number of clerical workers such as book-keepers, tellers, data entry keyers, file clerks and typists has been falling, pointing to a structural decline. The number of retail cashiers has also dropped – indicating that internet shopping and self-checkout systems may be eroding another occupation.
Employment growth came from healthcare, management, computing and food service jobs. The number of personal care aides is up 390,000 since 2007. Demand for people who figure out how to replace clerical workers – such as operations managers, management analysts and logisticians – grew substantially.
From the Financial Times via Marginal Revolution.

Perhaps a better way to describe the trend  than an erosion of the middle class (for many of these jobs have ceased to be middle class jobs) is as an erosion of the white collar working class job.  And, I don't doubt that it is real.  Entire tasks like copying and mailing legal pleadings, or taking dictation, have virtually disappeared.  When was the last time someone filled your gas tank for you?  Robots don't just work in factories anymore.

Unskilled labor is really cheap.  You see that on the streets of Denver every day where it has become cost effective to have people drive other people around town in rickshaws and twirl signs. 

High school students are far less likely to be employed, something that used to be a right of passage and the norm for middle class families, as adults chase the jobs they used to fill because nobody else wanted them.

Hell, skilled labor is abundant and not all that expensive.  I've never had trouble filling the ten hour a week position as my assistant with highly intelligent and capable college graduates who have prior work experience (one of three a graduate student and another with some graduate school experience) at hourly rates that while they are far above minimum wage, would not support a family breadwinner even at forty hours a week.

My decision to hire highly educated applicants isn't just a matter of simplying the job search either.  The level of computer expertise and brain work that is involved in the job is far greater than it was in similar jobs when I started practicing law in the 1990s.

What will they do?

The big question is whether our economy can find something else worthwhile for all those displaced low end retail, administrative, and clerical workers to do that they are capable of doing.  Can we find jobs that have economic value that need to be done doing something else?

The free market virtually guarantees that at some price, we can.  The real question is how much value the replacement jobs can create.

Nobody bemoans the fact that we no longer need to employ 80%+ of the population to be farmers to meet our collective needs as we did around the time of the American revolution.  To the extent that manufacturing employment is down due to greater efficiency rather than offshoring (in fact, both are involved) this too is not inherently a bad thing.  Services that no one was available to provide once upon a time can now be provided with the abundance that more efficient exploitation of resources and production of goods and certain kinds of services has made possible.

But, increasingly, the problem of finding means of support or work for people in a society where fewer people can provide all of the goods and services we used to consume is a problem on our doorstep and not a conceptual issue to struggle with in the future.

Degree inflation and the dangers of long term statistical comparisons

I would note, however, that long run comparisons of the well being of high school graduates without college, or college graduates, for example, are not necessarily comparing apples to apples.

If we imagine a domain, "education level" which is first roughly sorted by degree earned and then internally sorted by GPA when earning a degree, or credits earned for people with "some college", the education level percentile for the median person at each level of education has fallen dramatically since 1950 and 1970 respectively, two common dates from which people make comparisons.  The shift has been much more pronounced for women than it has been for men.

Even accounting for the Flynn effect, people have grown more educated much more rapidly than they have gotten smarter in this time period.  While additional educational degrees can add value from the process of being educated, a significant (and hotly contested) portion of the value of an educational degree has always been symbolic of sorting effects that take place mostly in the admissions process and to a lesser extent by sorting people who are together enough to graduate from those who are not. 

In other words, today's median college graduate is much dumber than a typical college graduate in 1950 or 1970, today's median high school graduate with no further education is much dumber than in 1950 or 1970, and today's high school dropout is much dumber than in 1950 or 1970.  Today's graduate or professional degree holder still lags a little in educational percentile relative to the average college graduate in 1950.

Part of the reason that job prospects were so good for high school graduates back in the day is that they were the intellectual equivalents of today's liberal arts graduates with four year college degrees.  And, the jobs that were available to high school graduates reflected their intellectual abilities.  High school graduates with no further education were routinely places in middle management, insurance sales, real estate sales, worked as journalists and editors for top newpapers, taught in elementary schools, worked as nurses, and even secured patents as inventors.  College professors often lacked graduate degrees.

For example:

* In 1960 the high school dropout rate was 27.2%. 
* In 1970, it was 15.0% - 13.2% for whites and 27.9% for blacks. 
* In 1980, it was 14.1% - 11.4% for whites, 19.1% for blacks, and 35.2% for Hispanics. 
* In 1990, it was 12.1% - 9.0% for whites, 13.2% for blacks, and 32.4% for Hispanics. 
* In 2000, it was 10.9% - 6.9% for whites, 13.1% for blacks, and 27.8% for Hispanics.
* In 2010, it was 7.4% - 5.1% for whites, 8.0% for blacks, and 15.1% for Hispanics.

The median high school dropout in 1960 was in the 13.6th percentile educationally.
In 1970, the 7.5th percentile, in 1980, the 7.05th percentile, in 1990 the 6.5th percentile, in 2000 the 5.45th percentile and in 2010 the 3.7th percentile.

A median high school dropout in 2010 was almost four times closer to the bottom of the heap than in 1960, half a century earlier.  It is little wonder that high school dropouts who are much closer to the bottom of the barrel intellectually than they were forty or fifty years ago are a lot less socioeconomically successful.  Today's high school dropout is at the same level of education as the junior high school dropout of the 1960s, percentile-wise.

Has degree inflation gotten out of hand?

Nobody doubts that in the case of some degrees, for example, engineering or medicine, that the learning that takes place during the college experience is adding value that is not just due to sorting effects.  But, in the case of a great many degrees in business, education, journalism, the fine arts, culinary schools, or the liberal arts, sorting effects predominate from an economic perspective, if not from a cultural one.  For example, the many countries where one can become a lawyer after earning an undergraduate degree in that profession are no worse off than those that insist that would be lawyers earn a four year degree in absolutely anything they want before attending three more years of law school.

Some credible form of ability sorting, like more widely accepted measures of merit from exceptional high school performances could (mechanically at least) easily be substituted for college attendance on career tracks where the actual educational content of the higher education process isn't adding value.  Indeed, the same can be said of high school in many cases.  Millions of medicore high school students are not mistaken when they despair at the uselessness of the curriculum they have been assigned which is calculated prepare them to go to a college that they will never attend, or which they will attend and fail miserably at anyway after incurring student loans.

Yet, it is undeniable that earning a college degree is a key divider between the haves and the have nots in our society and it is one of the few assets that cannot be taken away from you when a severe recession depletes all other forms of wealth for huge swaths of the middle class.  For those who can successfully complete a college degree, it is almost socioeconomic suicide not to earn one.

The perks we gain as a society from increased credentialism and degree inflation have not been weighed sufficiently against the cost of providing these degrees in terms of tuition and fees, the cost of earning these degrees in terms of opportunity costs both in earnings and on the job experiences, and the cost of expecting these degrees in terms of the delay it imposes on young people before they can become established in careers, start families, or otherwise get on the with business of being full fledged adults.

Education is an area where the individual incentives to earn them are strong, but the collective benefits of encouraging everyone to earn them are dubious.  Yet, as much as anything, over education is our natural economic response to an economy where we don't need as large a workforce because those who work are so productive.

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