It's Not Just the Jobs Lost, but the Pay in the New Ones

By EDMUND L. ANDREWS

NY TIMES
August 9, 2004

WASHINGTON, Aug. 8 - The stunningly slow pace of job creation, which sank to growth of just 32,000 in July, has provided new ammunition in an intense political debate over job quality.

For months, Democrats have said that the long-delayed employment recovery was concentrated in low-wage jobs that paid far less than those that were lost. White House officials replied that the available data failed to settle the matter one way or the other.

The data is still inconclusive. But the weakness in job creation and the apparent weakness in high-paying jobs may be opposite sides of a coin. Companies still seem cautious, relying on temporary workers and anxious about rising health care costs associated with full-time workers. Many economists say that over the long term, the most vulnerable positions are those at the low end of the wage scale that require fewer skills and are easily replicated.

Even now, at a time when a disproportionate number of new jobs appear to be lower-paying ones, there has been growth in some high-income occupations like accounting, architecture and software.

Yet the earnings gap between the highest-paid employees and the rest of the work force is still widening, as it has over most of the last 30 years. The trend is most striking in factories, which accounted for the bulk of job losses in the last three years and tended to pay above-average wages.

In contrast to previous recoveries, when companies rehired a large proportion of laid-off workers, manufacturers have added only 91,000 jobs this year, having eliminated more than two million jobs in the previous three years.

The largely permanent decline in manufacturing employment, which has been more acute after this recession than in previous ones, spans all levels from blue-collar workers through senior management. It has coincided with a bulge in the number of jobs in low-paying fields that are comparatively easy to enter: retail sales, hotel services and clerical work.

The ragged pattern of the recovery has given rise to the political debate, with Senator John Kerry, the Democratic nominee, saying that new jobs pay, on average, $9,000 a year less than the jobs that were lost.

White House officials disagree, saying that such calculations are based on an erroneous comparison of median wages between industries that are expanding and contracting. The main error, they say, is that even low-wage industries like retailers and fast-food chains hire high-income executives and managers.

" McDonald's has C.E.O.'s and accountants, and investment banks hire janitors,'' said N. Gregory Mankiw, chairman of the president's Council of Economic Advisers. "Simply knowing what broad categories are rising and falling doesn't tell you anything about the jobs people are getting.''

But a growing number of analysts say the evidence increasingly suggests that the current recovery has indeed been tilted toward lower-paying jobs. Industries ranked in the bottom fifth for wages and salaries have added 477,000 jobs since January, while industries in the top fifth for wages had no increase at all, according to an analysis of Labor Department payroll data by Economy.com, an economic research firm.

"Since employment peaked, we've lost many more higher-paying jobs than lower-paying jobs,'' said Mark Zandi, chief economist at Economy.com. "In recovery, we've created more lower-paying jobs than higher-paying jobs."

Though acknowledging that the payroll data was inconclusive, Mr. Zandi said that the pattern had become firmer over the last month and that it was increasingly similar to what had been found in the Labor Department's household survey, which categorizes work by occupation as well as industry.

But many economists say the long-term pattern, and problem, are quite different.

Daniel Aaronson, a senior economist at the Federal Reserve Bank of Chicago, said the pattern of high-paying and low-paying jobs routinely fluctuates with economic cycles. "When aggregate employment growth is strong,'' Mr. Aaronson said, "you see more jobs created in higher-income sectors, and when employment growth is weak, the number of those jobs just tanks. We shouldn't be concerned about short-term wiggles in the data, but on the bigger issues of increasing productivity and increasing worker education.''

Other economists say the more enduring pattern is the widening gap between people with different levels of education.

"You want to think of two job markets - roughly speaking, one for college graduates and the other for high school graduates,'' said Frank Levy, professor of economics at the Massachusetts Institute of Technology and an author of a new book on the subject, "The New Division of Labor.''

"The market for college-grad jobs over the last four years has been expanding,'' Professor Levy said. "But the market for high school graduates has been deteriorating, with production and clerical jobs shrinking and being replaced by lower-paying service sector jobs.''

Other analysts say the long-term trend is more complicated, noting that real wages for middle-income workers have been losing ground to those in the top 10 percent of earners over most of the last 30 years.

The problem confronting President Bush is that job creation of all kinds has been slower in this recovery than in other ones, and White House officials acknowledged they were disappointed by Friday's report.

Employment finally seemed to surge in March and the economy added just over a million jobs in the first six months of the year. But the nation still has about 1.2 million fewer jobs than when Mr. Bush took office, and the work force has expanded by more than a million since that time.

Adjusted for inflation, average hourly wages have fallen slightly in the last year. And for many who have lost their jobs as a result of plant closings and layoffs, the impact has been more acute: a recent survey of displaced workers by the Labor Department found that 57 percent of those who had found work were earning less than they did in their old jobs. As of December, when the survey was taken, 4 of 10 displaced factory workers had yet to start a new job.