Job polarization — the growth in higher-skill, high-paying jobs and also lower-skill, generally lower-paying jobs at the expense of middle-skill jobs — has been widely observed since the late 1980s. The phenomenon has been explained both as an economic trend and as a moral failing in society. It appears to be both.
Caused mainly by changes in technology and by globalization, this combination of trends, which leads to greater economic inequality, has been observed in most if not all industrial societies, including, unsurprisingly, the United States. When a couple of researchers at the Federal Reserve Bank of New York, Jaison Abel and Richard Deitz, churned out the numbers for our region in a 2012 paper, they found the same U-shaped pattern — significant and growing polarization between the upper and lower ends on the one hand of the labor force and the middle on the other — as has been found nationally and internationally. They found that the rise in inequality has “been especially sharp in downstate New York and northern New Jersey, where the wage gap is now markedly larger than in the nation.”
Abel and Deitz found that inequality has grown somewhat more slowly in upstate New York. They included Orange and Dutchess counties as downstate for the purposes of their analysis. Given the significant portion of the Ulster residents who head southward out of the county to their place of employment, it’s very probable that inequality in Ulster County follows more the pattern of its southern neighbors rather than its northern ones. To my knowledge, no one has yet tested that hypothesis.
In the 30-year period between 1980 and 2010, lower middle-skill jobs, which grew slowly in the nation, declined everywhere in the local Federal Reserve district. Why? “In large part, this difference reflects relatively steep job losses in two prominent occupations within this group, machine operators and administrative support jobs,” write Abel and Deitz. “Indeed, machine operator jobs plunged 56 percent in upstate New York and 62 percent in both downstate New York and northern New Jersey between 1980 and 2010, far larger declines than the national decline of 35 percent.”
In terms of wage gains in downstate New York and northern New Jersey, moreover, wage growth at the top end significantly outpaced that of the nation, while in upstate it lagged behind the nation. The authors attribute the slower wage gains of the low-wage group in the New York metro area in part to high immigration putting downward pressure on their wages.
A documentary with the sarcastic title “Inequality for All” was an unexpected hit at the 2013 Sundance film festival. It won rave reviews and secured a major distribution deal. Its unlikely star is Robert Reich, Berkeley economics professor and former Bill Clinton Secretary of Labor. Inequality, says Reich, has been continuing to increase. “If there was upward mobility it would be okay,” Reich said in the film. “But 42 percent of children born in poverty in the USA will stay there. In Denmark, it’s 24 percent. Even in Great Britain, where they still have an aristocracy, it’s 30 percent.”
Poster boy for this perspective in the world of economics is French economist Thomas Piketty, a French academic in good standing whose 2014 book, “Capital in the Twenty-First Century,” carefully monitors the distribution of wealth and income in various societies over time. Wealth inequality has soared, he found, with the top one percent of one percent of Americans, about 32,000 people, owning ten percent of all national wealth.
The inequality problem goes well beyond salary income, Piketty argues. “If capital, or wealth, grows faster than the economy, then the owners of that capital and their heirs will amass an even larger share of total national wealth over time,” according to a cogent exposition by Harry Stein of the Center for American Progress. “To reverse this trend, Piketty advocates a global wealth tax.”
In 2012, investor Warren Buffett proposed the so-called “Buffett rule,” which would have applied a minimum effective tax rate of 30 percent on individuals making more than a million dollars a year. The White House declared that “no household making more than one million each year should pay a smaller share of their income in taxes than a middle-class family pays.” The measure failed to pass Congress.
Back to changes in salary income. It had been thought by many economists that the weak labor market well into the Great Recession was due to a mismatch between the skills of the unemployed and the jobs that were available, “sectoral mismatch.” If that were the problem, things would gradually return to normal. The challenge would be to equip workers with new skills that could help them transition to the sectors where employment was growing. Plausible though it seemed to be, however, the theory of sectoral mismatch didn’t appear to explain the persistence of high unemployment during the later stages of the economic recovery.
MIT economist David Autor and his associates noted that the job recovery times in the three most recent recessions had been much slower than the recoveries in the previous three. It seemed that the degree of job polarization markedly increased after each recent recession. Instead of middle-class workers who were laid off from routine jobs being hired back when the recession ended, their jobs were eliminated by new technology or because of global competition.
The recession accelerated job polarization. A new pattern emerged: the economy eventually came back, but not the jobs. The result was a “jobless recovery.” The previous middle-class labor force was replaced by a smaller number of workers with less routine skills.
A recent paper by a couple of researchers at the Federal Reserve Bank of St. Louis noted that work by Nir Jaimovich and Henry Siu had gone a step further. Job polarization, these economists said, is characterized by job losses for routine occupations in recessions. The less routinized and higher-paying jobs that eventually replace these middle-range jobs come after a time delay, preceded by the jobless recovery.
If the Jaimovich-Siu line of analysis is correct, we could be seeing a surge in less routine jobs, and particularly disruptive ones, just about now.
If indeed the rise in inequality has been “especially sharp” in the region including the Hudson Valley, with non-routinized work expanding within the labor force, it would stand to reason that job-creating efforts should focus resources on education and training in disruptive rather than in traditional industries. It would seem equally obvious that wealthy societies should concentrate not just on ameliorating inequality of income but also on opposing the accumulation of intergenerational wealth in only a small part of the population.
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