Economic recovery is a slippery term. A sick patient can recover to a normal state. But the labor market has no "normal state" -- it is constantly changing -- and so economic recovery can lead us into uncharted territory.
The current recovery is a case in point. Since Jan. 1, the U.S. economy has added more than 1.1 million jobs, including 112,000 in June, according to new numbers released Friday. But those numbers, while welcome news after months of losses in 2002 and 2003, mask a disquieting trend. Employment is increasing largely in two areas -- managerial/professional jobs and service employment. Meanwhile, production and office work that can be done at lower cost by a computer or in lower-wage countries continues to disappear. This pattern of gains and losses helps explain why the public remains cautious about the economy and why the ranks of the working poor may well grow even as the job market expands.
A story helps to illustrate the shift. A year ago, a General Electric technician came to a suburban home to repair a refrigerator. After he fixed the problem and packed to leave, he apologized for having called ahead for driving directions. The work order, he said, had a Zip code and telephone number but no street address. "They switched our call center from India to Costa Rica and the operators must be having trouble with addresses down there," he speculated.
The explanation was plausible but one step behind the times. No call center had arranged the appointment; it had been scheduled by a computer. Its digitized voice could recite menus ("I am going to read a list of common refrigerator problems . . . ). Its software could interpret spoken numbers and a few spoken words, enough to schedule the repair. It was the next step in cost cutting, and an ironic one -- a computer displacing an already outsourced job.
Scheduling a refrigerator repair is what we would call a "rules-based" job -- one that can be accomplished by adhering to a step-by-step procedure ("First, determine what appliance is broken . . ."). When a firm seeks to cut costs, rules-based jobs are a ripe target. If the rules can be clearly defined, the work can be programmed for a computer or sent to another country, where workers can follow the procedures with minimal risk of misunderstanding. Rules-based jobs exist in all parts of the economy, but their greatest concentration is in clerical work and manufacturing. Thus, U.S. insurance claims are now processed in India, robots have replaced many assembly line workers, and the refrigerator that needed the repair was made in Mexico.
The rest of the economy's work is done in what we call "face-to-face" jobs. Face-to-face jobs require a human presence because the work is too complex to reduce to a list of rules and the work must be done here. No step-by-step procedure can describe how a lawyer tries a case or a teacher handles a class of fourth-graders or an auto mechanic fixes a problem that isn't in the manual.
Many of the lowest-paying U.S. jobs also fall into the face-to-face category. A janitor's job -- which requires entering a workplace and making sense of what he or she sees -- is enormously difficult to reduce to a sequence of rules. So janitors survive -- their work can't be outsourced, of course, but it can't be automated either.
As the economic recovery continues, no one supposes that GE or other employers will stop looking for ways to cut costs. The easy target will be rules-based jobs, a large percentage of which historically have been held by high school graduates. What remains will be an increasingly face-to-face labor market that tilts heavily against workers who don't have specialized skills.
To see the tilt, consider the occupational changes of the past four years (see chart, below left). During this time, the number of professional and managerial jobs grew by 1.9 million and the number of workers employed in service jobs grew by almost 2 million. In many respects, professional jobs and service jobs are polar opposites. Most professional work (lawyers, nurses, engineers) requires more than four years of college. Most service work (janitors, cafeteria aides, security guards) requires only basic literacy. Professional jobs average $45,000 a year plus benefits. Service jobs average $20,000 for full-year workers and often lack benefits. What these expanding occupations have in common is the face-to-face nature of their work.
The largest job losses in the last four years were in production and clerical work -- nearly 3 million jobs lost overall. The jobs paid on average $25,000 per year and many were open to high school graduates who did not go on to college. These are largely rules-based jobs. While some of these jobs will come back as the economy improves, many have been permanently lost to computerization and offshoring.
Over the next few years, even if the recovery creates new jobs, the market will continue to migrate toward face-to-face work. Most losers in this shift will come from the 55 million adult workers whose education ended at high school. Carpenters, mechanics and others with skills in a craft will still do well, but many high school graduates without specialized skills will end up in service jobs that offer lower pay and fewer benefits than in the manufacturing and clerical jobs they once held. It's a case of too many less-skilled workers chasing too few jobs.
This changing job mix helps resolve the noisy political debate over whether the economic recovery is producing "good" or "bad" jobs. The recovery is producing good and bad jobs. Educated and skilled workers are getting good jobs while the market for high school graduates without particular skills is slowly falling apart.
When speaking of the economy, President John F. Kennedy often said "a rising tide lifts all the boats." Kennedy governed in a lucky economic time -- the early 1960s -- when technology and trade did not strongly favor one kind of worker over another and economic growth lifted large numbers of high-school-educated workers into the middle class. Today, many politicians invoke Kennedy's language, but the language no longer applies. Trade and technology -- the engines of our growth -- now favor those with more education and more skills. During President Ronald Reagan's two terms, the gross national product rose by 23 percent while the average earnings of 30-year-old male high school graduates fell by one-sixth. In Bill Clinton's first term, the earnings of high school graduates continued to fall. These earnings revived temporarily in the late 1990s boom, but have drifted downward since then. The excess supply of less educated workers has been building for some time.
The long-term challenge in this job market is to maintain avenues of upward mobility. The continual push to improve education is one part of the answer. Better training is a second. But education and training take time while people have bills to pay now. So a third part of the answer is a better safety net for displaced workers, financed by taxes from the majority of the population that is benefiting from the economy's growth.
An expanding economy can create losers as well as winners. In a democracy, support for pro-growth policies will continue only as long as the benefits of growth are widely shared. In such a situation, cushioning the impact of the new labor market is not only fair -- it is prudent.
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