Pinched (4 page)

Arguably the most important economic trend in the United States over the past couple of generations has been the ever-more-distinct sorting of Americans into winners and losers, and the slow hollowing of the middle class. For most of the aughts, that sorting was masked by the housing bubble, which allowed working-class and middle-class families to raise their standard of living despite income stagnation or downward job mobility. But the crash blew away that fig leaf. And the recession has pressed down hard on the vast class of Americans with moderate education and moderate skills.

The rich and well educated, after experiencing a brief dip in their fortunes, are, for the most part, beginning to prosper again today. Much of the rest of America remains stuck in neutral or reverse. In perhaps the biggest picture, the Great Recession has exposed the United States as something that seems uncomfortably un-American: a two-speed society, with opportunities for some.

“
The Great Recession has quantitatively but not qualitatively changed the trend toward employment polarization” in the United States, wrote the MIT economist David Autor in a 2010 white paper. Job losses have been “far more severe in middle-skilled white- and blue-collar jobs than in either high-skill, white-collar jobs or in low-skill service occupations.” Indeed, from 2007 through 2009, total employment in professional, managerial, and highly skilled technical positions was essentially unchanged. Jobs in low-skill service occupations such as food preparation, personal care, and house cleaning were also fairly stable in aggregate. Overwhelmingly, the recession has destroyed the jobs in between. Almost one out of every twelve white-collar jobs in sales, administrative support, and nonmanagerial office work vanished in the first two years of the recession; one
out of every six blue-collar jobs in production, craft, repair, and machine operation did the same.

Autor isolates the winnowing of middle-skill, middle-class jobs as one of several major labor-market developments that are profoundly reshaping U.S. society. The others are rising pay at the top of the socioeconomic pyramid, falling wages for the less educated, and “lagging labor market gains for males.”

“All,” he writes, “predate the Great Recession. But the available data suggest that the Great Recession has reinforced these trends.”

For more than thirty years, the American economy has been in the midst of a sea change, shifting from industry to services and information, and integrating itself far more tightly into a single global market for goods, labor, and capital. This transformation has felt disruptive all along. But the pace of the change has quickened since the turn of the millennium, and even more so since the crash. “
Technology has changed the game in jobs,” former GE CEO Jack Welch told CNBC in 2009. “We had technology bumping around for years in the ’80s and ’90s, and [we were] trying to make it work. And now it’s working.” Companies have figured out how to harness exponential increases in computing power better and faster, and to do so habitually; they’ve “learned to do more with less.” Global supply chains, meanwhile, have grown both tighter and much more supple since the late 1990s—a result of improving IT and freer trade—making it easier to relocate routine work. And of course China, India, and other developing countries have fully emerged as economic powerhouses, capable of producing large volumes of high-value goods and services.

Some parts of America’s transformation are now nearing completion. For decades, manufacturing has become continually less important to the economy as other business sectors have grown. But the popular narrative—rapid decline in the 1970s and ’80s, followed by slow erosion thereafter—isn’t quite right, at least as far as employment goes. In fact,
the total number of people employed in industry
remained quite stable from the late 1960s through about 2000, at about 17 million to 19 million. To be sure, manufacturing wasn’t providing many new opportunities for a growing population, but for decades, rising output essentially offset the impact of labor-saving technology and offshoring.

But since 2000, U.S. manufacturing has shed about a third of its jobs, with the decline accelerating after 2007. Some of that decline surely reflects losses to China. Still, industry isn’t about to vanish from America, any more than agriculture did as the number of farm-workers plummeted during the twentieth century. As of 2010,
the United States was the second-largest manufacturer in the world, and the number three agricultural nation. But agriculture, of course, is now so highly mechanized that only about 2 percent of American workers make a living as farmers. American manufacturing looks to be heading quickly down the same path.

Meanwhile, another phase of the economy’s transformation—one more squarely involving the white-collar workforce—is really just beginning. “The thing about information technology,” Autor told me, “is that it’s extremely broadly applicable, it’s getting cheaper all the time, and we’re getting better and better at it.” Computer software can now do boilerplate legal work, for instance, and make a first pass at reading X-rays and other medical scans. Likewise, thanks to technology, it’s now easy to have those scans read and interpreted by professionals half a world away.

In 2007, the economist and former vice chairman of the Federal Reserve
Alan Blinder estimated that between 22 and 29 percent of all jobs in the United States would be potentially offshorable within the next couple of decades. Ultimately, this process may be more painful than the automation and offshoring of manufacturing, simply because it will leave more people exposed. And with the recession, it seems to have gained steam. The financial crisis of 2008 was global, but
job losses hit America especially hard. According to the IMF, one out of every four jobs lost worldwide was lost in the United
States. And while unemployment remains high in America,
it has come back down to (or below) pre-recession levels in countries like China and Brazil, which are growing quickly.

T
ECHNOLOGICAL ADVANCEMENT AND
trade expansion offer large benefits to society, including better, cheaper goods and services. And over time, both trade and technology create new domestic jobs even as they destroy old ones. But major economic transformations like the one we’re in the midst of today—Blinder once described it as a “third industrial revolution”—are inevitably wrenching. And during downturns, the forces behind them can be particularly vicious. Forced to cut costs aggressively (or given an excuse to do so), companies have pulled forward the difficult workplace restructuring and offshoring decisions that they otherwise would have made over many years, as natural attrition and retirement allowed. As a result, especially intense competition for limited job openings has forced many of the workers they’ve disgorged all the way down the ladder, or out of the workforce altogether. The downward mobility of these workers, meanwhile, has made life harder for high-school dropouts and others who’ve traditionally occupied the lowest rung of the jobs ladder, and who’ve fallen off it in large numbers since the recession began.

“
I think [a middle-class life] is gone forever for a lot of people,” said John Foss to the journalist Michael Luo in February 2009. Foss, a former stockroom clerk, had lost his job at Manchester Tool Company in New Franklin, Ohio, when its only plant had closed a year earlier. (The company’s owner, Kennametal, was consolidating operations to improve efficiency.) Along with 85 percent of the plant’s hourly workers, he’d been unable to find work since, and was searching for jobs in the $8- to $12-an-hour range, well below his previous wage of about $18 an hour. About a third of the plant’s salaried workers—including engineers and accountants—had been asked by Kennametal to stay on, and salaried employees in general had fared
better than their hourly coworkers after the plant’s closure. As of December 2010, Foss was still jobless.

The recession has only sped the societal re-sorting that was already in motion. Both trade and technology have been quickly increasing the number of low-cost substitutes for American workers with only moderate cognitive or manual skills—people who perform routine tasks such as product assembly, process monitoring, record keeping, basic information brokering, simple software coding, and so on. As machines and low-paid foreign workers have taken on these functions, the skills associated with them have become less valuable, and workers lacking higher education have suffered.

For the most part, these same forces have been a boon, so far, to Americans who have a good education and exceptional creative talents or analytic skills. Information technology has complemented the work of people who do complex research, sophisticated analysis, professional persuasion, and many forms of design and artistic creation, rather than replacing that work. And global integration has meant wider markets for new American products and high-value services—and higher incomes for the people who create or provide them.

The return on education has risen in recent decades, producing more-severe income stratification by educational attainment. But even among the meritocratic elite, the economy’s evolution has produced a startling divergence. Since 1993,
more than half
of the nation’s income growth has been captured by the top 1 percent of earners, families who in 2008 made $368,000 or more. And in fact, incomes among the top 0.1 percent have grown even faster. Nearly 2 million people matriculated to college in 2002—1,630 of them to Harvard—but only Mark Zuckerberg is worth many billions of dollars today;
the rise of the super-elite is not a product of educational differences. In part, it is a natural outcome of widening markets and technological revolution—a result that’s not even close to being fully played out, and one reinforced strongly by the political influence that great wealth brings.

Recently, as technology has improved and emerging-markets countries have sent more people to college, economic pressures have been moving up the educational ladder in the United States. “It’s useful to make a distinction between college and post-college,” Autor told me. “Among people with professional and even doctoral [degrees], in general the job market has been very good for a very long time, including recently. The group of highly educated individuals who have not done so well recently would be people who have a four-year college degree but nothing beyond that. Opportunities have been less good, wage growth has been less good, the recession has been more damaging. They’ve been displaced from mid-managerial or organizational positions where they don’t have extremely specialized, hard-to-find skills.”

College graduates may be losing some of their luster for reasons beyond technology and trade. As more Americans have gone to college, Autor notes, the quality of college education has become arguably more inconsistent, and the signaling value of a degree from a nonselective school has perhaps diminished. Whatever the causes, “a college degree is not the kind of protection against job loss or wage loss that it used to be.”

To be sure, it is vastly better to have a college degree than to lack one. Indeed, the return on a four-year degree is near its historic high. But that’s largely because the prospects facing people without a college degree have been flat or falling. Throughout the aughts,
incomes for college graduates barely budged. In a decade defined by setbacks, perhaps that should occasion a sort of wan celebration. “College graduates aren’t doing
badly,
” says Timothy Smeeding, an economist at the University of Wisconsin and an expert on inequality. But “all the action in earnings is above the B.A. level.”

America’s classes are separating and changing. A tiny elite continues to float up and away from everyone else. Meanwhile, as manufacturing jobs and semiskilled office positions disappear, much of what the United States has historically regarded as its middle class is
in danger of drifting downward. Left in between is what might be thought of as the professional middle class—unexceptional college graduates, for whom the arrow of fortune points mostly sideways, and an upper tier of college graduates and postgraduates for whom it points progressively upward, but not spectacularly so.

If you live and work in the professional communities of Boston or Seattle or Silicon Valley or Washington, DC, it is easy to forget that even among people age twenty-five to thirty-four,
college graduates make up only about 30 percent of the population. And it is also easy to forget that a
family income of $113,000 in 2009 would have put you in the eightieth income percentile nationally, or that $200,000 would have put you in the ninety-fifth percentile. The professional middle class is too privileged for pity, but it has its own distinct worries and character, and its restlessness has shaped the political reaction to the crash.

T
HE SAME FORCES
that have driven the separation of America’s classes have also pushed men and women in different directions. As the middle class has hollowed over the past twenty years, both low-skill service jobs and high-skill, high-paying jobs have grown—and in roughly equal measure. But, as Autor notes, the sexes have not been equally affected: overwhelmingly, women have moved up from the dwindling middle. Men have been much more prone than women to move down, if not out.

Men still make more money than women on average, partly because of lingering discrimination. But the gap has been closing, in part because women have done so much better than men in the classroom in recent decades.
The share of the male population receiving a college degree has been basically flat since 1980. In 2010,
for every two men who graduated from college, three women did the same. Most managers in the United States are now women. And according to the research firm Reach Advisors, in 2008, among childless
singles age twenty-two to thirty,
women earned more than men in thirty-nine of the fifty largest cities in the country, largely because they were so much better educated.

In the long run, what is perhaps as significant as the trend in wages is the trend in work itself. Soon after the crash, women became a majority of workers for the first time in American history (though they’ve traded places with men several times in the months since then). That’s not primarily because women have been streaming into the workforce; growth in women’s employment has slowed in the past ten years, following rapid gains beginning in the 1970s.
It’s the opposite trend that is still going strong. Men have been gradually moving out of the workforce since the 1970s—not just in the United States, but in most rich nations. It’s just happened faster since the crash. In 2009 and 2010,
more than 18 percent of men in their prime working years were idle, the highest proportion since 1948, when the federal government began tracking that statistic.