Middle Class Malaise: The Recession's Impact on Jobs

The middle is being hollowed out. This is not a new trend. Numerous reports have cited the fact that mid and lower incomes have remained flat on an inflation adjusted basis for thirty years.

David Leonhardt, in his Economix blog, discusses why this is happening and what it means for the global economy:

"David Autor, an M.I.T. economist who has done excellent research on the labor market, has been the focus of blogosphere discussion lately. Tyler Cowen says he deserves much more attention than he gets. Paul Krugman discussed his work in a blog post and column. Michael Luo featured Mr. Autor’s work in a Times article last summer.

The very brief version of Mr. Autor’s argument is that the middle of the American job market is being hollowed out. As he wrote in a recent paper:

"the structure of job opportunities in the United States has sharply polarized over the past two decades, with expanding job opportunities in both high-skill, high-wage occupations and low-skill, low-wage occupations, coupled with contracting opportunities in middle-wage, middle-skill white-collar and blue-collar jobs.

Concretely, employment and earnings are rising in both high-education professional, technical, and managerial occupations and, since the late 1980s, in low-education food service, personal care, and protective service occupations. Conversely, job opportunities are declining in both middle-skill, white-collar clerical, administrative, and sales occupations and in middle-skill, blue-collar production, craft, and operative occupations.

On the most fundamental level, his thesis seems hard to argue with. Job losses in middle-skill occupations, as they’re defined by the Labor Department, appear larger than job losses in many high-skill and low-skill occupations. Likewise, since the recession began in late 2007, employment has fallen more for workers who graduated from high school but not college than it has fallen for either high-school dropouts or four-year college graduates, according to the Labor Department.

But I think it would be a mistake to use Mr. Autor’s findings to make a broader argument that seems as if it might flow naturally from his work — namely, that most middle-wage workers have fared worse in this recession than high-wage or low-wage workers. That doesn’t appear to be the case.

On wages — the most important factor for most workers, since the vast majority of workers remain employed even when unemployment is high — middle-wage workers have fared worse than high-wage workers but better than low-wage workers. Rising inequality, rather than a hollowing out of the middle, seems to be the best summary of recent wage trends.

College graduates have received a raise since the recession began. Every other educational group has taken a pay cut.

Workers near the top of ladder — at the 90th percentile, making $1,820 a week — have received a nice 8 percent pay increase since the recession began in the fourth quarter of 2007. Workers at the dead middle of the ladder, making $752 a week, have received a 3 percent raise. Workers near the bottom — at the 10th percentile, making $354 a week — have received only a 1 percent raise. (This data is collected quarterly, which is why the overall picture may look different than in the earlier chart, which showed annual data.)

Both of these data series make a strong case that middle-class workers who’ve held onto their jobs have weathered the Great Recession better than low-income workers. Why would this be, given that unemployment has risen more in middle-wage occupations? It’s not entirely clear.

One possibility is that the middle-wage workers who have kept their jobs are quite different from the middle-wage workers who have lost their jobs. Perhaps most groups of middle-wage workers remain somewhat in demand — and have continued to receive raises — while other middle-wage workers have skills that aren’t well suited to the post-recession job market. As Harry Holzer of Georgetown University wrote in a recent response to the Autor work, “employment in many middle-skill job categories remains robust.”

I would welcome thoughts from readers and other writers. But I’d also caution people not to jump from Mr. Autor’s findings to the conclusion that the Great Recession has been harder on the middle class than on the poor