THE U.S. IS STILL CRANKING OUT LOUSY JOBS
President Clinton took office promising to steer the U.S. onto a high-skills, high-wage growth path. In hopes of doing so, he soon launched a variety of modest programs, from apprenticeships to more assistance with college expenses.
Unfortunately, several recent reports make it clear that this effort hasn't started to pay off--even with the help of an economic expansion. Two Labor Dept. studies show that employment growth in the 1990s has been depressingly similar to that of the 1980s: An abundance of white-collar jobs have been created but mostly in lower-paid service industries-- along with plenty of low-wage service and clerical positions (charts). What's more, other studies show that pay hikes for existing jobs still aren't outpacing inflation. The result is that average real wages continue to fall for blue-collar workers and remain substantially below their prerecession peak for white-collar employees.
THEIR OWN IDEAS. Now Labor Secretary Robert B. Reich is trying to put the issue back on the front burner. Only this time he plans to put business squarely in the hot seat. In a Sept. 27 speech to the National Alliance of Business, Reich said he isn't yet ready to revive some Clinton campaign ideas that riled Corporate America, such as mandating that employers spend 1.5% of their payrolls on training. Instead, he wants companies to embrace other methods for achieving the same result--or come up with their own ideas. The Secretary suggests new tax incentives for training, for example, or voluntary commitments for workforce investments. Although Reich knows that the Administration doesn't have the clout to force ideas such as a training mandate through Congress, he still holds out the threat, at least implicitly. "If we cannot develop a superior approach, it would certainly be better to embrace [a mandate] than to abandon the goal," he warned.
There's little doubt that the U.S. isn't yet moving toward a high-wage strategy. In an analysis of the 3.66 million net new jobs created from 1988 through 1993, the Labor Dept.'s Bureau of Labor Statistics (BLS) found that executive and professional employment expanded by 2.8 million. But 2.65 million of these jobs were in service industries, such as health care and lodging, which tend to pay worse than most others. For instance, a front-office motel manager earns $18,000 to $32,000 a year, vs. the $40,000 to $60,000 with overtime that a unionized auto worker rakes in.
Meanwhile, the study shows, 1.7 million higher-wage, mostly blue-collar manufacturing jobs vanished, many in defense. One million other new jobs came in the lowest-paid service occupations, such as cleaning and food preparation. "The trend I found is virtually the same as in the '80s--a shift to lower-wage industries and higher-wage occupations," says Tom Nardone, the BLS economist who wrote the study. He found the same pattern when he looked just at the 4.2 million jobs created between February, 1992, when employment bottomed out after the recession, and in April of this year.
As important as net new jobs, moreover, is what has happened to the pay of those who are already working: The raises received by 101 million existing workers affect the calculation of average compensation far more than the wage levels of 3.6 million new hires do. After adjusting for inflation, the pay of all private-sector employees fell 4%, to $13.39 an hour, between 1988 and 1994, according to the Economic Policy Institute (EPI), a liberal think tank in Washington. Its analysis is based on the Labor Dept.'s Employment Cost Index, drawn from a survey of employers conducted every March.
DIPPED AGAIN. In fact, 31/2 years into the recovery there's little sign that it has made much difference at all. While wages did rise by a slight 1.2% in 1992 after inflation, they have remained flat or have fallen every other year since 1988. They dipped again, by 1% in real terms, in the year ended in March of this year. Even throwing in such benefits as health care doesn't make much difference: Average compensation has lagged inflation by 2% since 1988.
Beyond that, splitting the workforce into subgroups makes it clear that all those new executive and professional jobs didn't make much difference. Although white-collar pay has risen slightly--1.6% in real terms--since the slump ended in 1991, it remains 1.3% below its 1988 level. And the blue-collar set is singing the blues, with a 7% real decline since then. "There might have been a little boost to wages from the recovery, but the long-term problems are still with us," says Larry Mishel, the Economic Policy Institute's chief economist.
The outlook for the future isn't much better. The BLS projects that 57% of the 26 million net new jobs it thinks will be created by 2005 will be in occupations with above-average earnings. Even if this turns out to be accurate, however, it says nothing about the wage levels of the 100-plus million people already working. If their pay hikes continue to trail inflation, average wages are almost certain to decline in real terms despite any spurt of higher-paid new jobs.
ANOTHER SLUMP. It's possible that demographic trends will produce a pleasant surprise. Baby boomers are likely to earn more as they move into their 40s and 50s, typically the highest-earning years. And older boomers will start retiring soon, opening up higher-wage jobs for younger workers who have suffered the brunt of the '80s wage decline. It's also conceivable that the current recovery eventually will lift inflation-adjusted wages enough to allow the average worker to surpass the 1988 peak. However, that's increasingly unlikely, since many economists expect another slump to begin sometime in the next couple of years. And over the long run, none of these factors will offset the impact if a majority of employers continues to keep a tight lid on wages.
The Administration was defeated in its initial efforts to launch a full-scale high-skills strategy. Now it's taking another shot at that goal. Corporate America has been unenthusiastic about most of the ideas so far. But it hasn't yet come up with alternative solutions. Employers must focus first on becoming competitive, but they also must come to grips with the continuing wage slide. Reich is right when he says that "government can't do it alone. Now it's time for the private sector to come up with initiatives." Otherwise U.S. living standards will remain at risk.Commentary/by Aaron Bernstein