Middle-wage employment moves U.S. economy

Finally, a small surge of hiring in these two sectors might begin to balance the wage scale.

By Shobhana Chandra and Victoria Stilwell

Jul 31, 2014 @ 5:49 pm EST

middle class

Ryan Kenny has been testing chainsaws for the last seven months and getting paid for it. He's also among a growing cadre of U.S. middle-income earners.

After two internships, the 23-year-old was hired at Stihl Inc. to check the durability of parts and power tools, a position that pays from $40,000 to $60,000. He's an example of how America's earnings scale is becoming more balanced as employment expands in occupations within manufacturing, sales and construction that require greater skills.

Hiring in such fields has increased 2.9% since the start of 2013, outpacing overall employment, according to research by JPMorgan Chase & Co. That marks a respite in a decades-long shrinking of the middle tier as payrolls picked up at the top end of the scale and in low-wage occupations such as food and retail services.

“There's a hint of an end to job polarization,” said Robert Mellman, a senior U.S. economist at JPMorgan in New York. “It's a better story for the economy. We are creating more higher-paying jobs.”

A sustained improvement in jobs typically held by the middle class will help lift average income and allow for more household consumption, the biggest part of the economy. The broadening also counters two narratives about the labor market: that low-paying occupations will remain the driver of employment growth in this expansion, and that the middle-skill positions will keep disappearing.

A Labor Department report tomorrow is projected to show payrolls increased in July by more than 200,000 workers for the sixth month and joblessness held at an almost six-year low.


The economy has been characterized by increasing labor-market polarization as workers in middle-wage occupations fell victim to advances in technology and cheaper labor overseas, according to Mellman, who tracked data since 2000. This trend started to slow early last year.

Some 974,000 middle-income positions have been added this year alone. The increase in the number of jobs at mid-wage occupations since the start of 2013 matches the pace of growth in high-wage fields, according to seasonally adjusted data from JPMorgan.

Employment at lower-wage service occupations fell 0.5 percent since January of last year. The figures are based on the Labor Department's household survey, used to calculate the unemployment rate because the agency's survey of establishments doesn't break down the data by occupations.

The results indicate that the labor market is becoming more inclusive compared with the early years of the expansion, when the lower-paying leisure and hospitality and retail industries led gains in payrolls. This trend fights the characterization of “a nation of burger-flippers,” Mr. Mellman said.

Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto, looked at paychecks to come to a similar conclusion.

“It's not all low-quality, low-paid jobs,” he said. The 1.3 million private positions created in the first six months of this year paid $867 a week on average, exceeding the $843 for all 117 million private-sector workers, according to his research based on the mix of jobs created and weekly earnings.

That's “refuting the idea that it's all waiting tables for five hours a week,” said Mr. Ashworth. “It looks like we are creating better jobs than that.”


Payroll gains have averaged 231,000 a month this year. If the pace is sustained for the remainder of 2014, it would mark the best performance since 1999. Employers added 231,000 jobs in July and the jobless rate held at 6.1 percent, according to the median forecast of economists surveyed by Bloomberg before tomorrow's Labor Department report.

As employment in mid-level occupations improves, wages are following, too. Wages and salaries for jobs in such fields as sales and office, natural resources and production climbed an average 2.1% in the second quarter from the year before, according to figures from the Labor Department's employment cost index issued today. That compares with 1.2% wage growth in service occupations, and a 1.9% increase in management and professional occupations.

Mr. Kenny's job at Virginia Beach, Va.-based Stihl, a maker of chainsaws and other power equipment, also provides health-care benefits and partial tuition reimbursement for his mechanical engineering degree.

“It's a better situation for me, as I like the work and it's less stressful,” said Mr. Kenny, who earns about $5,000 more than when he ran his own landscaping business. “Stihl was expanding the department, and I was a pretty good fit. From my experience, the job market is getting better.”


JPMorgan's Mellman and Capital Economics' Ashworth acknowledge that the recent recovery in payrolls within mid-skill occupations is nascent. While the gains indicate the expansion is finally creating better-paying jobs, other economists want more evidence.

“We would of course expect some rebound of middle-skill jobs given that they were trounced in the Great Recession,” said David Autor, professor of economics at Massachusetts Institute of Technology in Cambridge, whose research has focused on job polarization and shifts in the labor market over the past 30 years. “It's too early to say, however, whether the pattern of the last two years reflects a long-term resurgence of middle-skill jobs or merely a dead-cat bounce. I think it would be terrific if this trend continues,” he said in an e-mail.

Heather Boushey, executive director and chief economist at the Washington Center for Equitable Growth, also said she's waiting for “full-on rapid and sustained growth of high-quality jobs, especially for those in the broad middle of the wage distribution.”


The recent uptick in employment has yet to draw large numbers of Americans back into the labor force, which “mitigates against the idea that we are creating a sufficient number of jobs in the middle,” she said.

Former Federal Reserve Vice Chairman Alan Blinder, now a professor at Princeton University in New Jersey, said the underlying roots of job polarization are difficult to pinpoint.

“I'm not sure we fully understand it, although we blame it on technology,” which makes it difficult to determine when the trend will run its course, Blinder said. “The working assumption, which might prove wrong, should be that it's with us for a while.”


An analysis by Federal Reserve Bank of St. Louis economist Maria Canon this month found progress is being made in generating better-paying employment. Since the recession, workers in industries that created the most jobs, including professional and business services, education and health care, and mining and logging, earned more per hour and worked a longer workweek than the average employee across all industries, the report showed.

“There are no clear signs in private payroll employment statistics of higher levels of labor underutilization relative to December 2007,” Canon wrote.

Not all Fed policy makers agree. The labor market still has plenty of room for improvement, even after a drop in unemployment, the central bank said yesterday at the conclusion of a two-day meeting.

“A range of labor-market indicators suggests that there remains significant underutilization of labor resources,” the Federal Open Market Committee said in a statement. Fed Chair Janet Yellen also told lawmakers this month that while her view of the economy has turned “more positive,” she's concerned about signs of job-market “slack” such as low participation in the labor force.

Gaining Confidence

Workers are feeling more positive. Some 35 percent of Americans say now is a good time to find a quality job, according to a Gallup poll published this month. That's the highest share since December 2007, the start of the most severe recession in the post-World War II era. The average is 26 percent since polling for the question began in 2001.

An improving job outlook for middle-wage earners is starting to manifest itself in consumer attitudes. Confidence among households with incomes from $35,000 to $50,000 rose this month to the highest level since December 2007, data from the Conference Board showed. For those with incomes ranging from $50,000 to $75,000, confidence rose to the highest level in figures going back to November 2010.

Job losses in routine occupations that were common in the past decade may be starting to diminish, Mr. Mellman said. Companies that replaced workers with computers and software to handle administrative tasks, for instance, have largely completed that process, he said.


“That's all been done,” Mr. Mellman said. “Now it's starting to change. Demand seems to be picking up for workers with somewhat more skills.”

Stronger manufacturing, a pickup in energy production and the recovery in construction are sparking openings in better-paying occupations, and companies may be hiring more middle-income sales people, he said.

Drew Greenblatt, the owner of Marlin Steel Wire Products LLC in Baltimore, has grown his workforce by 12 percent this year by adding factory workers with an average salary of $50,000.

The company, which makes material-handling baskets and sheet-metal fabrications for customers including Boeing Co. (BA), is having its best sales year on record, and is poised to take on as many as 17 additional workers in the coming months after securing a new contract.

“We're getting more sales, and we need more talent to help us satisfy the demand,” Mr. Greenblatt said. “These are good-quality jobs. These are career jobs.”


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