Emptying the middle class?

First, read A Metaphor for America. You can stop reading at the photo of Mayor Doherty if you want.

The basic premise of the article is that once-reliable middle class jobs have been substituted for cheaper equivalents in other countries, new technology, and possibly a change in consumer demand preferences. I don’t doubt any of these premises. Let’s just take these as exogenous trends for now, although with the latter we’re probably assuming away some long-run feedback effects, especially if we consider the effect of poverty on education and the effect of education on preferences.

The article suggests that small, consumer-oriented businesses are not viable because there is not enough excess wealth to support demand for their products. Let’s also take this for granted. The article also suggests that demand for “desk labor” could be rising in the same cities where demand for “factory labor,” but that this labor is often imported (literally). Moreover, the revenue generated by this imported “desk class” does not, for whatever reason, trickle down to the now-unemployed “factory class.” We can take this for granted, too.

This is where we run into the notion of “skills mismatch,” an idea that is currently being debated in the economics blogosphere. Tyler Cowen provides a good jumping-off point here, based on an article by Peter Orzsag. They are discussing a macro issue — lack of employment — and I am discussing a micro issue — poorly-compensating employment — but there is enough explicit overlap for me to suspect they are two sides of the same coin. Orzsag points to three possible explanations for the apparent disparity between new job openings and actual new hires:

  1. Companies can’t find employees with the mix of skills they want at the wages they’re willing to pay.
  2. Companies are filling the openings through internal labor markets, leaving behind vacancies that the companies do not need or care to fill.
  3. The vacancy numbers are artificially inflated by ghost openings that companies do not ever intend to fill.

#3 is supported by evidence that companies have reduced their “recruiting intensity,” and #2 is supported by an apparently structural reduction in the number of job separations each month. I haven’t seen anyone comment on whether #2 is causing #3 but it seems like an obvious possibility to me. (As an aside, on-the-job training is apparently at an all-time low. If companies are hiring internally, either “on-the-job training” is becoming increasingly informal or companies are increasingly able to get people to train themselves on their own dime, i.e. they more able to pass the cost of investing in human capital onto the owners of that capital.)

In Scranton, at least, #1 doesn’t seem like a problem, either. At least, according to Hedges. And I believe what he says. I suspect that hiring managers at the offices opening in the Scranton area are only recruiting locally for the low-wage support jobs, and are instead using industry networks to hire the specialists. This is effectively importing labor, precisely the opposite phenomenon of the outsourcing that scared off Scranton’s manufacturing sector.

Moreover, these are precisely the jobs Scrantonians apparently no longer have access to. The article highlights Pat Langan, who works three jobs to make the same money as a Prudential Retirement IT specialist working one.

I have some questions:

  1. Why Indians over Scrantonians? These jobs probably require a BA and 3-5 years of experience in the field, which the South Asian migrants almost certainly have and the ex-factory workers almost certainly do not have. This is classic skill-biased technological change.
  2. Why Indians over Americans from other cities? Half of college grads in the US apparently aren’t working jobs that require a college degree. On average, Bachelor’s holders earn $45,000 a year, so the jobs cited in the article aren’t underpaid. Maybe Scranton is just that horrible of a place, and college grads would rather try to ride out the labor market than relocate to a dilapidated coal town 2 hours from the nearest major city.
  3. Why do the IT support jobs pay so much less than the cigar-dipping jobs? Is the latter actually worth twice the former in terms of marginal productivity?
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2 responses to “Emptying the middle class?

  1. Pingback: Scranton, again | Lots of Bad Ideas

  2. Pingback: Lots of Bad Ideas

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