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Home Publications Blogs Beat the Press Labor Economics 101: Few Jobs Means Bad Jobs

Labor Economics 101: Few Jobs Means Bad Jobs

Saturday, 31 August 2013 08:02

Everyone knows the story about the two old men in a retirement home. The first one complains that, "the food here is poison." His friend agrees with him then adds, "and the portions are so small."

We have been getting this story the last several years in assessments of the labor market. The economy remains far below full employment by every measure. The employment to population ratio is still more than 4 percentage points below its pre-recession level. We are almost 9 million jobs below trend levels. In addition, many have pointed out that a disproportionate number of the jobs that have been created have been low-paying jobs in sectors like hotels and restaurants.

Some analysts have picked up on the latter point to argue there has been a fundamental change in the economy. They claim we are moving to an economy that produces high-paying jobs for highly skilled people (e.g. doctors, lawyers, financial engineers) and bad jobs for everyone else. I have beaten up on this one elsewhere. (The trick for doctors and lawyers is protectionism not skills.)

However there is no dispute that bad jobs seem to be growing rapidly as a share of employment at present. The question is why. An alternative explanation to the "it just happens" view is that the weak economy itself is responsible for the proliferation of bad jobs. In other words, because the economy is not generating decent jobs in any reasonable number, workers are forced to take bad jobs. In that story the proliferation of bad jobs is the direct result of a weak economy.

I did a very crude test of this story. I regressed the rise in the share of hotel and restuarant employment from 2007 to the first half of 2013, across states, against their unemployment rate in July of 2013. Here's the picture.


While far from conclusive, this looks like pretty good support for the bad labor markets lead to bad jobs story. (For regression fans, the coefficient of the unemployment rate variable was 0.0013 with a t-statistic of 4.65, which is significant at the 1 percent level.) There are of course other reasons than the lack of good jobs that could cause the share of restaurant employment to grow more in states with high unemployment.

For example, if we believe that the rate of growth of restaurant employment is more or less fixed, then states with weak overall job growth would see a rising share of restaurant work. But the substatantial variation in the growth rate of restuarant employment across states would make this story less credible.

Anyhow, I wouldn't claim this simple test seals the case, but it strongly suggest that the story of bad jobs is the story of weak labor markets. In this story the food is poison because the portions are small.


Comments (11)Add Comment
written by Chris E., August 31, 2013 9:09
The devil has always been in the details of all these jobs reports (as you've dutifully pointed out on your blog over the time of this "recovery").

Lots of part-time work, work that's below the capabilities of educated individuals, etc. These are the kind of jobs that will produce the headline number that the Obama administration cares about, but the details really do matter. And it stands to reason that, in an economy that requires a nice jolt, most jobs being created won't be the kind of stable middle-class, family-starting jobs, but the stuff that keeps you barely hanging on.
Any way we could see these states named?
written by Aaron Dellutri, August 31, 2013 10:25
This is a very interesting graph. Looking at it, I am somewhat interested to see these states named. Which state, for instance, is the outlier with the very high unemployment and the very high growth in restaurant/hotel employment?
Let Them Eat Poison
written by Last Mover, August 31, 2013 11:05
In this story the food is poison because the portions are small.

Of course this directly contradicts the garden variety interpretation from wanna-be economists who assert in error, not only is the food not poison, it's high quality. It's logical they say, to keep and hire only (in smaller portions) the most productive (and highly paid) employees when demand falls off.

At the microeconomics level it makes sense, the same way it makes sense to use only one light in the dark that provides more light (per source) than provided by a second light. In hard times the second light is not used.

But at the macro level that's not what happens at all because the "small portions" add up in the aggregate as high levels of unemployment, which itself acts to "poison" what jobs are available into a state of low productivity and pay.

Further, when over qualified workers take these jobs or are rejected, it turns on its head the whole notion of structural unemployment since even with "mismatched" skills most can still do the jobs.

At the high end of the labor market "skilled" employees are said to be "structurally employed" which in turn justifies their high pay. Yet in direct conflict, where "structural unemployment" is claimed to exist below the high end, as Dean Baker says regularly, there is no evidence of high wages necessary to lure in the necessary skills to fill these jobs.

So "few jobs means bad jobs" applies in a deep jobless recession, to low end professionals and the middle/ lower class, while "few jobs means good jobs" is carved out for the upper class based on artificial shortages created through market power, where despite the small portions, the food is never poison either.
written by JSeydl, August 31, 2013 1:23
That's an interesting correlation. Another point to make is that restaurant job openings as a share of overall job openings is not higher today than it was prior to the recession. So these jobs have always been there; it's just that more people are likely taking them today out of desperation. Pretty sure Dean has made this point before.

The thing is, I wonder who the people are who are taking these jobs. Are they mostly former construction workers, or at least people previously working in industries tied to homebuilding in some way? The question I have is, if you could snap your fingers right now and move the economy to full employment, in a way not driven by a bubble, where would all of these workers be employed? If the narrative is true, many of them wouldn't be working at restaurants. The construction sector would re-employ some of them, but there would still be an excess in what sectors? Maybe we want a higher structural level of government employment. It would of course also be great to have a serious comeback in manufacturing; but I really wonder how quickly many of them could learn modern factor skills even if the dollar dropped quickly.

I'm all for employing them temporarily in government projects. But I'm just trying to think longer-term.
written by wil cummings, August 31, 2013 9:19
Are there more restaurant and hotel jobs overall or are they divided into smaller hunks?
If there are more jobs does this document the wealth gap? If more people use those services those users are obviously prospering. In a widely depressed economy wouldn't service industries lose business and offer fewer jobs?
Capital keeps switching the spices to serve poison seed corn
written by JaaaaayCeeeee, September 01, 2013 3:28

The Sunday nyt goes further than the usual ignoring of Bernanke's calls to Congress to quit contracting the economy: David Leonhardt calls Bernanke a political decision avoider (!!1!1!!) and claims with his last link that Bernanke only started warning against contractionary fiscal policy this year (along with calling Larry Summers a more natural bridge than Yellen, heh heh, and links omitting Yellin's work on looming mortgage risk) http://www.nytimes.com/2013/09...ef=opinion

At least David Leonhardt tries to seem thoughtful. Tyler Cowen's Sunday nyt op-ed, is hilarious. He ignores demand, for the gods of marketing and supply side, with sparkly tech paeans, telling us how 'the USA wins' by marketing stuff made in its machine economy of the future. A future where we won't need pesky politically radical middle class manufacturing workers, who just cause social turmoil and unrest.
More Taco Bell, Less GM
written by dave, September 01, 2013 3:52
I guess it's more people work at Taco Bell, less people work at GM.

I'd be interested to know - working at a high end restaurant can provide a decent living due to tips. But working at a fast food joint is a life of poverty. What *kind* of restaurant jobs are proliferating?
written by Juan Deshawn Arafat, MSNBC Commentator, September 01, 2013 11:02
Reducing unskilled immigration would also help. I have to hand it to you Dean, you have had the courage to raise this issue on your blog. Your other liberal amnesty supporting economist friends, not so much.
Low Quit Rates and Declining Real Wages
written by sherparick, September 01, 2013 3:18
Another point that there is even with the very low inflation rate of the last 5 years, the real median wage have continued to decline. That there appears to be no wage pressure across the jobs survey is evidence that employers have no pressure to bid wages up. Further, the low quit rates of employees indicates that there is no better employer for most folks to jump. Again, I think for the .1% this is really considered a feature, not a bug, which is why Geithner, Sperling, Orzag, and Summers pat themselves on the back for a job well done.

One quibble though, if lawyers were once part of the protected group, they are no longer except for an elite 1% and their family members at the top of the profession. http://www.lawyersgunsmoneyblo...sentiments
standard of living is falling
written by to the inflation will solve all problems crowd, September 02, 2013 8:04
here's some news for you eggheads.

the standard of living in the US is falling.

the is the real side of the story.

and it shows up as falling real wages.

what we see everywhere is rising prices and falling purchasing power (cost push inflation).

when the GFC hit, there was "deflation" for a couple of months only. If we are really so below capacity then we should be seeing widespread deflation.

we see that only in the rallying cries of keynesians and govt paid economists who have and axe to grind.
written by NWsteve, September 03, 2013 10:12
@ Aaron:
the "outlier" in the chart is: NEVADA

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.