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Home Publications Blogs Beat the Press Restaurant Work in the States and the Loss of Middle Class Jobs

Restaurant Work in the States and the Loss of Middle Class Jobs

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Thursday, 05 September 2013 12:25

I did a short post while everyone was out enjoying their Labor Day weekend that I want to briefly revisit. The topic was the growth of bad jobs in the current recovery.

As many people have noted, a disproportionate share of the jobs being created in this upturn are in low-paying sectors like restaurants and retail trade. This means that even the people who are able to find work in the current labor market conditions are unlikely to get a job that will provide enough income to support a family.

This is clearly bad news for large segments of the workforce. The question is why are we seeing so many bad jobs?

On the one hand we have the technology story which tells us the economy has changed. The jobs that used to provide a decent standard of living for the middle class are disappearing. In our brave new world of robots and computers the economy creates some number of very good jobs for the people with the right skills and it creates bad jobs for everyone else.

The other line of reasoning is that it is not technology that has changed, rather it is people's desperation that is forcing them to take bad jobs that they would not have considered otherwise. In this view the bad jobs were always there, but most people had better alternatives so they didn't take them. What's changed from the period when we didn't see so many bad jobs is that we have a much weaker labor market. The weakness of the labor market is the key factor in this story.

Note that these two stories have very different policy implications. In the first story, we want to train more of the losers to get the skills they need to become winners. For the ones who are too old or just can't hack computer technology, well maybe we can dig up some spare change to keep them fed and housed, but you know, life is tough.

In the weak labor market story the key is to boost demand. This can be done through government spending, reducing the trade deficit, or by redistributing work through work sharing. If the labor market tightens then people will be able to get better jobs. In fact, if the labor market tightens enough even the bad jobs will become better jobs. In a tight labor market, employers will pay people much more to work in fast food restaurants or as retail clerks.

I decided to use a very simple test to distinguish between these two stories. I looked at the change in the share of hotel and restaurant employment by state, compared with the state's current unemployment rate. The latter being a good measure of the strength of the labor market.

If the technology story is right, then there should be no relationship between the growth in the restaurant share of employment and the unemployment rate. If anything, we might expect a negative relationship with states that are moving more rapidly into the brave new economy with high restaurant employment also seeing the most job growth, and therefore lower unemployment.

On the other hand, the weak labor market story predicts that a higher unemployment rate would be associated with a larger increase in the restaurant share of employment. This is simply the story that high unemployment rates will make workers more desperate and force them to take bad jobs.

It turned out that the test supported the weak labor market story.

btp-2013-09-05

It showed a strong positive relationship between the growth in the share of restaurants employment and the unemployment rate. (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.) This fact is hard to reconcile with the changing technology story.

This is a very simple test and is far from conclusive, but it suggests that the problem of low paying jobs is simply one of a weak labor market, not a grand shift in technology. While it's always a good idea to encourage people to develop more skills and get a better education, this is not a solution to the underlying problem. We have to get the economy moving so that we will again be close to full employment.

Comments (7)Add Comment
...
written by urban legend, September 05, 2013 4:53
The technology explanation is bull crap because (1) the number of high school graduates, college graduates, graduate school graduates and engineering and science graduates have all grown much faster than the population since, say, 1990 (or pick another year if you'd like), (2) NAEP and international tests show students, including (and especially) minority students, know more (test much higher) than they did 20 years ago.

With incomes stagnant for most people and the home equity gravy train no longer available to pump up consumer spending, demand is too low. Period. Business people know that. Most of them are afraid to say so as individuals because they don't want to be treated as traitors to their class. Their class includes rentiers who get off on others failing while they are wealthy, but in any case like the middle classes fearful and kept in their place.
Impact on wage growth
written by Amod, September 05, 2013 8:35
Dean,

Wouldn't we also see a much slower wage growth in restaurant jobs since recession than an average job? How do we get those numbers?

Thanks.
Chicken or Egg: Too Many Bad Jobs or Too Much Unskilled Labor?
written by Last Mover, September 06, 2013 6:36
If the technology story is right, then there should be no relationship between the growth in the restaurant share of employment and the unemployment rate.


Why? Surely those who claim the unemployment is structural would agree the lack of appropriate skills to hold high tech jobs in a particular state results in taking worse jobs. So the question is whether that unemployment drives higher employment for low skill labor.

If it does, there would be a correlation between high unemployment by state and more jobs for low skill labor, but the causal factor wouldn't be cyclical unemployment, it would be driven by the degree of structural unemployment.

If the economy was at full employment with no cyclical unemployment and only structural and frictional unemployment otherwise, the unemployment rate by state could vary randomly, or it could vary with interstate differences in structural unemployment.

That could produce a positive relationship between share in restaurant job growth and unemployment by state. Those claiming structural unemployment and lack of skills is the problem would explain Dean Baker's regression results this way, pointing out that workers with mismatched skills for high tech jobs should be forced to take worse jobs at lower wages because this is how free markets work.

In chicken or egg terms, the essential starting point requires the assumption of whether cyclical unemployment exists at all, and those claiming the only unemployment is structural (and frictional) ignore that condition.
Overstate the pay
written by Ann, September 06, 2013 11:58
This sentence of "This means that even the people who are able to find work in the current labor market conditions are unlikely to get a job that will provide enough income to support a family." need changed.

It should read

This means that even the people who are able to find work in the current labor market conditions are unlikely to get a job that will provide enough income to support just themselves - forget about supporting even one kid..

...
written by comma1, September 06, 2013 12:09
Maybe I'm misunderstanding, but... one fundamental shift caused by tech is the evaporation of place. The state's that have successful tech sectors are not replacing labor for tech just in that state but rather, around the world. So there need not be a correlation between low paying hotel employment and a state and the tech sector of that same state.

I'd also say that pointing to the wave of labor saving tech and thinking it is like the tech of the past is a misdiagnoses. It is precisely because the internet is not the automobile that the old adage of a skill mismatch (training blacksmiths to become mechanics) no longer applies. If anything the two are part of the same story. Demand is in short supply and one reason for that is because of tech (an ever growing reason).
Gives me wook
written by Mr. Bill, September 06, 2013 11:37
Gives me sum woork, massa. I be gettin the divil away. Thanken yu massa fo all yo grate deeds.
...
written by purple, September 12, 2013 12:27
Technology has been replacing human labor since the advent of civilization. It's a big part of what defines us as humans.

The axe probably eliminated someone's 'job', as well. Somehow, we managed.

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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.

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