The Hourglass Economy

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Photo credit: Ezra Klein, via Flickr

One of my more dormant interests is the continuing emergence of a dual-service sector society in America — sometimes describes as an hourglass economy. Of course this is within the context of increasing inequality in general, but more specifically as Mark Abrahamson writes in Global Cities (p 99), the divergence within the labor force in large cities that “contain the two fast growing, extreme poles of the service industries: the low-status end (fast food workers, janitors, security guards, and so on) and the high-status end (lawyers, computer programmers, accountant, and so on).”

The two most salient features of the hourglass economy involve employment and wages. First, that employment growth in the high-status end (particularly in finance and technology) creates the demand for low-status service jobs. Second, that such growth has resulted in increasing wages for the former and not so much for the latter. It’s also important to note that; A) this is sort of a sub-set of a longer trajectory resulting from deindustrialization in addition to the medium-term trend of productivity and wages decoupling, and B) that growth at the bottom of the hourglass is largely a response to globalization, where jobs are typically within the category of “non-transferable.”

Just to be clear, Abrahamson wrote about this phenomenon before the Great Recession. Yet while we know that the global economic collapse functioned as an enabler of lower end growth in the hourglass economy, there is particularly good evidence that it’s fueling the higher end as well.

By way of Mark Thoma, here is Josh Lehner from the Oregon Office of Economic Analysis (emphasis in bold mine):

Lately there has been an amazing amount of pixels spent on describing the quality and pay of the job growth. Most recently both the Wall Street Journal and the Federal Reserve Bank of Atlanta compare industry sectors by average pay and lament the fact that most of the jobs are in lower-paid industries. I want to push back on these conclusions a little bit and also expand upon them. In short, yes, the U.S. economy is adding a large number of low-paying jobs, however we are also seeing relatively strong growth at the top end of the employment scale as well. We are missing the growth in jobs at the middle of the income distribution.

Lehner argues that this is best represented by examining the average job growth levels by occupation (rather than by industry). Thus, here is the new hourglass reality in chart form:

wage and job growth by occupation

With the exception of a few portions of what he describes as “lower middle-wage jobs,” the majority of employment growth since 2010 has been at the bottom and top of the wage spectrum. More than just a lack of growth in the middle, however, is a that these “middle-wage occupations fell much further during the Great Recession and are growing much slower coming out, if at all.” Furthermore, while the slow economic recovery will see those middle-income jobs expand in an absolute sense, he writes that “the relative growth rates will likely continue to lag.” This trend remains constant even if you look at the individual occupational level.

This divergence, like the overall trend of inequality since 1979, was a pressing issue before the recession. In the wake of that calamitous event it has only grown more important. The hourglass economy isn’t a dystopian vision of the future — it’s already here. Crucially, these changes have not been uncontested. We saw that represented in the outburst of activism towards the high-status end of society vis-à-vis Occupy Wall Street and it’s social movement offshoots. Today we’re seeing an unprecedented focus on the low-status end via the explosion of fast food worker movements organizing for higher wages.

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