Monitoring the Dual Mandate: What Ails the Labor Force?

Transcription

1 Dallas Fed Economic Summit June 27, 216 Monitoring the Dual Mandate: What Ails the Labor Force? Pia Orrenius Federal Reserve Bank of Dallas Disclaimer: The views expressed here are those of the presenter and do not reflect those of the Federal Reserve Bank of Dallas or Federal Reserve System. A SLOW RECOVERY 1

2 Judging by real GDP growth, the current expansion has been unusually weak Index, business cycle trough = Years into recovery SOURCES: Bureau of Economic Analysis; National Bureau of Economic Research; authors calculations. But divide GDP by the size of the labor force, and this expansion looks ordinary Index, business cycle trough = Years into recovery SOURCES: Bureau of Economic Analysis; National Bureau of Economic Research; authors calculations. 2

3 The explanation for sluggish recovery: Laborforce growth has been exceptionally slow Index, business cycle trough = Years into recovery SOURCES: Bureau of Labor Statistics; National Bureau of Economic Research; authors calculations. Wages What ails the labor force? Stagnation Rising wage inequality, labor market polarization Other trends with implications Aging Diversity Immigration Policy responses Beware of unintended consequences 3

4 Stagnating wages Total wage and salary income by education (214 dollars) 9, 8, Bachelor's degree or higher 7, 6, 5, 4, 3, Associate's degree or some college High school graduates Less than high school 2, NOTES: Calculations are for full-time workers ages who worked 5-52 weeks in the calendar year. Education groups are defined by a recoded education variable and is comparable across all years. Incomes are deflated using the CPI-U. SOURCE: March Current Population Survey, Millions of jobs 12 Rising service sector employment 1 Services Goods SOURCE: Bureau of Labor Statistics. 4

5 Percent 8 Falling manufacturing employment Ratio of manufacturing to service sector jobs SOURCE: Bureau of Labor Statistics. Job polarization: The shrinking middle class Percent change from Texas U.S. Minus Texas Lowest Wage Quartile Lower-Middle Wage Quartile Upper-Middle Wage Quartile Highest Wage Quartile NOTES: Calculations include workers over age 15 with positive wages and exclude the self-employed. Quartiles based on the Texas and US wage distributions from the 198 decennial census, which refers to 1979 wages. SOURCES: 198 Census; 214 ACS. 5

6 Technology replaces routine tasks, which most affects middle skill jobs Routine Non routine Blue collar (manual) Production Crafts Operative Repair Food service Personal care Protective service White collar (cognitive) Clerical Administrative Sales Professional Technical Managerial low skill middle skill high skill Rising income inequality Income in thousands (214 dollars) th 9 th $26,568 $157, th (median) 5 th $53,657 $12, NOTE: The 213 data reflect the implementation of the redesigned income questions. SOURCE: U.S. Census Bureau, Current Population Survey, 1968 to 215 Annual Social and Economic Supplements. 6

7 Who/what gets blamed? Technological change Routine tasks are automated Globalization: Offshoring, trade, immigration Production moves overseas Trade increases access to foreign suppliers Immigration Slowing educational attainment Changing labor market institutions Decline of unions; falling real minimum wage Percent of GDP 35 3 Exports and imports as a percent of GDP SOURCE: Bureau of Economic Analysis. 7

8 The slowdown in educational attainment SOURCE: Goldin and Katz The Race Between Education and Technology (28). Population with a Bachelor's Degree or higher: Small gap means education gains dissipating Percent to 34-year-olds 55- to 64-year-olds Korea Canada Russia Federation* Ireland Norway United Kingdom Australia Israel United States Sweden Switzerland France* Netherlands Poland Denmark Spain OECD average New Zealand Finland Greece Texas Germany Chile Mexico Italy *Year of reference: 213. NOTE: Texas is based on 45- to 64-year-olds. SOURCES: Organization for Economic Cooperation and Development Table A1.4a ( Texas data: American Community Survey, 214 one-year estimate. 8

9 Millions Foreign-born population 42.4 million in 214 Share of Population Number ' '1 '14 SOURCE: U.S. Census Bureau. Millions Due to sharp rise in immigration, the foreign-born share near historic peak Percent Number Share of Population ' '1 '14 SOURCE: U.S. Census Bureau. 9

10 Percent 6 Immigrant workers overrepresented at extremes of the education distribution Foreign born share of labor force 1 Less than high school graduate High school graduate, some college Bachelor's degree Master's degree Professional degree Doctoral degree NOTE: Percent of foreign workers age 25 and over in the U.S. labor force by education. SOURCE: 214 American Community Survey A CHANGING LABOR FORCE 1

11 A changing native labor force Aging Diversity Immigration Aging underway: seniors will be 2% of U.S. population by 23 Percent SOURCE: U.S. Census, various years; U.S. Census Bureau 214 population projections

12 Changes in population by age group Change (millions) to to and older SOURCE: Labor Force Projections to 224: The Labor Force is Growing, but Slowly, Monthly Labor Review, December 215, Bureau of Labor Statistics. Percent 68 U.S. labor force participation rate in decline since SOURCE: Bureau of Labor Statistics. 12

13 1 Labor force participation by gender Percent, SA Men Women NOTE: Ages 16 and over. SOURCE: Bureau of Labor Statistics. Diversity rising Population projections by race: 215 to 26 Change in population, millions NH White NH Black NH Asian NH Other Hispanic (any race) Total SOURCE: U.S. Census Bureau, Population Division, Table 1. Projections of the Population by Sex, Hispanic Origin, and Race for the United States: 215 to

14 Rising diversity White Black Asian White Black Asian Other Hispanic Other Hispanic SOURCE: U.S. Census Bureau, Population Division, Table 11. Percent of the Projected Population by Hispanic Origin and Race for the United States: 215 to 26. POLICY RESPONSES 14

15 35 Global inequality high, but falling GDP per capita (199 $) 3 U.S UK Germany China Mexico India Ghana Haiti SOURCE: The Maddison-Project, version. % of population World poverty declining ($1.9/day) SOURCE: World Bank. 15

16 World poverty declines by region % of population living on $1.9 per day or less Sub-Saharan Africa South Asia Latin America & Caribbean East Asia & Pacific MENA NOTE: Sub-Saharan Africa, Latin America & Caribbean, East Asia & Pacific, and MENA are measured as developing only. SOURCE: World Bank. What can we hope to fix with policy? Technological progress is what the US excels in Curbing trade bad for efficiency, productivity and consumers Immigration brings needed skills, labor Labor market interventions raise the cost of labor to producers Answer: Investing in education 16

17 Adjusted Index Wages & Benefits reindex & deflated Total Benefits Total Compensation Wages & Salaries SOURCE: Bureau of Labor Statistics, Employment Cost Index. 17

18 Wages & Benefits reindex Index Total Benefits Total Compensation Wages & Salaries SOURCE: Bureau of Labor Statistics, Employment Cost Index. 18