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
Judging by real GDP growth, the current expansion has been unusually weak Index, business cycle trough = 1 135 1982 13 125 12 115 11 1975 1991 21 29 15 1 1 2 3 4 5 6 7 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 = 1 125 12 1982 115 11 1991 21 29 15 1975 1 1 2 3 4 5 6 7 Years into recovery SOURCES: Bureau of Economic Analysis; National Bureau of Economic Research; authors calculations. 2
The explanation for sluggish recovery: Laborforce growth has been exceptionally slow Index, business cycle trough = 1 115 1975 111 1982 17 1991 21 13 29 99 1 2 3 4 5 6 7 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
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, 1963 1968 1973 1978 1983 1988 1993 1998 23 28 213 NOTES: Calculations are for full-time workers ages 25-65 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, 1964-215. Millions of jobs 12 Rising service sector employment 1 Services 8 6 4 Goods 2 195 1955 196 1965 197 1975 198 1985 199 1995 2 25 21 215 SOURCE: Bureau of Labor Statistics. 4
Percent 8 Falling manufacturing employment 7 6 5 4 Ratio of manufacturing to service sector jobs 3 2 1 195 1955 196 1965 197 1975 198 1985 199 1995 2 25 21 215 SOURCE: Bureau of Labor Statistics. Job polarization: The shrinking middle class Percent change from 1979-214 15 1 Texas U.S. Minus Texas 5-5 -1 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
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) 25 2 15 95 th 9 th $26,568 $157,479 1 5 5 th (median) 5 th $53,657 $12,276 1967 1972 1977 1982 1987 1992 1997 22 27 212 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
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 25 2 15 1 5 195 1955 196 1965 197 1975 198 1985 199 1995 2 25 21 215 SOURCE: Bureau of Economic Analysis. 7
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 8 7 6 5 4 3 2 1 25- 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 (www.oecd.org/edu/eag215); Texas data: American Community Survey, 214 one-year estimate. 8
Millions 45 4 35 Foreign-born population 42.4 million in 214 Share of Population 3 25 2 Number 15 1 5 185 187 189 191 193 195 197 ' '1 '14 SOURCE: U.S. Census Bureau. Millions Due to sharp rise in immigration, the foreign-born share near historic peak Percent 45 16 4 35 3 25 2 15 1 5 Number Share of Population 14 12 1 8 6 4 2 185 187 189 191 193 195 197 ' '1 '14 SOURCE: U.S. Census Bureau. 9
Percent 6 Immigrant workers overrepresented at extremes of the education distribution 5 4 3 2 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
A changing native labor force Aging Diversity Immigration Aging underway: seniors will be 2% of U.S. population by 23 Percent 25 2 15 1 5 195 197 199 215 24 26 SOURCE: U.S. Census, various years; U.S. Census Bureau 214 population projections 215-26. 11
Changes in population by age group Change (millions) 25 16 to 24 25 to 54 55 and older 2 15 1 5-5 1994-4 24-14 214-24 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 2 66 64 62 6 58 56 SOURCE: Bureau of Labor Statistics. 12
1 Labor force participation by gender Percent, SA 9 8 7 6 5 4 3 2 1 Men Women 69.1 56.7 195 1955 196 1965 197 1975 198 1985 199 1995 2 25 21 215 NOTE: Ages 16 and over. SOURCE: Bureau of Labor Statistics. Diversity rising Population projections by race: 215 to 26 Change in population, millions 12 1 95.4 8 6 62.3 4 2 14.2 2.9 14.4-2 -4-16.4 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 26. 13
Rising diversity 215 26 3. 5.3 17.7 White Black Asian 28.6 43.7 White Black Asian 12.4 61.7 Other Hispanic 5.7 9.1 13. 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
35 Global inequality high, but falling GDP per capita (199 $) 3 U.S. 25 2 UK Germany 15 1 5 182 184 186 188 19 192 194 196 198 2 China Mexico India Ghana Haiti SOURCE: The Maddison-Project, http://www.ggdc.net/maddison/maddison-project/home.htm, 213 version. % of population 5 45 4 35 3 25 2 15 1 5 World poverty declining ($1.9/day) 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 SOURCE: World Bank. 15
World poverty declines by region % of population living on $1.9 per day or less 9 8 7 6 5 4 Sub-Saharan Africa South Asia 3 2 1 Latin America & Caribbean East Asia & Pacific MENA 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 211 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
Adjusted Index 7 68 66 64 62 6 58 Wages & Benefits reindex & deflated 56 54 52 Total Benefits Total Compensation Wages & Salaries 22 24 26 28 21 212 214 216 SOURCE: Bureau of Labor Statistics, Employment Cost Index. 17
Wages & Benefits reindex Index 17 16 15 14 13 12 11 Total Benefits Total Compensation Wages & Salaries 1 9 22 24 26 28 21 212 214 216 SOURCE: Bureau of Labor Statistics, Employment Cost Index. 18