The last recession was hard on the housing industry as well as the financial industry in terms of the concentration of job losses. When things go wrong, they often expose fissures in our society and in our economy that aren’t necessarily as apparent when things are going well. The Great Recession had a disproportionate impact on men, minorities and those without higher education. It also showed how the housing bubble was built on a rickety foundation which was passing the buck on risk to investors who had little idea of what they were putting their money into. The impact on the job market was intertwined with the decline in manufacturing jobs that has been slowly taking place since the 1980’s. The boom in housing, for a short period of time was able to soak up some former manufacturing workers into decent paying construction jobs, but those quickly disappeared once the recession hit.
The Covid recession is more man made in the sense that it is the fear and subsequent reaction to the virus that has disproportionately impacted particular industries and jobs. Although this time finance and housing are doing well, other industries are suffering and showing how they also carry a heavy weight in the economy.
We all have a biased view from where we sit on how things are in the economy, very few people are trained to look at it as a whole. We mostly just follow the news on the economy and assume it as given by those presenting to us. From where I sit, the Covid recession made me realize how many people were actually in shitty low paying service jobs. We learned that half the US food supply actually was going to restaurants rather than to grocery stores. When the lockdowns came, it seemed like a quarter to half of America was a bartender, server or cab driver. Not being able to be In physical proximity to people literally broke unemployment claim records.
Although the national unemployment rate is currently at 7.9%, the rate for a number of cities is much higher. Places like Las Vegas, LA and New York have unemployment levels in the double digits, the highest being Las Vegas at 14.6% in October. Moody’s chief economist thinks that NYC won’t be back to its previous level of output until 2025. NYC was hit hard during the last recession due to the impact on the financial industry which is an important source of jobs in the city. Las Vegas was also hit hard last time due to the drop off in tourism combined with the slump in the housing sector. What about this time? What about LA? What is fueling higher unemployment and joblessness in these places now?
Industries and Job Quality
To understand why certain cities are being so disproportionately affected we have to take a step back and talk a little about how the economy has changed and specifically how the quality of jobs have changed.
Most economics students are familiar with the Phillips curve. This was a curve that showed as unemployment went lower, inflation increased. The rationale behind it is simple: as demand for employees increases, the price workers demand for their time increases, this then pushes inflation up. Although some media outlets still make reference to this outdated relationship, it was shown to break down 50 years ago during the stagflation epidemic of the 1970’s when the US saw high unemployment as well as high inflation. The curious development of the past few decades has been that unemployment has touched record lows while inflation was almost always near or at the Fed’s target of 2%.
Analysts and economists scratched their heads as to why this was but a new metric developed last year by a researcher at Cornell University may shed some light on why this is as well as the fact that median household income has only increased about 10% overall in the past 20 years to 2019.
This metric is called the Job Quality Index (JQI) and measures the proportion of production and non-supervisory (P&NS) jobs above the weekly wage mean versus those below the weekly wage mean. So what does this actually mean? If the pay of jobs is evenly disbursed around the weekly mean pay, then we should see around half of employees above the weekly pay and half below. However, if there are a large number of jobs that pay below the mean and a small number of jobs that pay high above the mean, you could end up with a mean figure that doesn’t tell the whole story of what is going on. The researchers tried to get around this by measuring the proportion of the number of jobs above the mean to the the number below the mean then multiplying by 100. The result is a picture of how many good paying jobs there are for every shit paying job.
As an example, take a look at the P&NS mean weekly pay for the last 30 years, it would seem to be a good story, a nice steady climb towards the current figure of $848 a week (ignore the blip up at the end which I will discuss).
It would seem that everyone is making small progress and earning a bit more year after year. But if some jobs start to pay much higher than the mean and more jobs pay a bit less, this can be deceiving. In other words we could have a case where there are a few jobs that pay a lot skewing the mean upwards and a bunch more jobs that pay less. The JQI attempts to capture this if it’s happening.
The above seems to be showing what many suspect, that there are more jobs but they are shit jobs. The next question this leads to are what type of jobs are these? As I mentioned, manufacturing jobs have been falling in the US even as the population has grown, but let’s be realistic, the US isn’t just going to start producing pencils all of the sudden to compete with line workers in Vietnam. The opening up of the world economy saw to that. Rather, those who would have gotten a decent factory job 40 years ago likely have to go into something more service oriented, which is exactly what happened.
The leisure and hospitality sector is now the 5th largest employer in the US and this sector was devastated by the lockdowns. Within a 2 month period almost half the jobs in this sector were either furloughed or lost.
This is one explanation why we are seeing unemployment spike in certain cities compared to others. New York, LA and Las Vegas are more dependent on tourist dollars and business conference stays than other places so have seen their large leisure and hospitality sectors hit hard. Meanwhile those that can work from home are usually not in these hands on sectors and make above the mean weekly wage, which is the reason we see the jump in average weekly earnings in the chart shown previously.
The producers of the JQI captured in a different way how those higher paying jobs are distorting the pay figures and not telling the story of how the higher paying jobs are leaving everyone behind. The below shows the evolution in pay for those “good” jobs compared to the pay for “shit” jobs as I like to call them. Since 2000, the good jobs have seen a quicker pickup in earnings.
What to Do About This
This may have been a reason behind why some voted for a certain populist politician and still find his policies so likable. But bringing manufacturing back is not the answer since that cat is out of the bag. No one is looking to re-onshore that pencil manufacturing from Vietnam.
There are solutions politicians need to think about. These include increasing the social safety net, since the shit jobs usually don’t have healthcare, as well as potentially thinking about universal basic income. One solution could also be a kind of government pension to supplement social security. The idea here would be to create a fund for those that make under the mean wage, which would be invested in the stock market and could be tapped in times of documented distress like a job loss. It would ensure that poorer people had some type of privatized saving which would benefit from the markets but also would not be an endless amount that the government is constantly on the hook for. Rather this would be government sponsored private savings linked to the market for those that lack the expertise and historically do not save.
There are also things that us as individuals can do. Rather than waiting for something like I described above, even if you have a shit job, you can start to discipline yourself to save a small amount monthly and invest this in the markets. You don’t need to be a stock picker, even a small consistent investment in an S&P 500 index can multiply wealth if done over time. This is the secret the rich know: take measures risk and remain disciplined and becoming wealthy is relatively easy.
The other thing you can do is to start working on increasing your own market value. The easiest way to do this is to learn a skill or trade that is highly valued in the market. I loved history class when I was younger and considered getting a history degree, but I did a simple exercise many people apparently don’t do, I checked out the median annual earnings for people with a history degree. When I saw what it earned, I said to myself history be damned, I’m going to be an engineer when I found something like the below.
I ended up with economics and math degrees but close enough I guess. If you want to increase your earnings power you will have to accept the reality of this. No one is going to just hand you a great paying job just because you went to college, you have to show them a skill set nowadays. Armed with this knowledge and the drive to improve your personal finances, you will be already halfway to getting out of the shit job cycle.
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