Is Job Polarization Holding Back the Labor Market?
Stefania Albanesi, Victoria Gregory, Christina Patterson, and Ayşegül Şahin
Liberty Street Economics   March 27, 2013

 

 

 

More than three years after the end of the Great Recession, the labor market still remains weak, with the unemployment rate at 7.7 percent and payroll employment 3 million less than its pre-recession level. One possibility is that this weakness is a reflection of ongoing trends in the labor market that were exacerbated during the recession. Since the 1980s, employment has become increasingly concentrated among the highest- and lowest-skilled jobs in the occupational distribution, due to the disappearance of jobs focused on routine tasks. This phenomenon is called job polarization (see Autor et al. [2003], Acemoglu and Autor [2010], Jaimovic and Siu [2011], and Abel and Deitz [2011]).

To study job polarization, it’s useful to put occupations into different task groups, with each occupation categorized as either routine or nonroutine. An occupation is routine if its main tasks require following explicit instructions and obeying well-defined rules. These tend to be middle-skilled jobs. If the job involves flexibility, problem solving, or creativity, it’s considered nonroutine. Job polarization occurs when employment moves to nonroutine occupations, a category that contains the highest- and lowest-skilled jobs. The chart below shows the employment share of routine and nonroutine jobs in the United States starting from 1976. The share of routine occupations declined from 0.6 percent in 1976 to 0.4 percent in 2012, resulting in job polarization.

 

Chart1_share-of-employment

 

It’s useful to further classify occupations into cognitive and manual categories based on the amount of mental or physical activity required of the job: cognitive jobs require mostly mental activity; manual jobs, mostly physical.

For instance, nonroutine cognitive jobs are generally high-skilled and include management, technical, and healthcare workers, such as doctors and engineers. Manual nonroutine occupations are generally low-skilled and include service and protection workers, such as waiters and security guards. Cognitive-routine jobs include sales and office workers, such as sales agents and office assistants. Manual routine occupations include construction workers, mechanics, and machine assemblers.

As the chart below shows, the share of routine jobs has been steadily decreasing for the cognitive and manual categories since the 1980s, and the decline accelerated during the 1981-82 and 2007-09 recessions. Most of the rise in the employment share of nonroutine jobs reflects the increase in cognitive nonroutine occupations.

Chart2_Employee-Shares

The rise in job polarization during the most recent labor market slowdown can potentially account for why the labor market recovery has been sluggish. In particular, it can explain the persistently high unemployment rate and the rise in long-term unemployment. If this is the case, we should see weakness in the segments of the labor market that involve routine jobs. We examine this idea by looking at different labor market indicators for different occupation groups in the current labor market downturn. (See interactive charts for indicators for workers from different occupations at a more disaggregated level.) Foote and Ryan (2012) provide a detailed analysis of all recessions starting from 1976. Their results suggest that most of our findings for the recent downturn also apply to the earlier recessions.

Unemployment
The following chart displays the percentage change in the unemployment rate for routine and nonroutine occupations during the most recent slowdown. We start from the trough of the aggregate unemployment rate in May 2007, and examine a recession and a recovery window. Between May 2007 and May 2010, the unemployment rate for routine occupations rises by 130 percent, while it rises by 103 percent for nonroutine occupations. However, this behavior is matched by a more sizable and rapid decline in the unemployment rate for routine occupations relative to nonroutine in the recovery. This suggests that the larger increase in the unemployment rate for routine occupations during the recession reflects mostly cyclical factors. For example, construction and manufacturing sectors, which typically include routine jobs, had substantial employment declines during the recession. If job polarization were responsible for the sluggish recovery, we’d expect the unemployment rate among routine jobs to fall more slowly than the rate among nonroutine jobs. The chart shows that this isn’t the case.

Chart3_changes-in-unemployment

Long-term unemployment. If job polarization is causing long-term unemployment, we should expect long jobless spells to be more common among workers with routine occupations. We see from the next chart that this isn’t supported by the data—the duration of unemployment spells increased significantly during the recession for all occupation groups, and has remained high for all groups. This suggests that the job-finding prospects of the unemployed in routine occupations aren’t any worse than prospects for those in nonroutine occupations.

Chart4_duration-of-unemploy

Job-finding rates. The main reason why the unemployment rate has been persistently high is the slow recovery of the rate at which unemployed workers find jobs. Job polarization can potentially explain this phenomenon if workers displaced from routine jobs have more difficulty finding employment than those displaced from nonroutine jobs. However, the chart below shows that this isn’t the case, and that all job-finding rates are recovering similarly.

Chart5_jobfinding-rates

Occupational Transitions
If job polarization is depressing the prospects of the unemployed, we should see more occupational transitions from routine to nonroutine jobs after the recession. If people were unable to find routine jobs, they’d be incentivized to retrain and search for work in nonroutine occupations. The table below shows that this isn’t the case—in both the pre-recession and recession periods, only 22 percent and 23 percent, respectively, of unemployed workers moved from routine to nonroutine jobs. This means that three-quarters of unemployed workers in routine occupations who found jobs remained in routine occupations.

TABLE1_transition-probabilities

Our findings show that while job polarization is an important ongoing trend in the labor market, it’s not a key contributor to the sluggish labor market recovery. Our analysis suggests that the weakness in the labor market is broad based and not limited to a certain segment of the market.

The unemployment rates, average duration of unemployment, and the job-finding rates for workers from different occupations can be analyzed in these interactive charts.

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Originally published on March 27, 2013, at  Liberty Street Economics.
Disclaimer
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

 

 

Category: Employment, Federal Reserve, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

3 Responses to “Is Job Polarization Holding Back the Labor Market?”

  1. S Brennan says:

    So…no, not the issue, like all other attempts to say unemployment is due to a long term trend, it always comes back to; Huge recession caused by unregulated financial games. Stimulative monies given largely to those who caused the problem…and those wealthy standing nearby.

    “Our findings show that while job polarization is an important ongoing trend in the labor market, it’s not a key contributor to the sluggish labor market recovery. Our analysis suggests that the weakness in the labor market is broad based and not limited to a certain segment of the market.

  2. RW says:

    This research is not persuasive.

    First, to argue that polarization is causal rather than a consequence a mechanism has to be defined, modeled and tested to forge a warrant between the data and the claim; a priori definitions lead to circular (and often fallacious) logic.

    Second, the categories seem unrealistic, limning a difference that does not a real difference make; e.g, what makes waiting tables “non-routine” as opposed to a “routine” job such as assembly line work and why is that superior to more traditional categories such as “service” and “manufacturing.”

    While it is fairly obvious the researchers are attempting to develop an argument that unemployment is structural rather than cyclical the alternative hypothesis remains just as strong as before; e.g., the movement of workers to lower-paying “routine” jobs is readily explained by the lack of jobs in the sectors where they used to work — it is cyclical — and only becomes “broad-based” when the categories are redefined as polarities; IOW, the demonstration is circular.

  3. constantnormal says:

    “Job polarization” as described herein, effects every level of job in the company, up to and (especially) including the CEO. Somehow, CEO’s do not seem to be suffering much in the way of unemployment.

    If a CEO could offshore the highly-paid folks responsible for designing and developing the products a company produces, they would do so in a heartbeat, and have been doing so for the past forty years, at least. When I began my working career, it was quite common for manufacturing firms of any size to have R&D departments, and many even had “pure research” departments, unrelated to any specific product that the comp[any might produce. These permitted companies to keep a finely-hone skills edge within the company, and generally paid off in unexpected ways, years down the road …

    And it is that “years down the road” aspect that killed 99% of these organizations by the end of the 1970s. The focus shifted to operating the company with a “next-quarter” mentality, aimed solely at boosting top management’s bonus pool.

    That is the disease that our Corporatocracy is consumed by, and it is the thing that will cause Bananamerica to fade as other nations around the globe invest in their people, their training, and their competitiveness.

    We booted corporate competence out the door in a mad rush to near-term profitability. And we will pay a price for that.

    “Job polarization”, as described here, is nothing more than a red herring, a distraction from the real problems in the Corporatocracy.