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The disappearing middle-class jobs

Last year, online retail giant paid $775 million to acquire a relatively small company called Kiva Systems. Soon, Kiva’s little orange robots will swarm the floors of Amazon’s distribution centers, retrieving entire pallets of packages and delivering them to their shipping points. Human workers will no longer be necessary to fulfill this major part of Amazon's operation.

The John Henry story of technology supplanting the industrious American worker is not a new one. But over the past few decades, machines have not just replaced individual workers, they have replaced the entire middle class. Economist David Autor of MIT described the changing labor market as a “hollowing out” or polarization of middle-class job opportunities.

This split of the economy into high- and low-skill jobs was popularly attributed to the decline in American manufacturing and construction. But a new study from the Federal Reserve Bank of Kansas City conducted by Didem Tuzemen and Jonathan Willis called “The Vanishing Middle: Job Polarization and Workers’ Response to the Decline in Middle-Skill Jobs” revealed that the divide occurred in every sector of the economy, from health care and education to agriculture and mining.

As middle-class jobs have disappeared, women and men have responded to the hollowed out labor market differently. Women have almost entirely shifted into high-skill jobs, while men have shifted equally into high-skill and low-skill jobs.

The great divide

Over the past three to four decades, the number of jobs that require a basic high school education and pay a middle-class wage have been declining, according to the Federal Reserve Bank of Kansas City study.

Experts define these “middle-skill” jobs as those that mostly involve routine, easily executed tasks like typing, sorting mail or packaging food. Willis, an author of the study, says classic examples of such jobs are administrative assistants or assembly line workers.

But technological advances have left computers and robots standing where secretaries and factory workers once made a living. A 2012 study by labor economists Nir Jaimovich and Henry Siu explained how technologies replace middle-skill workers during economic downturns. In a recession, employers conduct layoffs of middle-skill jobs to cut costs and then bring in technologies to do routine tasks.

When the recession ends, the employer realizes it does not need to rehire workers where a machine can do the task faster and cheaper than the worker it replaced. So Amazon’s little orange robots are not unique, according to Siu. They are the norm.

This has resulted in a phenomenon dubbed “job polarization” by economists. In 1983, middle-skill jobs comprised 59 percent of all employment, but by 2012, that number had dropped to 45 percent, according to Tuzemen and Willis. In contrast, jobs that require higher levels of training and education are growing in demand, as are non-routine low-skill jobs such as service workers, waiters and security guards.

More than half the jobs created in America during the recession were low-skill, according to a recent report from the Royal Bank of Scotland. In particular, service industry jobs are comprising a larger portion of the labor market. A 2012 study by David Autor found that the share of the labor force in service occupations grew by 30 percent between 1980 and 2005 after having been flat or declining in the three prior decades.

Siu explains that understanding the job polarization trend requires a shift in the way we think about the labor force. “Typically ‘blue collar’ jobs and low-paying ‘white collar’ jobs have been declining over time,” Siu said. “What’s really been growing in past 10 years are the ‘non-collar’ jobs.”

Not just the factory jobs

Bringing manufacturing jobs back to America has been a prominent talking point for both major political parties. The shipping of jobs overseas has been particularly demonized as America’s economic woes are blamed outsourcing to China and India.

But while the decline in American manufacturing has contributed to the decrease in middle-class job opportunities, the disappearance of middle-skill jobs is occurring across sectors of the economy. The jobs are not just being shipped away — they are vanishing all together.

The Tuzemen and Willis study reports that even in growing fields like health care and education, improved technologies are replacing middle-skill workers. They conclude that these “within-sector” changes accounted for a full two-thirds of the decline in middle-skill occupations, while shifts in employment between sectors was only a third of the picture. Consequently, the disappearance of middle-wage jobs is an economy-wide phenomenon, rather than a shift away from any one industry like manufacturing.

For young people looking for their first job, this means that no matter which field a person wants to enter, the options are going to be limited to either high- or low-skill work. “If you have just a high school education, you’re not going to have the opportunities that your parents had,” Willis said. “That middle-pay option is gone.”

Women on the rise

Women and men have responded differently to the polarization of job opportunities, according to Tuzemen and Willis. While women have moved primarily into high-skilled jobs, men have moved equally into high-skilled and low-skilled work.

The difference is likely tied to the rise of women attaining higher levels of education. The education level of the workforce has increased over the past few decades for both genders, but it has particularly increased for women.

In 1983, 43 percent of women had only a high school degree. By 2012, that number had fallen to 25 percent. By contrast, 29 percent of men in 2012 had only a high school degree, and fewer men than women were obtaining the college degrees necessary to respond to the market’s need for highly skilled labor.

Willis explains that women are much less likely to accept a decrease in pay if they lose their middle-skill job. “If a woman sees a wage that isn’t satisfactory, she will find another option, either staying at home to raise a family or going to get the education needed for a highly skilled job,” Willis said. “Men will take the job that is available.”

The future of American workers

The middle-skill jobs that have vanished over the past 30 to 40 years are not coming back. However, there are ways Americans can adapt to the new labor environment, according to the experts. Training, education programs and policies that encourage innovation are essential to preparing young people for success in an increasingly polarized job market.

Baby boomers delaying retirement are currently making up a substantial portion of the highly skilled workforce, said Tuzemen and Willis. As boomers enter retirement, there is going to be increased demand for young workers capable of replacing them.

Without proper education and training, young people, and particularly young men, will not be prepared to enter into the high-skill job openings that will become available. Willis suggested that as more research on job polarization emerges, politicians will likely need to change their policy framework from rallying cries to save a particular industry to making investments in education to fill the economy’s demand for a highly skilled labor.

The education programs of the future, though, will need to be catered to the realities of the new economy. Siu noted that while our education system tends to emphasize standardization and rote memorization, those are not the skills that are in demand in today’s labor market.

“What these trends are favoring are people who are more entrepreneurial, more creative, more technologically savvy,” Siu said. “You don’t have to be a computer scientist to come up with a great mobile app.”

The best way to compete with a little orange robot may be to invent a better one.