Breakfast with the Fed: Jobs for the middle class swing low and high

Civilian labor force participation rate for people age 25 to 54. | Courtesy of the Federal Reserve Bank of St. Louis.

While the national unemployment rate has returned to recent historical norms of about 4 percent, the economy needs to add another two million jobs before it reaches full employment, a Federal Reserve economist said in Louisville Thursday.

David Andolfatto

David Andolfatto, vice president of the Federal Reserve Bank of St. Louis, also said that the number of middle class jobs has declined in the last decade and has given way to both low-wage and high-wage jobs, which is fomenting greater societal polarization.

Before the recession, about 80 percent of people age 25 to 54 held jobs. During the recession, the share fell to about 75 percent before recovering — though it has not yet returned to 80 percent.

And while the nation added about seven million jobs between 2007 and 2016, about 4.1 million came in the low-wage, low-hour sector — including retail, social assistance, hospitality — in which people work an average of less than 30 hours and get paid about $15.80 per hour, or about $471 per week.

The economist, who appeared in Louisville as part of the Breakfast With the Fed series, said that the nation also added about five million high-wage, high-hour jobs — including in information, financial, health care sectors — in which people work an average of 36 hours per week and earn more than $28 per hour, or about $4,000 per month.

However, Andolfatto said, during the same span, the nation lost nearly 2.2 million middle class jobs. That includes primarily high-wage, high-hour construction and manufacturing jobs, with wages exceeding $1,000 a week, but which required fewer skills than other high-wage jobs.

“The real story is productivity, in my view,” the economist said.

Agriculture and manufacturing sectors have seen productivity increases of about 10 percent per year for about half a century, Andolfatto said, compared to just 1.5 percent per year for the rest of the economy.

And while machines have, for centuries, replaced low-skill, high-routine jobs, automation processes increasingly are replacing jobs that require some cognitive skill and flexibility.

Routine jobs aren’t growing. | Courtesy of Federal Reserve Bank of St. Louis

Society is going to continue to grapple with that trend, Andolfatto said, and it needs to figure out what to do with people who are losing their jobs as a result of increased globalization, trade and automation.

Solving this challenge, he said, behooves even those who lack compassion for their fellow citizens, because history provides numerous examples of what happens when societies become too fragmented and polarized.