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Wednesday, June 30, 2004

Low-wage jobs rise at faster pace

By Barbara Hagenbaugh and Barbara Hansen, USA TODAY

Jobs in lower-wage industries and regions are growing at a faster pace than higher-wage jobs, suggesting job growth is less potent for the economy because the majority of new work isn't accompanied by fat paychecks.

Lower-wage jobs have risen more than 1.5% since U.S. employers started adding to their payrolls in September. Higher-wage jobs have also been created, but at a slower rate. Jobs in that category have increased a little more than 1% in the nine months through May, the period of most recent data.

Nearly 14% of the jobs added have been temporary workers, who typically are paid lower wages. Restaurant workers, who also usually are paid lower wages, have been added, too. Higher-paid computer jobs have been added at a snail's pace.

Jobs will be one of the biggest factors in the Federal Reserve's decision today about interest rates.

Although U.S. firms have added more than 1.4 million jobs in the last nine months, economists and politicians have questioned if workers are finding good, higher-paying jobs or if firms are creating lower-paying work that the jobless are desperately taking.

The difference is key. Higher-wage jobs create more income, which leads to more spending. Lower-wage jobs tend to create just enough income for a household to live without creating extra spending money. Consumer spending is the key driver of the U.S. economy, accounting for more than two-thirds of all U.S. economic activity.

USA TODAY asked two economic consulting firms, Economy.com and Global Insight, to study the recent job creation based on both industry data and geography.

"We're creating a lot more jobs but they are still largely lower-paying jobs," says Mark Zandi, chief economist at Economy.com. Zandi calls the difference between the higher-wage and lower-wage job creation pace significant.

"It means the jobs we are creating pack less of a punch for the economy," Zandi says. "With less income, there is less spending and less growth."

The results aren't necessarily surprising. Shaken by a sharp slowdown in business spending, the bursting of the stock market bubble, the Sept. 11 attacks, war and corporate scandals, CEOs have been cautious about hiring workers. It stands to reason that firms would be much more comfortable adding a $6-an-hour job vs. a $30-an-hour one.

It's a trend that has been seen in previous job recoveries, Zandi and Global Insight's Phil Hopkins say.

Economists at Global Insight, who found a correlation between job growth and regions with lower-paying work, came up with some ideas that may explain the hiring gap:

•Productivity. Productivity gains are typically easier to make in high-tech areas, which are generally higher-paying. That means firms are more likely to find a way to avoid hiring and instead boost the output per hour of their current workers in high-tech areas.

•Tourism. Tourism and business travel have been bouncing back. Tourism jobs are typically lower-wage.

•Migration. In a long-term trend, workers and firms have been moving to areas of the USA with lower costs of living. But those places also typically have lower wages. Those areas, mainly in the South and Southwest, have been adding the most jobs.

•Bubble. Some regions of the country, particularly Northern California and the Boston area, got carried away during the high-tech boom, hiring like crazy and driving up salaries. After the bubble burst, firms realized those jobs were never really needed to begin with, and they are unlikely to return in force.

•Temps. Nervous CEOs feel more comfortable hiring temporary workers, whom they can let go quickly and who typically make lower wages and do not receive benefits.

The higher-wage vs. lower-wage question has become a campaign issue. Presumptive Democratic presidential candidate John Kerry says newly created jobs are lower-paying with fewer benefits than those cut. The MoveOn.org Voter Fund, a liberal political group, recently spent more than $500,000 to run TV ads with a middle-aged man flipping burgers.

President Bush takes the opposite view. He has been focusing on the increase in after-tax income to show the economy and job market are doing better, thanks in part to tax cuts enacted under his administration.

"American families are doing a lot better," Bush said in a speech in mid-June. "Higher growth and higher productivity are leading to better-paying jobs across America. Families are keeping more of their own money."

While the industry data seem to support the view that more low-paying jobs are being created than high-paying, there could be a hitch. The data, the most-detailed available, look at average hourly wages for entire industries.

When looking at individual industries, it is possible that higher-paying jobs are driving the changes in employment. For example, the nursing home industry is considered a lower-wage sector of the economy. But if the industry were adding a large number of high-level administrators, not lower-paid caregivers, then the data would be misleading because the amount of growth in pay would not be evident.

Some studies, including one out this week from Republicans on the Joint Economic Committee on Capitol Hill, have shown higher-wage jobs have risen faster than lower-wage. The study says more than three-quarters of jobs created in the past year were in three categories that paid "relatively well."

But this report and others have generally been based on less-detailed data than that used by Economy.com and Global Insight. For example, some reports have pointed to the increase in "professional and business services" as an example of higher-wage job growth. But the biggest driver in that category is temp workers, a lower-wage sector.

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