Abstract
The data on unemployment mask a potentially serious, long-term problem. The unemployment rate has dropped slowly. In past year it dropped from 8.2% to 7.4% in July. For workers age 25 and older, it was 6.1%. That is simplistically good news.
The rate, however, is higher for high school graduates, with no college, 7.6%, and for those who did not graduate from high school it was 11.0%. For minorities the rates are higher.
What has not been discussed by the media is the reality of jobs in urban areas. Over the past 20 years, there has been a shift away from “goods producing industries” to those that provide services. In urban areas, the goods producing industries are essentially manufacturing and construction. Both industry groups have—or had—relatively high paying jobs for workers with limited education. (Outside of our cities, goods producing industries also include mining, oil and gas extraction, farming, forestry, etc.)
Companies providing services include all other private sector industries. That is a mixed bag that includes retail, finance, health services, hospitality and others.
Service providers now account for 86% of the U.S. private sector workforce. In 1990, service providers accounted for 76% of the workforce. From 1990 to 2012, employment in service industries increased by 34.5%.
Employment for goods producing companies fell in the same period by 22.4%. In the two years from 2008 to 2010, those companies lost a total of almost 3 million jobs or 16.8% of the 2008 total.
In urban areas the decline was far worse. In Los Angeles, employment for goods producing companies fell 50.5% from the 1990 total. In Chicago, the decline was 39.4%. In Detroit, it was 45.2%. The facts for selected cities are shown in Table 1. The typical loss for these cities was 40%. There is no reason to expect a different pattern in other cities. Those were good jobs.
Job Loss in Manufacturing and Construction in Urban Areas.
Those for the most part were jobs that paid above average wages. Across the country, the average wage and salary in goods producing companies for March 2013 was $23.08 an hour.
In service providing industries the average was $19.95. However, that includes utilities ($36.31), professional and technical services ($45.09), finance and insurance ($29.29), information ($$30.52) and educational services ($29.14). If the college graduates and their pay were backed out of the overall average, it would be significantly lower. Moreover, the value of benefits is significantly higher as well ($11.48 an hour for goods producers and $8.09 for service providers).
And that does not account for part-time workers, which are likely to represent a higher percentage of the jobs in service providing companies.
That means the families where the income earners are high school graduates or less now have significantly fewer well-paying job opportunities. That will of course affect their lives as well as city tax revenues. It will also affect property values and retail sales. I know when I travel by train from my home in the Philadelphia area to both Manhattan and Washington, the train passes by closed, crumbling shells of former manufacturing plants. My guess is other cities have a similar landscape. There is no evidence those goods producers will return to those cities in the numbers needed to make up for this loss. I see that as a serious problem.