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Employment gap between rich, poor widest on record

PUBLISHED : Tuesday, 17 September, 2013, 3:37pm
UPDATED : Tuesday, 17 September, 2013, 3:38pm
 

The gap in employment rates between America’s highest- and lowest-income families has stretched to its widest levels since officials began tracking the data a decade ago, according to an analysis of government data conducted for The Associated Press.

Rates of unemployment for the lowest-income families — those earning less than US$20,000 — have topped 21 per cent, nearly matching the rate for all workers during the 1930s’ Great Depression.

US households with income of more than US$150,000 a year have an unemployment rate of 3.2 per cent, a level traditionally defined as full employment. At the same time, middle-income workers are increasingly pushed into lower-wage jobs. Many of them in turn are displacing lower-skilled, low-income workers, who become unemployed or are forced to work fewer hours, the analysis shows.

“This was no ‘equal opportunity’ recession or an ‘equal opportunity’ recovery,” said Andrew Sum, director of the Center for Labor Market Studies at Northeastern University. “One part of America is in depression, while another part is in full employment.”

The findings follow the government’s tepid jobs report this month that showed a steep decline in the share of Americans working or looking for work. On Monday, President Barack Obama stressed the need to address widening inequality after decades of a “winner-take-all economy, where a few do better and better and better, while everybody else just treads water or loses ground.”

“We have to make the investments necessary to attract good jobs that pay good wages and offer high standards of living,” he said.

While the link between income and joblessness may seem apparent, the data are the first to establish how this factor has contributed to the erosion of the middle class, a traditional strength of the US economy.

Based on employment-to-population ratios, which are seen as a reliable gauge of the labour market, the employment disparity between rich and poor households remains at the highest levels in more than a decade, the period for which comparable data are available.

This was no ‘equal opportunity’ recession or an ‘equal opportunity’ recovery. One part of America is in depression, while another part is in full employment
Andrew Sum, director of the Center for Labor Market Studies at Northeastern University

In the first seven months of this year, the employment rate was 73.5 per cent for households with income of more than US$150,000 a year, compared with 33.8 per cent for households making less than US$20,000 — a gap of 39.7 percentage points, similar to the ratio in the most recent years after the recession. In contrast, the employment gap was 36.4 percentage points in 2005, at the height of the housing bubble.

“It’s pretty frustrating,” says Annette Guerra, 33, of San Antonio, who has been looking for a full-time job since she finished nursing school more than a year ago. During her search, she found that employers had become increasingly picky about an applicant’s qualifications in the tight job market, often turning her away because she lacked previous nursing experience or because she wasn’t certified in more areas.

Guerra says she now gets by doing “odds and ends” jobs such as a pastry chef, bringing in US$500 to US$1,000 a month, but she says daily living can be challenging as she cares for her mother, who has end-stage kidney disease.

“For those trying to get ahead, there should be some help from government or companies to boost the economy and provide people with the necessary job training,” says Guerra, who hasn’t ruled out returning to college to get a business degree once her financial situation is more stable. “I’m optimistic that things will start to look up, but it’s hard.”

Last year the average length of unemployment for US workers reached 39.5 weeks, the highest level since World War II. The duration of unemployment has since edged lower to 36.5 weeks based on data from January to July, still relatively high historically.

Economists call this a “bumping down” or “crowding out” in the labour market, a domino effect that pushes out lower-income workers, pushes median income downward and contributes to income inequality. Because many mid-skill jobs are being lost to globalization and automation, recent US growth in low-wage jobs has not come fast enough to absorb displaced workers at the bottom.

Low-wage workers are now older and better educated than ever, with especially large jumps in those with at least some college-level training.

“The people at the bottom are going to be continually squeezed, and I don’t see this ending anytime soon,” said Harvard economist Richard Freeman. “If the economy were growing enough or unions were stronger, it would be possible for the less educated to do better and for the lower income to improve. But in our current world, where we are still adjusting to globalization, that is not very likely to happen.”

The figures are based on an analysis of the Census Bureau’s Current Population Survey by Sum and Northeastern University economist Ishwar Khatiwada. They are supplemented with material from the Massachusetts Institute of Technology’s David Autor, an economics professor known for his research on the disappearance of mid-skill positions, as well as John Schmitt, a senior economist at the Center for Economic and Policy Research, a Washington think tank. Mark Rank, a professor at Washington University in St. Louis, analysed data on poverty.

The overall rise in both the unemployment rate and low-wage jobs due to the recent recession accounts for the record number of people who were stuck in poverty in 2011: 46.2 million, or 15 per cent of the population. When the Census Bureau releases new last year poverty figures on Tuesday, most experts believe the numbers will show only slight improvement, if any, due to the slow pace of the recovery.

Overall, more than 16 per cent of adults ages 16 and older are now “underutilized” in the labour market — that is, they are unemployed, “underemployed” in part-time jobs when full-time work is desired or among the “hidden unemployed” who are not actively job hunting but express a desire for immediate work.

Among households making less than US$20,000 a year, the share of underutilized workers jumps to about 40 per cent. For those in the US$20,000-to-US$39,999 category, it’s just over 21 per cent and about 15 per cent for those earning US$40,000 to US$59,999. At the top of the scale, underutilization affects just 7.2 per cent of those in households earning more than US$150,000.

By race and ethnicity, black workers in households earning less than US$20,000 were the most likely to be underutilized, at 48.4 per cent. Low-income Hispanics and whites were almost equally as likely to be underutilized, at 38 per cent and 36.8 per cent, respectively, compared to 31.8 per cent for low-income Asian-Americans.

Loss of jobs in the recent recession has hit younger, less-educated workers especially hard. Fewer teenagers are taking on low-wage jobs as older adults pushed out of disappearing mid-skill jobs, such as bank teller or administrative assistant, move down the ladder.

Recent analysis by the Associated Press-NORC Center for Public Affairs Research shows that whites and older workers are more pessimistic about their opportunities to advance compared to other groups in the lower-wage workforce.

Associated Press

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