The job market is one of Donald Trump’s favorite topics. “Unemployment is the lowest it has been in 51 years,” he emphasized in a speech to bankers and managers in New York earlier this week. “Seven million people are no longer dependent on food stamps. We get people out of welfare and get them back into the job market.” How many jobs are available in capital goods?
But the quality of jobs has been declining for decades, as a new unemployment indicator now shows. “This is mainly due to the fact that jobs in production have migrated abroad and are being replaced by jobs in the service sector. They are also often paid less,” says Dan Alpert, who teaches at Cornell University in Ithaca, New York, and helped develop the indicator.
“Job Quality Index” is the name of the key figure that determines how many high-quality jobs are created each month in relation to simple and poorly paid jobs. Alpert and his co-authors, Jeffrey Ferry, Robert Hocket, and Amir Khaleghi show that the labor market, much like society, is divided into two classes. Not only do those with the lower-paying jobs earn less per week, they also work fewer hours. “It’s a kind of underemployment,” Alpert clarifies.
If the index were at 100, there would be exactly the same number of well-paid and badly-paid jobs. However, it stands at 82, and has fallen 14 percent since measurements began in 1990.
The trend towards poorly paid service jobs has long been ubiquitous. But the index could become an important indicator for Trump’s competitors, especially in the US election campaign. The Democratic presidential candidates Elizabeth Warren and Bernie Sanders are fighting for voters in the lower income brackets and regularly point out that the US economy and stock markets are growing faster than other industrialized nations. “But the upswing doesn’t reach many people,” emphasizes Warren in her campaign speeches. Wages have hardly increased for the majority of the population, but spending on health insurance and tuition fees, for example, has increased.
The index also provides an important explanation for the fact that core inflation in the US is not picking up despite the boom in the labor market. Because workers are earning less than they used to and wages are hardly increasing, prices are not rising either. Alpert and co. also point to a close correlation between the index and 10-year US Treasury yields, an important measure of economic strength and inflation expectations: “If the index goes up, so there are more well-paid jobs, then those go up too Yields on government bonds and vice versa,” says Alpert. However, the yield is currently close to its record low of 1.8 percent.
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