br i e f #
08
o c t. 201 2
unemployment
and recovery Project
www.urban.org
inside this issue
• for decades, the labor market has grown
more polarized with employment and
wages growing more slowly for middleskill jobs than for other jobs.
•by most measures, polarization did not
accelerate during the Great recession.
•More polarization is evident, however,
in the wages of reemployed workers.
Job Polarization and the Great recession
Josh Mitchell and Austin Nichols
Even before the sharp and enduring increase in unemployment brought on by the Great Recession, policymakers and researchers
were concerned about the “hollowing out” of the U.S. labor market. Over the last 25 years, employment and earnings growth for
workers in middle-skill jobs has lagged behind growth for those in jobs requiring both the highest- and lowest-skilled workers.
This phenomenon, known as “job polarization,” is most often attributed to new technologies and offshoring of manufacturing
processes, which replace middle-skill jobs but complement high-skill jobs.1
T
his report examines the extent to
which high unemployment brought
on by the Great Recession and job
polarization are connected. The question is particularly relevant as policymakers
debate how best to create more jobs. If high
unemployment increased job polarization,
then structural factors such as a “mismatch”
between worker skills and job requirements
may have grown. If that is the case, then the
United States may require new active labor
market policy solutions, such as more effective job training programs, to reduce skill
mismatch.
If, on the other hand, abnormally high
unemployment and job polarization are
largely unrelated, then unemployment will
abate only when demand for goods and
services increases. In this case, further fiscal
stimulus may be an effective tool to reduce
unemployment.2 However, even in this case
the natural rate of unemployment may gradually increase with greater skill mismatch;
unemployment may fall with new fiscal
stimulus but settle at a higher level than
before the recession, arriving at a “new normal.” Moreover, job polarization will likely
remain a long-term challenge for the earnings prospects of middle-skill workers,
regardless of whether it accelerated during
the recession.
To assess whether the Great Recession
accelerated the trend in job polarization, this
brief analyzes data tracking workers’ wages
and employment status over time, during
periods of both economic expansion and
contraction. In particular, we compare the
labor market performance over three years of
three groups of workers: those who initially
earned “low,” “middle,” or “high” hourly wages
in a year prior to the Great Recession. We use
hourly wages at the start of the observation
Growth in unemployment during the Great
Recession and job
polarization appear
to be distinct economic phenomena.
Still, policymakers
will have to grapple
the long-term
challenges faced by
middle-skill workers.
Job Polarization and the Great recession
2004
5.4
2008
10.2
8.6
13.9
13.3
Low
Middle
High
exhibit 1. risk of Workers experiencing unemployment
over 32 Months
Initial wage-percentile group
periods as proxies for worker skill level
because higher skills are generally rewarded
by higher wage rates in the labor market.
Our approach to job polarization and the
Great Recession is novel because we use data
that allow us to track the same workers over
time across jobs and spells of unemployment.
We thereby avoid confounding changes in
market supply and demand with other factors such as the changing composition of
the workforce, which is a concern when
analyzing data from year-to-year snapshots of
the working population.
We explore the likelihood of unemployment, long-term unemployment, wage
growth, and fringe benefit receipt over two
separate three-year periods. The first threeyear period covers the expansion of 2004
through 2007 (referred to hereafter as the
2004 panel). The second three-year period
covers the Great Recession and its aftermath,
2008 through 2011 (referred to hereafter as
the 2008 panel). Using both panels, we determine whether job polarization appears any
different during periods of high and low
unemployment.
We find that job polarization did not
increase during the Great Recession. That is,
there is little evidence that middle-wage
workers disproportionally suffered wage or
job losses during the Great Recession as compared to middle-wage workers before the
recession. Workers of all wage groups experienced proportional increases in the threeyear incidence of unemployment from 2008
to 2011. There are two notable exceptions to
that pattern, however.
First, when compared with higher-wage
workers, middle-wage workers experienced a
larger decline in employer-provided health
insurance coverage during the Great
Recession than during the earlier expansion
from 2004 to 2007. Second, among workers
who experienced an unemployment spell and
were subsequently reemployed, middle-wage
workers suffered proportionately greater wage
21.4
Percent
Source: Authors’ calculations based on Survey of Income and Program Participation, 2004 and 2008 panels.
losses relative to other groups during the
Great Recession than during the expansion.
With record-long unemployment spells
still underway, a substantial number of those
who became unemployed during the recession have not yet found jobs, and it is impossible to know what their reemployment wages
will be. Those long-term unemployed workers may suffer additional wage penalties
because of their extended joblessness; alternatively, their prolonged job search may land
them higher-paying jobs than those who
became reemployed quickly. As such, the
declining wages (on average) of reemployed
workers merely suggest possible future
increases in polarization of the labor market.
data
We use the 2004 and 2008 panels of the
Survey of Income and Program Participation
(SIPP) for our analysis. The SIPP is a
nationally representative survey designed to
track monthly household income, labor
force connection, and program participation
over several years. We measure workers’ initial characteristics in the first month of each
panel and then measure outcomes over the
next 31 months.3 Our sample is restricted to
wage and salary workers age 25 to 57 who
are employed full-time in the first month of
the survey.
We use workers’ hourly wage rates to
group them into three categories (low-, middle-, and high-wage workers) each representing one-third of all the workers.4 Workers are
subsequently classified as unemployed if they
do not have a job but are actively looking for
work for at least one calendar month
between month 1 and month 32. Long-term
unemployment is defined as workers being
unemployed in at least six consecutive calendar months, regardless of their current state
in month 1 or month 32. Some of the longterm unemployed may become reemployed
or become discouraged workers by the end of
the panel.
the risk of unemployment
Middle-wage workers, who are presumed to
be most adversely affected by job polarization, have experienced about the same
increase in unemployment risk as have
2.
Job Polarization and the Great recession
High
Middle
1.6
6.7
2.8
Low
Initial wage-percentile group
2008
4.2
9.5
Percent
Source: Author’ calculations based on Survey of Income and Program Participation, 2004 and 2008 panels.
Note: Long-term is defined as six or more consecutive months.
High
exhibit 3. Median Wage change over 32 Months for
Workers employed in Month 32
Middle
In a weak labor market, even those fortunate
enough to have a job may suffer slower wage
growth than they would during economic
expansions. Exhibit 3 examines the pace of
real median wage growth across skill groups.5
To ease interpretation, it is helpful to
explore the “baseline” pattern of wage growth
in the 2004 panel. Real wages actually
declined most for high-wage workers with
more modest declines for middle-wage workers. Low-wage workers experienced substantial wage growth. Some of this pattern may
simply reflect regression to the mean, where
relatively high wages are followed by relatively low wages after three years, either
because of economic shocks or measurement
2004
0.9
2004
-7.6
2008
-1.2
-3.6
0.5
8.1
Low
Wage Growth
exhibit 2. risk of Workers experiencing Long-term
unemployment over 32 Months
Initial wage-percentile group
high-wage workers between the expansionary years of the 2004 panel and the recession
years of the 2008 panel. Exhibit 1 shows that
middle-wage workers are always at greater
risk of unemployment than high-wage workers but face less risk than low-wage workers.
Changes in unemployment risk do not show
any pattern of increased risk of unemployment by initial wage group. For low-wage
workers, the probability of experiencing
unemployment rose from 13 percent for the
2004 panel to 21 percent for the 2008 panel.
It also rose from 9 percent to 14 percent for
middle-wage workers and from 5 percent to
10 percent for high-wage workers. In other
words, all workers experienced a substantial
rise in the risk of unemployment.
Similarly, changes in long-term unemployment fail to coincide with the standard
job polarization story. The dramatic rise in
long-term unemployment has been a defining characteristic of the Great Recession
regardless of initial wage level. Low-wage
workers have seen the risk of long-term
unemployment increase from 3 percent to 10
percent, middle-wage workers from 2 percent
to 7 percent, and high-wage workers from 1
percent to 4 percent (see exhibit 2).
10.4
Percentage change
Source: Authors’ calculations based on Survey of Income and Program Participation, 2004 and 2008 panels.
error in wage reporting. Regression to the
mean does not, however, explain changes in
wage growth patterns between the 2004 and
2008 panels.
Changes in the pattern of wage growth
do not suggest any acceleration in polarization during the recession. Growth for mid-
dle-wage workers changes from negative 4
percent for 2004 to barely positive for 2008,
while high-wage workers have continued to
experience even weaker wage growth—
negative 8 percent for 2004 and negative 1
percent for 2008. Low-wage workers have
performed relatively best, with 8 percent
3.
Job Polarization and the Great recession
2008
-1.2
-2.2
Middle
High
2004
-4.5
2.3
7.7
Low
Initial wage-percentile group
exhibit 4. Median Wage change over 32 Months for
continuously employed Workers
10.9
Percentage change
Source: Authors’ calculations based on Survey of Income and Program Participation, 2004 and 2008 panels.
High
Middle
2004
-24.5
2008
-20.1
-10.3
-20.0
-0.9
Low
Initial wage-percentile group
exhibit 5. Median Wage change over 32 Months for
Workers ever unemployed
3.7
Percentage change
differences in unemployment between wage
groups during the expansion and the recession. Consequently, we split our sample of
workers into two groups—those who were
continuously employed during the 32-month
study periods and those who experienced at
least one period of unemployment.
Among continuously employed workers,
we find no evidence of disproportionate wage
losses for middle-wage workers during the
Great Recession.7 Wage changes again show a
pattern similar to that observed for all workers, with real wage growth better in 2008 than
in 2004 for all continuously employed workers (see exhibit 4). Continuously employed
middle-wage workers experienced median
wage change of negative 2 percent in 2004
and positive 2 percent in 2008. Low-wage
workers experienced median wage growth of
8 percent in 2004 and 11 percent in 2008. For
high-wage workers, median wage change was
negative 5 percent in 2004 and negative 1 percent in 2008.
However, for workers who do experience
unemployment, the story is very different.8
Workers in the middle-wage group who were
ever unemployed over the 30 months
between the first wage observed and the last
have real median wage growth substantially
lower in 2008 than in 2004. In contrast,
high-wage workers and low-wage workers
have higher median real wage growth in 2008
than in 2004 (exhibit 5). If polarization has
increased during the recession, it is only
among the reemployed that we see evidence
of the trend in declining wages.
Source: Authors’ calculations based on Survey of Income and Program Participation, 2004 and 2008 panels.
health insurance
growth for 2004 and 10 percent for 2008.
These results may seem surprising because
all wage groups appear to perform better
during the Great Recession than they did
before it. However, the substantial increases
in unemployment during the Great
Recession likely means that the least-skilled
workers within each group are excluded
from these wage group calculations, which
will overstate each group’s wage growth in
2008. This will not necessarily bias the relative wage growth patterns.6
Evidence for changes in the rate of polarization in wage rates may be obscured by
Wages are not the only form of compensation.
Fringe benefits play an important role, especially employer-sponsored health insurance.
As wage inequality has increased, broader
measures of compensation that include access
to employer-provided health insurance, pensions, and paid leave have followed a similar
trajectory.9
4.
Job Polarization and the Great recession
High
Middle
2004
-1.9
2008
-2.5
-2.3
-5.0
-4.3
Percentage points
Source: Authors’ calculations based on Survey of Income and Program Participation, 2004 and 2008 panels.
exhibit 7. net change in Workers with Any health insurance
over 32 Months
-0.6
High
Middle
Low
Initial wage-percentile group
Dramatic net losses of employer-sponsored health insurance (from own employment or from a spouse’s or another person’s
employment) accelerated between 2004 and
2008 (exhibit 6), and these losses were not
offset by other sources of coverage in 2008 to
the degree they were in 2004 (exhibit 7). This
is particularly the case for low- and middlewage workers.
conclusion
-0.4
Low
Initial wage-percentile group
exhibit 6. net change in Workers with employer-sponsored
health insurance over 32 Months
-2.0
2004
2008
-0.9
-4.5
Following groups of workers over two separate three-year periods, we find little evidence
that job polarization has increased during
the Great Recession. The Great Recession led
to uniformly higher unemployment and longterm unemployment for all wage groups. We
do find some evidence of larger wage losses
(relative to pre-recession changes) for middlewage workers who experience unemployment
during the Great Recession as well as larger
declines in employer-sponsored health insurance. Overall, we conclude that the growth in
unemployment during the Great Recession
and polarization are largely distinct economic
phenomena. Still, given that job polarization
shows no signs of stopping, policymakers will
have to grapple with the long-term challenges
faced by middle-skill workers in addition to
the pressing challenge of high and prolonged
unemployment. •
1.1
-3.8
Percentage points
Source: Authors’ calculations based on Survey of Income and Program Participation, 2004 and 2008 panels.
5.
Job Polarization and the Great recession
notes
1. Studies including Autor (2010) and Autor, Katz,
and Kearney (2006) document job polarization
in the United States, while Goos and Manning
(2007) and Goos, Manning, and Salomons
(2009) describe similar trends in Europe.
2. Previous studies that explore the mismatch
and aggregate demand explanations for high
unemployment include Elsby et al. (2011), Mian
and Sufi (2012), Mishel, Shierholz, and Edwards
(2010), and Neumark and Valleta (2012).
3. Because of the way the SIPP conducts interviews,
data for the 2004 panel run from October 2003
to May 2006 for the first group interviewed and
from January 2004 to August 2006 for the last
group interviewed. Data from the 2008 panel
run from May 2008 to December 2010 for the
first group interviewed and from August 2008
to March 2011 for the last group interviewed.
4. The hourly wage is constructed as total real
monthly earnings divided by total hours
worked in the month; wages are deflated by the
Consumer Price Index Research Series. To limit
the influence of outliers, we exclude observations
with initial real hourly wages below the 5th
percentile and above the 95th percentile. Lowwage workers have real hourly rates of $5.08
to $14.19 in 2004 and $5.01 to $13.51 in 2008
(in December 2011 dollars). Middle-wage
workers’ real wage rates fall between $14.19 and
$23.62 in 2004 and $13.51 and $22.83 in 2008;
high-wage workers’ real wage rates fall between
$23.62 and $56.28 in 2004 and $22.83 and
$55.25 in 2008 (in December 2011 dollars).
5. To measure a change in wages, we restrict the
sample to those employed at both the start
and end months of the SIPP panel.
Oregon, Washington, and the District of
Columbia ended 2010 with a minimum at least
a dollar higher than the federal minimum.
7. The sample is restricted to workers who were
not out of work for one calendar month during
the 31-month interval. Workers did not need
to remain at the same employer.
8. Farber (2011) studies workers displaced during
the Great Recession.
9. See Pierce (2001, 2010) for changes in compensation inequality and its subcomponents.
references
Autor, David. 2010. “The Polarization of
Job Opportunities in the U.S. Labor Market:
Implications for Employment and Earnings.”
Washington, DC: Center for American
Progress and the Hamilton Project.
http://www.americanprogress.org/
wp-content/uploads/issues/2010/04/job_
polarization_report.html.
Autor, David, Lawrence F. Katz, and Melissa S.
Kearney. 2006. “The Polarization of the U.S.
Labor Market.” American Economic Review 96(2):
189–94.
Mian, Atif R., and Amir Sufi. 2012. “What
Explains High Unemployment? The Aggregate
Demand Channel.” NBER Working Paper 17830.
Cambridge, MA: National Bureau of Economic
Research. http://nber.org/papers/w17830.
Mishel, Lawrence, Heidi Shierholz, and Kathryn
Edwards. 2010. “Reasons for Skepticism about
Structural Unemployment: Examining the
Demand-Side Evidence.” EPI Briefing Paper 279.
Washington, DC: Economic Policy Institute.
http://www.epi.org/page/-/pdf/bp279.pdf.
Neumark, David, and Rob Valleta. 2012.
“Worker Skills and Job Quality.” Federal Reserve
Bank of San Francisco Economic Letter, April 30.
http://www.frbsf.org/publications/economics/
letter/2012/el2012-13.html.
Pierce, Brooks. 2001. “Compensation Inequality.”
Quarterly Journal of Economics 116(4): 1493–525.
———. 2010. “Recent Trends in Compensation
Inequality.” In Labor in the New Economy,
edited by Katharine G. Abraham, James R. Spletzer,
and Michael Harper (63–98). Cambridge, MA:
National Bureau of Economic Research.
Elsby, Michael W. L., Bart Hobijn, Aysegul Sahin,
and Robert G. Valletta. 2011. “The Labor Market
in the Great Recession: An Update.” Federal
Reserve Bank of San Francisco Working Paper
2011-29. http://www.frbsf.org/publications/
economics/papers/2011/wp11-29bk.pdf.
Farber, Henry S. 2011. “Job Loss in the Great
Recession: Historical Perspective from the
Displaced Workers Survey, 1984–2010”. NBER
Working Paper No. 17040. Cambridge, MA:
National Bureau of Economic Research.
http://nber.org/papers/w17040.
6. One factor that may contribute to wage
growth for low-wage workers is increases in the
minimum wage. The federal minimum wage
increased from $5.85 to $7.25 during 2007–2009, Goos, M., and A. Manning. 2007. “Lousy and
after a period of stagnation from 1997 to 2007.
Lovely Jobs: The Rising Polarization of Work in
Several states also raised their minimum wage
Britain.” Review of Economics and Statistics 89(1):
between 2004 and 2006 (Florida, Illinois,
118–33.
Minnesota, New York, and New Jersey, by at
Goos M., A. Manning, and A. Salomons. 2009.
least a dollar), or between 2008 and 2010
“Job
Polarization in Europe.” American Economic
(though the states mostly kept pace with the
Review:
P&P 99(2): 58–63.
new federal minimum—only Connecticut,
6.
Job Polarization and the Great recession
About the Authors
Josh Mitchell is a research associate
in the Urban Institute’s Income
and Benefits Policy Center.
Austin Nichols is a senior research
associate in the Urban Institute’s
Income and Benefits Policy Center
(and an affiliate of the UrbanBrookings Tax Policy Center).
unemployment and recovery Project
This brief is part of the Unemployment and Recovery project, an Urban Institute initiative to assess
unemployment’s effect on individuals, families, and communities; gauge government policies’
effectiveness; and recommend policy changes to boost job creation, improve workers’ job prospects,
and support out-of-work Americans.
Copyright © October 2012
The views expressed are those of the authors and do not necessarily reflect those of the Urban Institute,
its trustees, or its funders. Permission is granted for reproduction of this document, with attribution
to the Urban Institute.
urbAn institute
2100 M street, nW ●
Washington, dc 20037-1231
(202) 833-7200 ●
publicaffairs@urban.org ● www.urban.org
7.