Machines Replacing People
Economists posit a variety of reasons for the dysfunction. Spence attributes it partly to globalization, as China and other emerging markets take work Americans once did. Leamer points to technology, with machines replacing people in the production process. For Krueger, some of the fault lies with the U.S. education system and training programs for not providing employees with the skills they need.
The challenges facing the U.S. involve both the quality and quantity of jobs created, Spence said. A study he did with New York University researcher Sandile Hlatshwayo showed that virtually all of the growth in employment between 1990 and 2008 was in the nontradable sector of the economy, which isn't subject to international competition. Government and health care together accounted for almost 40% of the jobs added.
Employment growth in that sector is likely to slow as government spending is restrained, the authors argue in a paper for the Council on Foreign Relations in New York. Value added per person grew 0.7% a year in the period studied, which explains why wage gains for these types of jobs were limited, they say.
Bigger Compensation
Value-added in the tradable arena, which includes manufacturing and financial services, grew by an average 2.3% a year, allowing these employees to enjoy bigger compensation increases. The sector as a whole added few net jobs, though, as manufacturers in particular moved production overseas, Spence and Hlatshwayo wrote.
The result, according to the paper: growing income inequality as many of the jobs the U.S. created were low-paying ones that added limited value.
"The American dream is being seriously tested right now," Leamer said. "It's an emergency for the middle class."