An article in The Regional Economist examined how faster real gross domestic product (GDP) growth during recoveries tends to be associated with growth of jobs in “low-paying” industries.
Business Economist and Research Officer Kevin Kliesen and Senior Research Associate Lowell Ricketts noted that a common refrain among many economic pundits and analysts is that the bulk of the job gains during the current recovery have been in low-wage jobs, a term that is rarely defined. Kliesen and Ricketts explicitly defined low-wage jobs in order to assess the validity of this claim.
They first pointed out that the total number of jobs in low-paying industries exceeds the number of jobs in high-paying industries by nearly 70 percent. Thus, an equal percentage increase in jobs in both industries would generate much larger job gains in low-paying industries than in high-paying industries.
Kliesen and Ricketts defined low-paying industries and high-paying industries via the 2007 median real wage of all private-sector industries, which was $19.45 per hour. They referred to industries with average real wages above the industry median as “high-paying industries” and industries with average real wages below the industry median as “low-paying industries.”
The authors compared the jobs losses and job gains for comparable periods in the four most recent recoveries. These are the periods following the 1981-82, 1990-91 and 2001 recessions, as well as the most recent recession. At the time of the article’s publication, the data available in the current recovery was 66 months in length. Therefore, they looked at job gains over the first 66 months of these previous three recoveries.
The authors found that in the 1981-82 recession, the high-paying industries lost 9.2 percent of their jobs and the low-paying industries lost 0.1 percent. In the recovery following this deep recession, job growth in the high-paying industries was 13.1 percent. However, it was much stronger, 23.9 percent, in the low-paying industries. A similar pattern occurred in the 1990-91 recession and recovery: Low-paying industries experienced extremely modest job losses during the recession (-0.4 percent compared with -3.3 percent for high-paying industries), but much stronger job gains during the recovery (14.4 percent compared with 6.6 percent for high-paying industries).
The pattern changed with the 2001 recession and recovery. Low-paying industries lost 1.4 percent of their jobs, while high-paying industries lost 2.3 percent of their jobs. During the recovery, job growth was 4.2 percent in low-paying industries and 7.3 percent in high-paying industries. In the latest recession, the low-paying industries lost 4.6 percent of their jobs, much more than in the three previous recessions. Moreover, just as in the 2001 recession, the percentage growth in jobs in high-paying industries during the current recovery has exceeded the percentage change in job growth in the low-paying industries.
Kliesen and Ricketts concluded, “Thus, in contrast with the economic recoveries in the 1980s and 1990s, job growth in the past two recoveries has been characterized by faster job growth in high-paying industries and slower job growth in low-paying industries. Although more research will be needed to ascertain why this development has persisted for the past 14 years, one key difference is that real GDP growth during the 1980s and 1990s expansions was much stronger than the latter two episodes.”
Get notified when new content is available on our On the Economy blog.
The St. Louis Fed On the Economy blog features relevant commentary, analysis, research and data from our economists and other St. Louis Fed experts.
Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.