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The Economy Is Back—Barely

Jun 06, 2014

Let’s get the good news out there first: Yes, the U.S. has finally, after four years of recovery, exceeded its pre-recession jobs peak of 138.4 million new jobs. There are now more jobs out there in the economy than ever before, though it's worth saying there are also a lot more people in the labor market than there were back then, even given the historically low workforce participation rate of 62.8 percent (the lowest since 1979).

The big question is “who are those jobs for?” That’s where the May jobs report, the fourth strong report in a row, gets more interesting. Unlike previous reports, the gains have been broad based—there were new jobs created in many sectors, including higher paying and important ones like manufacturing and construction. But 50% of all the jobs being created in this country are still in the low-wage category—retail clerk positions, home heath aids, waitresses and the like. And more importantly, pay isn’t going up much—only a little more than 2% month on month, compared to an average of 3.5% to 4.5% before the recession. If you aren’t jumping up and down about this report, that’s probably why—a lot of us just don’t feel the recovery in our pocketbooks.

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That’s underscores the key difference in the pre-2008 economy versus now. Yes, the jobs debate has officially shifted from quantity, to quality. But, as the McKinsey Global Institute has been pointing out for some time now, that shift has taken longer than in any recovery of the past. From the period between World War II and the 1980s, “there was a fairly predictable pace for recoveries,” says MGI director and economist Susan Lund. It took roughly six months 
for U.S. employment levels to recover after each post-war recession 
through the 1980s. Then, things changed. It took 15 months after the 1990–91 recession for employment to reach its pre-crisis levels, and
 39 months after the 2001 recession. This time around, it’s taken 40 months, and $4 trillion of Federal Reserve stimulus to boot.

What’s more, while we’ve created as many jobs as we had before, the nature of the work has changed—the labor market is bifurcated, with people at the top doing quite well and those in the middle and bottom, not so much. Another fascinating tidbit from MGI that reflects this shift: employment for people with a bachelor’s degree or more has actually been growing since the crisis in 2008. It never stopped growing. But work for those with a high school degree or less has been shrinking, and only just began to rebound. “For those people, it still feels like a jobless recovery.”

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Increasingly, though, the question is whether it will be a wage-less recovery. It usually takes several months of job growth for income to start to pick up, and once it does, it’s possible that a broader range of companies will start adding more employees higher up the food chain. The National Association of Business Economists is bullish on the next six months. But I tend to think that even as jobs will grow, these key trends— the shrinking of the middle labor market, and flat wages—will continue. One of the main reasons could be that technology related job destruction is continuing in blue chip America, and it’s going higher up the food chain. I recently sat in on a conference with a high level group of C-suite employers, and all were planning to spend on technology that would displace more white-collar workers. Research shows the only way to shift that trend is to increase levels of education in society faster than technology change—and given the speed at which the latter is advancing, that will be a tough assignment indeed.

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