For Workers, a Slow Climb Back

Practical Economics

For Workers, a Slow Climb Back

It's an employer's market, and will be for some time.

Don't be fooled by the recent improvement in the unemployment rate. American workers are facing the bleakest job prospects in decades.

Although hiring has picked up in recent months, job creation will remain modest until well into 2013. Openings for new entry-level workers and for better-paying middle-income jobs will be difficult to find. Except for a few occupations that require highly skilled workers, businesses will have their pick of the best-qualified applicants for each slot. Opportunities for job-hopping will be limited, and job seekers will have to settle for modest wage gains and less generous benefits. Wages, generally, will continue to grow little, if at all. Income disparities will widen.

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Traditional areas of job growth in recoveries won't deliver this time. The number of manufacturing jobs is increasing, but it won't rebound sharply, even as some U.S. companies move production back home. Factory employment will soon resume its decades-long decline. Construction will be slow, the lasting effect of the overbuilding of the housing bubble. The biggest gains will continue to be in health care and education, jobs that often require a high school diploma or college degree.

"The job recovery is under way, but it's facing significant headwinds," says Ray Stone, economist at Stone & McCarthy Research Associates in Princeton, N.J., who keeps close tabs on the labor market. Productivity gains have reduced the need for labor, Stone points out, while soaring health care costs make it ever more costly to hire more workers.


Other factors dim workers' prospects as well. The financial collapse of 2007-2009 damaged 401(k) accounts, prompting aging baby boomers to postpone their retirements. So employers have fewer openings for younger workers seeking entry-level jobs.

People out of work for several months or years will find that their skills have eroded and that it will be especially difficult to get the kinds of jobs and level of pay they held before the recession. Workers whose homes are worth less than the mortgages they've taken out will find themselves unable to move to other cities to take advantage of new job opportunities.

Long term, broader economic forces constrain workers' options. Globalization will increasingly limit workers' bargaining-power and flexibility -- and not just for lower-paid positions. The migration of jobs overseas is extending upward into higher-skilled, higher-paying jobs. The National Science Board reported in January that the U.S. is rapidly losing high-technology jobs as American multinationals expand their research and development laboratories to Asia. More emerging market countries are competing in service industries -- engineering, construction, financial and business services, and medical care -- as well as in the production of goods.

Technological advances increasingly mean the substitution of capital for labor as sophisticated equipment enables companies to produce more with fewer workers.


And the decline of labor unions will have practical effects on the pay and job security of unionized workers. Only 11.8% of American workers now belong to a union -- down sharply from more than 20% in the early 1980s -- and unions are no longer drawing the kind of public support that had been typical during a recession. In a Gallup poll taken last December, 42% of those surveyed said they disapproved of labor unions, up from 29% in October 2006. Some 42% said they'd like to see unions become less influential.

With states in a serious financial bind, governors and legislators have begun pushing through laws they wouldn't even have considered a few years ago, trimming pensions and other benefits for state workers, and enacting right-to-work laws, which bar unions from requiring nonunion workers to pay dues.

At the same time, businesses have begun using lockouts to pressure unionized workers into accepting givebacks in wages, benefits or work rules that unions won in previous collective bargaining agreements. According to Bloomberg BNA, at least 17 major employers imposed lockouts during union negotiations last year. Once that was a rarity.

The unemployment rate, 8.3% at last count, is likely to improve in 2012 and again in 2013. But the challenges for workers will last a lot longer.