TREND WATCH: What’s Happening? New BLS data illustrate an immutable truth about today’s economy: Blue-collar fields are shrinking (and aging), while pink-collar fields are surging. In fact, going back decades, service-providing firms have accounted for the vast majority of all jobs added by the U.S. economy.
Our Take: This trend will continue to impact our economy for years to come. On the downside, the expansion of slow-growth sectors could trigger a long-term U.S. productivity slowdown. On the upside, the growth of services jobs—which are tougher to automate—will slow the rate at which technology makes workers obsolete. Ultimately, this sectoral shift will cause Millennial men to reshape the pink-collar workforce.
According to the February BLS jobs report, goods-producing industries created just 19% of all private U.S. jobs added in January 2017. Service-providing industries created the other 81%.
These new data are the latest manifestation of a longstanding trend, made even more striking when you compare the differing fortunes of pink-collar and blue-collar professions. A Pew analysis of BLS data recently revealed that employment in the educational services industry has more than doubled (up 105%) since 1990. Heath care and social assistance is not far behind, with employment up 99% over the same time period.
This strong performance of these pink-collar professions stands in stark contrast to the glacial growth of blue-collar professions. Construction has done the best of all, with employment up a middling 22% since 1990. But even this growth doesn’t equal the average employment gain for the entire economy over those years (30%). Mining and logging barely gained any jobs at all (up 7%). Manufacturing has lost 30 percent of its jobs since 1990, the worst performance of any industry.
If anything, the January data likely understate where our economy is headed. From 2014 to 2024, BLS projects service-providing firms to create virtually all new jobs (95%). The remaining job growth will be in self employment, in which "sector" is undefined. Goods-producing jobs? Here we can expect to see net negative jobs added, since the razor-thin additions to mining, construction, and manufacturing (+0.6% of all new jobs) will be more than wiped out by jobs lost in agriculture (-1.1% of all new jobs)
Health care and social services alone, by contrast, are expected to account for 39% of all job growth. These two sectors will, by 2024, actually employ more people than mining, construction, and manufacturing combined. The top three job-creating professions over the next decade will all be in health care: personal care aides, registered nurses, and home health aides.
Not surprisingly, because blue-collar sectors have failed to experience much job growth, they’ve grown top-heavy with older workers. BLS data reveal that the median age for a construction worker is high and getting higher. It grew from 38.7 in 2000 to 42.7 in 2016. In fact, since 2000, the share of U.S. workers with a construction job has risen in each age bracket over 35—and has fallen in each age bracket under 35. Manufacturing has lost workers across the board, but the drop has been the most pronounced among younger age brackets.
In manufacturing, to be sure, there’s more to the story. The rise of two-tier wage scales has accelerated the aging of many unionized industries by requiring young workers to do the same type and amount of work as older workers but at a significantly reduced wage level. The two-tier age bias tends to keep older workers from leaving—and tends to keep younger workers from joining. This type of pay structure, which arose in the early ‘80s, has always benefitted—and continues to benefit—Boomers and some Xers at the expense of nearly all Millennials.
Service sectors like wholesale and retail trade are a different story entirely. The median age for a retail worker is low and rising more slowly. It ticked up from 37.1 in 2000 to 39.3 in 2016. These jobs are undoubtedly more popular with the younger set. More than one-fifth of employed persons under age 25 worked in wholesale and retail trade in 2016, by far the largest share of any age group. In fact, the ratio of retail workers in their early 20s to manufacturing workers of the same age is 3:1. For workers ages 45 to 64, the ratio is less than 1:1.
The graying of the blue-collar workforce disproportionally hurts males. Fully 91% of construction workers and 71% of manufacturing workers are men. By contrast, 79% of health care and social assistance workers are women. In fact, most of the jobs projected by BLS to grow the fastest over the next decade—including the top three fastest-growing professions overall—skew heavily female.
DRIVERS
What’s behind these sectoral divergences?
The primary explanation is “Baumol’s cost disease,” named after William Baumol (who, as a 95-year-old emeritus at Princeton, will hopefully soon receive his deserved Nobel Prize). Baumol was referring to the tendency of high productivity-growth sectors to shrink over time as a share of total employment—and low productivity-growth sectors to expand as a share of total employment.
What explains Baumol's tendency? To the extent that the mix of products and services that we consume stays constant, it follows that the most productive sectors (say, automakers) will need an ever-smaller number of workers to keep autos unchanged as a share of national output. Low-productivity sectors (say, vacation spas), by contrast, will need an ever-larger number of employees to keep spa services unchanged as a share of national output. Thus, the overall employment mix necessarily shifts over time in favor of low productivity-growth jobs.
This theory explains why jobs have shrunk so drastically in sectors like farming and heavy industry (marked by high productivity growth), and why jobs have grown so steadily in sectors like education, health care, social services, and public relations (marked by low productivity growth).
Several other drivers are pushing in the same direction. First, consider the fact that, as real incomes rise over time, societies tend to spend a shrinking share of their income on material things as opposed to personal services. Products like food and clothes and appliances, where productivity growth has been dramatic, are "inferior goods" to use economists' jargon: As we grow wealthier, we spend relatively less on them. This bias has recently been further tilted by the growth of the sharing economy, which allows people (for example, on Craigslist or Uber or Rent the Runway) to use existing durable goods more intensively without buying new ones.
One might also point out the emerging role of social media. Until recently, people engaged in conspicuous consumption by buying prestige-brand things—autos, homes, jewelry, etc. But thanks to Facebook and its kindred, Millennials can conspicuously consume and curate significant moments—a foodie experience or a vacation in Easter Island. (See my full discussion in “The Immaterial World.”)
And let's not forget the role of demographic aging in diminishing the economic importance of goods. The United States, like many graying societies around the world, no longer needs as much capital-widening physical investment as it did when it was younger and growing more rapidly. What’s more, older consumers in general tend to be outsize consumers of services rather than goods. Retiring Boomers, for example, are fueling extraordinary growth rates in home health workers.
IMPLICATIONS
The large-scale shift away from goods production and toward services provision has major implications for the future of our economy, some bad and some good.
The downside: The bad news is that Baumol’s cost disease could impose a long-term drag on productivity growth. Growth in conventional labor productivity, measured in real worker output per hour, has slowed considerably over the last 15 years. This slowdown will only worsen if current trends continue.
Think about it. If sectors with high productivity growth account for an ever-smaller share of the workforce, then ongoing progress in those sectors will have a declining impact on the overall rate of labor productivity growth. Ultimately, when we are able to set up factories where we no longer need to turn on the lights (because there will be no humans inside), that industry will contribute nothing to future economy-wide productivity growth.
Meanwhile, more of the economy will consist of sectors where productivity growth is tougher (or impossible) to achieve. A good example, used by Baumol in his original analysis, is the string quartet. You will never be able to perform a string quartet with fewer than four players employed for an hour. Similarly, you would be hard-pressed to improve the productivity of so many growing sectors today which rely extensively on the human delivery of services. Back in 1900, well over two-thirds of the U.S. workforce was employed in either farming, industry, utilities, or transportation. Potential for productivity growth: vast. Today, roughly 60% is employed in government, health and social services, education, retail, media, personal services, or management. Potential for productivity growth: limited.
Indeed, Baumol’s syndrome is making productivity itself ever-harder to measure. Government economists now have to employ complex "hedonics" to estimate quality improvements in intangible services. It is incorrect to argue (like venture capitalist Marc Andreessen) that the economy’s recent productivity slowdown is a myth simply because measuring it is tougher. Detailed and careful analyses by NBER and Brookings confirm that, no matter how you re-jigger the data, the slowdown is real and is large. (Americans' growing pessimism abut their future living standards, in other words, is not unfounded.) Still, it is fair to say that the output per hour of a nurse or public relations manager is not as easy to measure as a factory line worker stamping out widgets.
The upside: The good news is that most workers may have less to fear from technology after all. Many “techno-pessimists” are convinced that robotics, IT, and AI are destined to render a huge chunk of the workforce obsolete within the next decade. (My in-depth interview on the subject can be found here, in “The Age of the Intelligent Machine.”) They are mistaken because, to a large extent, this replacement has already happened. Most of the easiest jobs to automate have been automated, leaving us mainly with jobs that still require human judgment, flexibility, and dexterity. Sure, we will eventually get driverless cars. But this will happen far more slowly than Silicon Valley thinks. (See: "Driverless Cars: Unsafe at Any Speed?")
The new gender challenge: Perhaps the largest effect of this shift, however, will be a massive gender retooling in which men flow into pink-collar professions—and perhaps redefine them.
It may not be a historical accident that women dominate pink-collar work. Most pink-collar jobs require right-brain EQ and/or “flow” dexterity skills—which research shows confer a natural advantage to women. Men tend to perform best in tasks that involve left-brained, straight-line thinking—in other words, the very tasks most prone to some form of automation. This is true not only for blue-collar jobs, but even for many white-collar professions that require extraordinary learning and intelligence. If you're a radiologist or even a chess grand master, your job can probably be done better by an algorithm. But if you're a social worker or therapist, you're job is safe for the foreseeable future.
This paradigm shift is already creating a sense of gender discomfort. On the one hand, authors like Hanna Rosin (author of 2012 bestseller The End of Men) point out that women are surpassing men in workplace credentials and aptitude. Yet lately women’s labor force participation (LFP) has been declining and, in most households, females are still dependent on male breadwinners. On the other hand, Donald Trump’s promise to bring back America’s blue-collar workforce resonates with working-class men. Yet these men yearn for a past that isn’t coming back—and at some level take pride in America’s ability to make more with less.
Many men no doubt recoil from the stigma associated with a pink-collar job. Out-of-work 53-year-old welder Tracy Dawson speaks for many blue-collar men when he flatly declares: “I ain’t gonna be a nurse; I don’t have the tolerance for people.” This difficult adjustment may partly explain the declining LFP of prime-age males, a subject ably covered in Nicholas Eberstadt’s recent book, Men Without Work. (See my previous note on the subject in “Why Americans Are Working Less.”)
IS BLUE-COLLAR DESTINED FOR DESTRUCTION?
Many leaders—notably, Trump—believe that U.S. blue-collar jobs have simply gone abroad. If only we could take them back, they say, we could return to the “good old days.”
But this is a fallacy. U.S. manufacturers produce as much as they ever did; they just do it with ever-fewer workers. As FiveThirtyEight’s Ben Casselman points out, inflation-adjusted U.S. manufacturing output has climbed 20% since the end of the Great Recession—yet manufacturing employment has inched up just 5% over that time. Economists across the spectrum agree that technology has erased vastly more U.S. industrial jobs than China.
The irony is that, while Boomer men provide the groundswell of Trump’s support, they are the single male age bracket most likely to hold blue-collar jobs. Millennials, on the other hand, have experienced a far different reality—one where blue-collar opportunities are scarce and often less attractive than jobs in other industries.
Precisely because so few young people are in these professions, and because these professions aren’t growing much in terms of employment, it creates a vicious cycle that makes it ever-tougher for managers to find young workers even when they need them. For example, a recent industrial construction boom in Louisiana created the need for tens of thousands of new skilled construction jobs—which often went unfilled. Blue-collar companies that want to overcome this cycle have to go out of their way to brand themselves as model employers to a generation that has virtually no firsthand experience with such work.
But the fact remains that better outreach alone cannot stop the demand slide for blue-collar work. Eventually, as pink-collar work keeps growing as a share of the total workforce, Millennial men may carve out their own niche and masculinize many of these professions in ways we cannot yet imagine. This may someday make “pink” an outdated label.
