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Economist Osterman: Quality of Jobs Matters as Well as Quantity

By Daniel Gross

On Monday, the Census Bureau released a sobering new report on poverty and income in the U.S. The grim news: there's been very little income growth since 1997, and in recent years the number of people without insurance and living in poverty has risen.

While it's easy to pin much of the poor news on the high rate of unemployment, the reality is that the overwhelming majority of American adults in the workforce do have jobs — and are simply not getting ahead. A job today is less likely to come with good wages, and benefits like health insurance and pensions than it was in recent years. At a time when a great deal of attention is focused on how we can create more jobs, Paul Osterman, economist at Sloan School of Business at the Massachusetts Institute of Technology, says we should be worried about quality as well as quantity. "The quantity of jobs is important. But it's also important to care about how good those jobs are."

Osterman, the co-author, with Beth Shulman, of Good Jobs America: Making Work Better for Everyone¸ was my guest on the Daily Ticker. His systematic investigation into the ravages of low-paying work yielded several interesting conclusions.

Osterman and Shulman define a good job as one that pays two-thirds of the median wage, or about $11.61 per hour. And so they find, that 27.8 million adults earn less than two-thirds of the median wage (or 24 percent), while 22 million, or 19 percent, have wages that "put them below the poverty line for a family of four." (The poverty line is $20,000 a year for a family of four) What's more, people in low-wage jobs have more difficulty getting insurance, access to child care, and tend not to have pensions.

Americans have tended to dismiss such alarming data because people frequently start at the bottom of the wage scale and work their way up. But the data show that mobility isn't what it used to be. Many of these jobs are traps, Osterman says. "We have this image of mobility. Most people in these poverty jobs stay there." As he and Shulman write: "Of children born in the bottom 20 percent of the income distribution in the late 1960s, 41 percent remained there as adults in the late 1990s." Worse, long periods of economic growth don't inflate the problems away.

Osterman cites several other myths surrounding popular perception of low-wage jobs. Among them: it's all China's fault. "A lot of them [low-paying jobs] are in service sectors where we aren't competing with China, like health care and restaurants." Thirty-one percent of the low-wage workers are in the retail and food/drink industries. "Whereas in the past poverty was associated with agricultural work and grinding factory jobs, today many low-wage workers are found in service and white-collar jobs," they write.

And while private-sector companies are more likely than government or non-profits to pay lower wages, it's not true that all government jobs come with high pay and posh benefits. "People who work in the cafeterias in school systems, or do landscaping in them, are paid minimum wage," Osterman said. "Too many public sector jobs are low-wage jobs, and too many companies to whom the public sector outsources work pay low wages."

This is not an ideologicial, mono-causal book. Osterman and Shulman note that immigration of low-skilled workers — legal and illegal — play a role. They note that companies that pay above-market wages for less-skilled work don't always get rewarded with greater productivity and higher profits. While companies have built business models around paying the lowest possible cost for labor, in ways that violate policies and occasionally the law, "I don't want to attack greedy bosses," Osterman said. "Most companies are under intense pressure and trying to do their best." They acknowledge that low wages at Wal-Mart ultimately benefit many consumers. But the reality is that a general decline in labor market standards — brought about by competition, the decline of labor unions, out-of-date regulations, and a general societal indifference — is causing a race to the bottom in several large industries.

As is the case with many books about tough-to-solve problems, Good Jobs America is better on diagnosing the problem than it is on prescribing solutions. The authors note that society needs simultaneously to pressure companies and provide them with tools and incentives that enable them to treat workers better. They cite examples of employers who have "career ladders," that allow people to progress through training and education — so that, say, housekeepers at hotels, can ultimately be trained to be line chefs; or hospital janitors can be trained to become lab technicians. But such examples are relatively few and far between. In the battle between the good intentions of employers and policymakers, on the one hand, and the vast structural forces arrayed against workers without highly valuable skills, on the other, the impersonal forces seem to be winning.

Daniel Gross is economics editor at Yahoo! Finance

Email him at grossdaniel11@yahoo.com; follow him on Twitter @grossdm

His most recent book is Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation.