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The jobs recovery is weaker than it seems

Rick Newman
Senior Columnist

The numbers seem terrific: a whopping 295,000 new jobs created in February, with 3.3 million new jobs added during the last 12 months. The pace of job creation now is comparable to the pace of the late 1990s, when the economy was booming.

These are not boom times, however, and the fine print in the job numbers and other economic data helps explain why. The biggest problem is that new jobs being created pay less, on average, than jobs lost during the last several years. That’s depressing middle-class living standards. We’re also likely to see more evidence soon that plunging oil prices are causing job losses in the energy sector, which until recently was one of the brightest spots in the whole U.S. economy.

Overall job trends are clearly positive, and lower energy prices will do a lot more good than harm, since the typical American family is saving about $100 a month by forking over less for gasoline and other types of fuel. But the realignment of the job market due to the combined effects of globalization and digital technology could cause stress on the middle class for years, no matter how strong the aggregate number of new jobs is.

The vulnerability of medium-skill jobs

New research from the Oxford Martin School and Citigroup (C), for instance, finds that the safest jobs are those at the lowest and highest ends of the skill spectrum, which happens to be where much of today’s job growth is occuring. Low-skilled workers—think landscapers, garbage collectors, hotel cleaning staff—are hard to replace with computers or machines, which means more of them will be needed as the economy grows. That's why restaurants, hotels and retailers hired thousands of new workers in February. High-skilled workers in scientific fields, programming, and engineering are generating much of the new technology that’s taking over the economy, and benefiting the most from those economic trends.

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Middle-skill workers, by contrast, are the ones whose jobs are most likely to be replaced by software or automation, as the chart below shows. Such jobs include manufacturing workers, bank processors, insurance specialists and even office assistants who are increasingly vulnerable to computerized gizmos armed with artificial intelligence. (Applebee’s, as one example, now has tablets installed at tables so diners can order without waiting for a waiter to materialize -- though someone does need to bring their food.) It could still take time for these unsettling developments to ramp up. But in the meanwhile, even the minor adoption of technology in lieu of workers could be enough to keep demand for labor weak, and wages flat.

Source: Oxford Martin School, Citi Research

Average hourly pay has ticked up by just 2% during the last 12 months, which is barely better than inflation. Because incomes are stronger at the top end of the earning scale, many near the bottom are falling behind. A few big employers, such as Walmart (WMT), TJX (TJX) and Aetna (AET), have announced pay hikes recently, boosting hopes that wages overall will start to drift higher. But downward wage pressure due to technology adoption—which is not as visible as announcements by big companies—could prevent broader pay raises from taking hold.

Other factors could weaken the employment picture for the next few months as well. Energy firms have announced nearly 40,000 layoffs during the last two months, according to outplacement firm Challenger, Gray & Christmas. And the mining sector (which includes some oil and gas jobs) was the only big industry tha tlost jobs in February. Energy only accounts for about 7% of total employment, so cutbacks there shouldn’t have a major impact on overall job numbers. But Exxon Mobil (XOM) CEO Rex Tillerson said recently that he expects low oil prices to persist for at least the next two years, which will probably mean falling employment in the energy sector for at least that long. Even when layoffs abate, energy firms will probably be reluctant to hire new workers after several years of strong growth.

The job outlook isn’t gloomy: Average monthly job gains of 275,000 should finally force some companies, in some industires, to pay workers more as it gets harder to find qualified workers. But a truly robust job recovery won’t occur until middle-class workers have less fear of being replaced by machines and more leverage to demand a raise. For many, that day remains a long way off.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.