High quality job availability slipping throughout U.S.

Economic development today is all about quality jobs. But how does a community know if it is succeeding? Until now, job quality has been measured indirectly or through a simplistic method that produced somewhat misleading (and often conflicting) results. The L. William Seidman Research Institute at the W. P. Carey School of Business took on the challenge, developing a new way of measuring job quality. Its findings: Job quality has been declining nationally for decades. Currently, the highest-quality jobs can be found along the Atlantic coast.

Job quality is a perennial hot-button topic, but although the availability of quality jobs is the bottom line of economic development, up to now economists have not been able to draw a clear picture of how those desirable jobs are distributed throughout the country. A new methodology developed at the L. William Seidman Research Institute does just that. Now policymakers and economic development officials know definitively where their communities stand, which might help focus attention on next steps.

According to Tom R. Rex, associate director for the institute's Center for Business Research, the eight states with the strongest job quality all are located between Massachusetts and Virginia. Outside of this region, job quality is higher than the national average only in a few states, particularly Illinois and Colorado. Georgia is the only state in the South with above-average job quality (but it is only slightly above average).

States with high job quality have a disproportionate number of high-paying jobs, most of which require a high educational attainment. Many of these jobs are in high technology, but others are located in company headquarters or in the finance and insurance sector.

Job quality is below the national average in most of the mid-section of the country, stretching from the northern Rocky Mountains through the Great Plains and into the South, according to the most recent available data. However, Nevada and Hawaii have the lowest job quality, due to a large proportion of low-paying tourism-related jobs.

A breakthrough methodology

Prior to the development of a new methodology by the W. P. Carey School's L. William Seidman Research Institute, the analysis of the nation's job quality was plagued by methodological shortcomings.

"You can come up with different numbers depending on how you slice and dice the data," says Randy Ilg, an economist for the U.S. Bureau of Labor Statistics who has examined job quality over the last decade. "It can be a very complicated question."

The prevailing method of analyzing job quality ranked occupations and/or industries by average wage, breaking the distribution into two (above/below average) or a few categories. "Much of the information contained in the data was lost by this simple technique," Rex explains. "Results using the categorical ranking method are difficult to interpret and the method is sensitive to small changes in assumptions, methods and data."

For example, in 2004, the Annenberg Political Fact Check Project examined claims by the Kerry campaign that the nation's job quality was deteriorating. Using a simplistic method that split all industrial/occupational categories into just two groups, they concluded that virtually all of the net jobs created between mid-2001 and mid-2004 paid above-average wages — and that therefore, job quality must be improving.

The Economic Policy Institute challenged Annenberg's findings. Using a much more sophisticated method that fully utilized the same data set, the EPI reached the opposite conclusion: job quality declined nationally between 2001 and 2004. The Annenberg analysis had not considered that 11 of the 12 highest-paying categories lost jobs, while five of the seven lowest-paying categories gained jobs.

"The methodology developed by the Seidman Institute is similar to that used by the Economic Policy Institute," says Rex. "However, our calculation of job quality is done in a more straightforward manner that makes it easy to compare the change in job quality over various time periods."

Another advantage of the Seidman Institute's methodology is that it can be applied to states and substate areas, with job quality in a given year as well as the change over time expressed relative to the national average.

Lower job quality a long-term trend

"The new measure of job quality indicates that the long-term trend has been toward lower-quality jobs in the United States," said Rex. "However, the rate of decline has been modest. Had no erosion in job quality occurred between 1969 and 2003, the average wage in 2003 would have been 5 percent higher than the actual figure." (1969 is the earliest year of data, not the year in which national job quality began to decrease.)

The declining quality of jobs in the United States became a national concern in the 1980s, after many high-paying manufacturing jobs were replaced by lower-paying service jobs. Many manufacturing industries pay above-average wages, but their work forces over the last 35 years have declined as a share of total employment. In contrast, some low-paying industries, particularly in retail trade and services, have experienced strong employment growth.

To calculate the change in the nation s job quality, the Seidman researchers rely on two pieces of data: (1) the change over time in each industry s share of total employment, and (2) the ratio of each industry s average wage relative to the overall average wage. The analysis was repeated by occupation. A measure of overall job quality is created by combining the industrial and occupational results.

Job quality increases when either or both of two conditions occur: (1) an increase in the proportion of jobs in industries or occupations paying higher-than-averages wages, and/or (2) a decrease in the proportion of jobs in lower-than-average-paying industries or occupations.

While comparable losses in job quality have occurred during each of the economic cycles since 1969, losses are not steady year by year. Daniel Aaronson, a senior economist for the Federal Reserve Bank of Chicago, released findings last year that revealed that job quality has proved to be cyclical, following the ups and downs of the economy. The Seidman Institute research mirrors those results.

"Losses in job quality occur during economic recessions and in the recovery phase following recessions," Rex said. "Job quality on average is flat during the middle and latter years of economic expansions."

Job quality declined at a more rapid rate between 2000 and 2003 — a period incorporating a recession and two relatively slow recovery years. Many jobs in high-paying management occupations were lost during this period.

Strategies for economic development

Dennis Hoffman, director of the Seidman Research Institute, says public policy officials need to take job quality studies to heart when shaping strategies for their communities for the next several years and beyond.

"My sense is that cities and regions will find that it s tough to change the overall quality of their employment opportunities," Hoffman says. "But I believe the places that will do the very best will be those that actively engage in efforts to develop a climate that nurtures quality job growth." He says that means providing a climate replete with such business basics as modest tax burdens, public infrastructure support and an educated work force.

"In light of pressures from globalization, it will be very challenging to just maintain the quality of the workforce that we have today, let alone improve it," Hoffman says. He says the key to improving job quality may be locked up inside today s workers, especially those who are least like the go-getters of some previous generations.

"I have a sense this will change as today s complacent workers, those currently unwilling to upgrade their training and skills, find they are only going to get low-paid jobs," he says. "Savvy workers will make the changes needed to be successful and will position themselves for more quality job opportunities. But who knows how quickly this can happen? We ll just have to see."