There’s a Silverware Lining to the Restaurant Recovery
I’ve seen many posts today about our sluggish jobs recovery. Most people are pointing to data that show most of the job creation is in ultra low-wage, crappy sectors like fast food. (Here are James Pethokoukis, Tyler Cowen, and Mark Thoma on the matter.)
I think there’s a silver lining to this. Without considering part time jobs (which are not relevant to this post) there are three types of households: dual income, single income, and no income. The latter two indicate that one or both earners, respectively, cannot hold their job consistently, have high turnover, and are living off insurance.
Dual-income families have higher median incomes not only because there are two earners, but each individual earns more on average. Educated people from healthier backgrounds are more likely to get married – and stay married.
Let’s say I’m a genie. I can create jobs as I want. The process is simple, I specify the income said job will earn, and the market efficiently allocates my magical capital into productive labor. So I can wish for the marginal job to command $100,000, $50,000, or $20,000. Or less. Naturally, within this framework anyone with a genie would just hit some uselessly large number until all of America is rich and prosperous. But let’s stay within a reasonable bound.
Let me pose a question: what creates more marginal welfare: an efficiently allocated job pulling $20,000 or an efficiently allocated job earning $40,000. Most people will be quick to say the second job, of course.
But here’s the thing. Better jobs – like the ones we want to create – are more likely to go to families that already have an earner. That’s because the spouse of someone earning $75,000 a year may be “unemployed” because she (or maybe he) can’t get a great position, but will hold out instead of becoming a fry cook. She’ll take the executive assistant position paying $40,000, though.
As you can see, if your intention is to help America’s poorest – and that is precisely where the marginal dollar generates the most utility – you want to create jobs that are suitable to America’s poorest. Obviously there’s a point at which my tenuous argument breaks down. I would hands down rather disemploy a fry cook over an engineer or scientist (but not doctors – definitely not doctors).
There’s another, subtler point. Two $20,000 jobs are better than one $40,000 job – sure one shows up better on the output/hr productivity statistics: but the other employs two people. Furthermore, you may not believe wage flexibility is good (I don’t), but if you do the best way to achieve said flexibility is not through deflation of existing jobs but creation of crappier ones. That’s basic arithmetic.
This is not just a cyclical story. As many have claimed, automation and globalization will hurt the solid middle before it touches the bottom of the barrel. America is divided as much on income as it is on culture. A solidly middle-class housewife or husband will – to my approximation – rather remain unemployed because she can afford it rather than “stoop” to the jobs that are being created.
We may see more single-earner middle class families with a dual-earning poor who need it. This isn’t consolation for the grim path of our economic future, but it suggests there is reason to be optimistic at this stage in the recovery. These dynamics and frictions cannot be ignored: sometimes a higher paying job is not what the economy needs, hard as it is to believe.
This is Ashok. 
You are missing some other large factors in your conceptualization of single and dual income unless you properly value non-market employment. One could argue that this is of marginal importance, but statistics don’t bear that out.
Do two lower paying jobs have a higher job multiplier than one higher paying job? Enrico Moretti shows that a tech job has a multiplier of 6.0x while manufacturing has a 2.6x multiplier. Another source shows a multiplier at casinos of only 1.73x. According to Ferleger & Magid, an emphasis on some low paying jobs (low paying medical jobs included) can lead to economic dead zones. If you emphasize low paying jobs you will have less economic growth. Coarsegold, CA.
I would argue that economic multipliers such as you discuss are not very helpful in this context. Another commentator puts it rather more baldly. “Working is not good, getting paid is good. Jobs really, at least for the vast majority of us Americans are valuable only as a means to that end.” This is nonsense on so many levels – being productive turns out to be a direct health benefit – physical and mental – a social benefit, a personal goal. It should be inverted. Getting paid is a necessity for most people, but working itself provides many benefits other than getting paid.
And so it is with non-market labor. It is a good for the individual and for society. If we can get away from silliness like quarterly estimates of GDP and monthly labor reports, we get to the sort of payoff that non-market labor provides; economic benefits 20-50-100 years from now turn out to hinge almost entirely on non-market labor products; and these time horizons make these benefits hard to measure. These are the benefits from major innovation and from raising and educating the next generation.
BenK is right, there is a real benefit to employment itself. Also, while I don’t want to comment on multipliers (it’s a very complicated game), note that the propensity to consume will be higher with the lower paying jobs.
Should reiterate that this is not a policy objective as much as a silver lining.
Hmm. Interesting, and I think it’s true. Here is my take on the same issue, which I think roughly agrees with yours. http://trotskyschildren.blogspot.com/2013/06/getting-richer-while-feeling-poorer.html
I’d also like your opinion (or your readers’ opinions) as to whether this article makes any economic sense. (I wrote it, but I’m not an economist.)
http://trotskyschildren.blogspot.com/2013/07/are-rich-people-rich.html
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There’s some good points, but major objections,
First off, two 20k jobs also take twice as much work. Working is not good, getting paid is good. Jobs really, at least for the vast majority of us Americans are valuable only as a means to that end. Prosperity is really the story of getting more with less, and this is the opposite direction.
Prosperity, increasing productivity, is not some statistical trick like you seem to be portraying. Those higher paying jobs are also more likely to be in the new economy, rather than the old, and the new economy has the advantage of not being on the way out. Protecting two low wage jobs over promoting a new high wage job has the disadvantage that you’ll probably have to keep protecting them indefinitely.
That people are increasingly settling for a low income job isn’t a great sign, it’s a sign of basic pessimism about job prospects. It’s also bad in that a 40k job generally makes people good at doing 40k jobs, when instead people work as a fry cook, that’s the skills we’re developing.
Also, low paying jobs are often low paying precisely because they’re part time or time flexible or a slanted towards benefits, and “low skilled” workers are often low skilled precisely because they’ve taken time off because they’re the second income of a household.
Also, the 40k job creates far more tax revenue, not only is it a larger amount taxed at a higher rate. Two 20k wage earners are contributing less to the public treasury than one 40k earner. This is what pays for medicaid and social security and not being bankrupt, which also is important for welfare. I mean when those external to those we’re talking about are less well off that’s really a bad sign the government should be encouraging something.
“First off, two 20k jobs also take twice as much work. Working is not good, getting paid is good. Jobs really, at least for the vast majority of us Americans are valuable only as a means to that end. Prosperity is really the story of getting more with less, and this is the opposite direction. ”
I completely agree with this in principle, see this post (https://ashokarao.com/2013/08/04/nairu-structure-and-the-case-for-a-minimum-wage/). However, there is still benefit to employment as binary variable. People want to work, just not very long hours.
It is not a good sign that we’re having this conversation at all, I’m just looking at one potentially bright side. Many workers, however, are low-income not because of part time work or anything as much as just brutally low wages. What’s the annual salary on minimum wage again? 15,000?
Two objections. First, your assertion that two earners at 20k get more utility from their earnings than on earner at 40k. It is based on a ridiculously simple micro model that assumes similar preferences between the various parties.
But what if there are significant differences between the individuals? Isn’t it possible that those two people that take down the 20k, who still rely on govt aid, that still don’t have concerns about saving or preparing for their future, actually gain less utility than the middle class family who’s income gets bumped from 70k to 110k, who now feel just a bit more confident in their ability to send their children to college?
And that brings up my second objection. The poor in this country don’t stay together. Your dual income poor family earning 40 combined is a myth. The families are broken. http://www.economist.com/news/united-states/21569433-americas-marriage-rate-falling-and-its-out-wedlock-birth-rate-soaring-fraying
Your idea to create more jobs for a broken culture at the expense of jobs for those with a funcional culture is beyond nuts.
These are gross generalizations, but at least the world describe at has at least two different types of people, rather than your model, where everybody is he same.
“Two objections. First, your assertion that two earners at 20k get more utility from their earnings than on earner at 40k. It is based on a ridiculously simple micro model that assumes similar preferences between the various parties.” Talk most economic models, here. But no, in any case, the 20k job is likely putting food on the table and gas in the car. The 40k job is putting a kid through college. Both incredibly useful, nonetheless.
That the poor don’t stay together all the more bolsters my point, because it is likely going to a single earner!
“Your idea to create more jobs for a broken culture at the expense of jobs for those with a funcional culture is beyond nuts.”
I don’t want “to do” this. I said it is a silver lining, not a policy objective.
Reblogged this on Low Hanging Fruit and commented:
This. So Much This.
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