Building America's Third Great Job Machine

The key to driving the economy may be to elevate the country's many low-wage service jobs, with better pay and more opportunity


My op-ed in the May 3rd Financial Times  makes a case for a radical approach to solving America's jobs problem -- upgrading low-wage service jobs.  Here's a longer, original version of that piece, including the critical chart (immediately below) compiled by my colleagues at the Martin Prosperity Institute. The chart tracks the rise and fall of four broad classes of work -- agricultural work (farm), industrial work (manuf), knowledge-based and creative work (CC), and routine low-wage service work (LWS) -- from 1800 through 2009.


As the American economy has evolved and transformed, the nature of its great job machine has also shifted. Understanding these historical changes can help us better understand the broad sources of employment growth and what we need to do to revamp America's stalled job machine today.

The first American job machine was organized around farms and agricultural employment. More than four in 10 Americans worked on farms in 1800. Another 20 percent or so worked in manufacturing.

The second great American job machine took hold during the mid-19th century, propelled by the surge in manufacturing.  By late in the century, some 60 percent of the workforce had been absorbed in industrial jobs while agricultural work dropped to roughly ten percent of employment. Industrial and blue-collar manufacturing jobs would power America's economic and employment growth for the better part of the next century, until roughly1950. But for most of those years, it was low-wage, long-day, dirty and dangerous work -- it wasn't until the Great Depression, the New Deal, and post WW II prosperity that blue-collar jobs became good, family supporting jobs.

America -- along with the rest of the advanced nations -- is now in the early throes of a third great economic transformation and a third great job machine.  Against the backdrop of a massive decline in once high-paying blue collar manufacturing jobs which is eerily similar to the decline of agricultural jobs a century or so ago, this third transformation is creating not one overall, but two distinct categories of jobs and employment.

The first category includes millions of the best jobs America has ever seen: high-pay, high-skill jobs in knowledge-based professional and creative fields. Almost a third of American workers now have these kinds of jobs, which pay more than double most manufacturing jobs and which have been rather impervious to unemployment. When unemployment among production workers climbed to more than 15 percent and surged above 20 percent for construction workers, unemployment among professional, technical and creative workers never got much above five percent.

But the second category, which comprises such routine service work as personal care assistants and home health care aids, retail sales clerks, and food preparers -- is not so good. In fact, the pay for these jobs is roughly half that of manufacturing jobs. The result is as simple as it is tragic: a startling bifurcation of the job market and an increasingly unequal and divided society. Once we see this, it becomes clear that neither of the two most commonly cited prescriptions -- the counter-cyclical approach to job creation by boosting investment and demand, or the path of educating more people for higher-paying knowledge-based jobs -- can work.

The numbers don't add up. At best these strategies can take care of only about half to two-thirds of America's jobs problem. The reality is that more than 60 million people, or about 45 percent of the work-force, are already toiling in low-wage service jobs, which will remain low-wage jobs even if and when the economy expands. And it's those very job categories that are growing the fastest -- the US economy is expected to add another 7-10 million of them in the coming decade.

A successful jobs strategy must focus centrally on upgrading the content and improving the wages of this entire job category. That is what happened a century ago, when public policy shifted to protect workers' rights and line jobs in manufacturing, once considered dirty and dangerous and impossible to upgrade, became high-paid work.

One of the advantages of service work is that it's not vulnerable to off-shoring or automation; we need human beings to care for our young children and our aging parents, to cut our hair and steam our lattes and maintain our houses. And then there's this: service work and service workers are not just a necessary cost of doing business, part of the overhead, but a potential profit center. Service workers can produce real value and there's no reason that they can't have real careers.

A month or so ago, I met with Zappos CEO Tony Hsieh and his top executives and toured Zappos' facilities outside of Las Vegas. Zappos not only pays its employees a living wage, more importantly it enables them to move up through the ranks of its internal career ladder. I met many workers who had done just that. Zappos views its workers as a source of innovation and its culture and community as a mechanism for delivering better service to customers. Now, Hsieh and his team are moving their headquarters to downtown Las Vegas where they are aiming to develop a mixed use neighborhood that will have more affordable housing options for its workers, strengthening community but also allowing their pay checks to stretch further.

At the inaugural meeting of his Council on Jobs and Competitiveness, President Obama said he wanted to make "certain that working families across the country are sharing in growing productivity and that we're not simply creating an economy in which one segment of it is doing very well, but the rest of the folks are out there treading water."

To deliver on that promise, the president is focusing on better education and training as a pathway to get more Americans into higher paid knowledge work.  His Startup America Partnership is a great way to encourage the formation of businesses which are the engines of job creation, but now he needs to launch a major national effort to make the upgrading of service jobs a key prong of America's next great job machine. He can start by convening a national initiative, calling on companies like Zappos and other leading service innovators from Starbucks and Whole Foods to REI and the Container Store -- as well as unions, workers' organizations, and researchers--to distill the very best practices and strategies for turning the millions of service jobs we have now and that we will continue to create in the future into the innovative and engaging, higher-paying, family-supporting jobs Americans deserve.

But giant companies like Zappos and Whole Foods are only a small part of the picture. Most service firms are smaller, mom-and-pop operations. To bring them into the 21stcentury, the administration should develop strategies to help these smaller firms learn the advantages of seeing workers as sources of innovation and productivity gains. This could be a modest, low cost public-private partnership, involving universities, community colleges, and industry groups, modeled perhaps along the lines of the old Agricultural and Manufacturing Extension programs. The administration should also consider using incentives to encourage companies to upgrade service jobs, which would have the added benefit of improving the overall productivity of the highly fragmented service sector -- the last great frontier of inefficiency in advanced economies -- lifting the productivity of the economy overall, while boosting wages and lifting consumer demand.

This wouldn't come for free. All of us would have to pay a little more to the people who clean our homes, take care of our kids and aging parents, cut our hair, and sell us our clothes. This is exactly what we did a half century ago to spur recovery, when we agreed to pay more to the workers who made our cars and appliances and were building our homes. The costs are so modest and widely spread that they are unlikely to derail any recovery. And the payoffs in terms of productivity gains and increased demand are surely worth it.

It can be done. It has to be done.

Image credit: Puuikibeach/flickr; Reuters/Shannon Stapleton; Reuters