The Global Hollowing Out of the Middle Class (No, It's Not Just the U.S.)

Some consider the erosion of the middle class an American phenomenon driven by greedy capitalists at the top or an especially impotent education system at the bottom. This thing is global.

In the 14 years before the Great Recession, there was already a great recession for the the middle-paying swath of workers in the U.S., Europe, and Japan. Advanced economies saw "a shift away from middle-income jobs" to jobs in industries with lower productivity, according to a new IMF report on the world recovery.

Of the two graphs below, the one on the left shows jobs shifting away from middle-paying jobs in European countries. Austria (AT) lost the highest share of middle-class positions, while Portugal lost the fewest. The IMF found that the euro zone's total loss of middle-paying jobs* was actually greater than the U.S. In the graph to the right, the foundation breaks down labor market shares by industry (manufacturing, construction, wholesale/retail trade/hotels, finance/insurance/real estate, and professional services). One surprise: Germany's (DE) total shift from manufacturing and into finance appears even starker than the U.S.


All five economies in the top right graph -- the U.S., Japan, Germany, France and Great Britain -- experienced a decline in manufacturing (blue) and an increase in services (pink) , the IMF states. Even Germany, a manufacturing juggernaut with a ten-year uninterrupted trade surplus, has seen a slight decline in manufacturing in the last decade from 22 to 20 percent of its workforce.

What's going on is that manufacturing is the one industry (besides perhaps information technology) that is most susceptible to the offshoring, automation, and global supply chains that rip jobs out of advanced economies and make the final products much much cheaper.

In the U.S., and throughout the world, jobs are fleeing manufacturing are landing in the lap of professional services partly because as demand for stuff and services increases, we're finding more manufacturing work can be done without workers and more professional services work has to be done with employees.


Once again, this is story about productivity. In the graph to the left, you can see annualized productivity growth in manufacturing, the dark blue bar, tower over other industries. Construction figures are all over the place. It's the pink bars representing professional services that are the runts of the bunch.

The IMF concludes: "The longer-term solutions to the hollowing out of middle-income jobs lie in retraining, better education, and increased productivity in non-manufacturing sectors. But more immediate action is also needed to cushion some of the human costs of structural change." In other words: In the long run, we expect industries will grow enough to support the millions of people who can't find work today. In the next few years ... we have no idea.

*A shift away from middle-paying jobs doesn't mean these workers were thrown out of work. For millions, it meant they moved on to higher-paying jobs. But as we know, for many Americans, it has meant a downshift into low-paying positions.