Abby Joseph Cohen, CFA, is a senior investment strategist at Goldman Sachs.
Cohen appeared at Yahoo Finance’s All Markets Summit on Wednesday, Oct. 25. You can watch the full event here.
The deep recession triggered by the financial crisis technically ended in the summer of 2009. Despite eight years of economic growth, the labor market improvements have been disturbingly uneven.
Several factors are contributing to the wide range of outcomes which, in turn, have led to stark contrasts in how different groups of consumers and business owners view the current economic environment. I’ll briefly discuss only three of the factors: education, technology and geography. This last category can also be described as “location, location, location” and hasn’t received adequate attention from policymakers.
Declines for high-school educated Americans
Even before the financial crisis, some workers and their families were falling behind, with an ever-widening gap in household incomes linked to level of education. In 2000, for example, the median household income in which the head of household had a high school diploma was about $50,000. A household headed by someone with a college degree was about $100,000. Since then, on an inflation-adjusted basis, the high school-educated family has experienced a decline of about 15% in household income to $43,000. The decline for a college-educated family was about 3% to $97,000.
Technology causing shifts in how workers do their jobs
Long-term structural changes have also had dramatic effects on individual earners and their families. Much has been written about the job losses in the manufacturing sector. Although some politicians point to the role of imports, by far the larger factor has been the use of technology and increased productivity of workers in this sector. Studies have suggested an 80/20 split, that is, 80% of the job losses can be attributed to enhanced productivity, and much of the remainder to global competition. Of course there are variations based on the specific industry within the manufacturing sector.
Throughout the economy, increased use of technology is causing shifts in how businesses interact with customers and how workers do their jobs. There have been pronounced changes in many sectors, including retailing, media and some professional services. The growth in STEM-specific jobs has outpaced the rest and wages, at about $95,000 per year, are roughly double those for the overall private economy. But only 7.2% of US workers are in STEM jobs.
Location, location, location
Geography is a critical factor which is often overlooked. The attached chart clearly shows the wide gap in job creation by location in the US. Since the peak of employment before the financial crisis, the overall economy has created jobs at an anemic pace. Between 2007 and 2014 the aggregate increase was 1.1%. But we need to look below the surface of the national averages. There have been sustained job losses in rural areas and in smaller towns and cities. But, the nation’s largest cities experienced a sharp 8% increase in jobs during this period. The areas surrounding these primary cities also benefited as being part of the regional ecosystem.
The success of communities can be linked to multiple factors. These include the presence of growing industries, higher levels of education, welcoming of newcomers, and the magnetic appeal of public infrastructure and cultural institutions. It is worth noting that broad policy tools, such as monetary and fiscal stimulus, may not be sufficiently targeted to help the communities that are currently struggling. Instead, the “business models” of the cities that are currently thriving show that long-term public investment in education, infrastructure (roads, schools, communication, etc.), and health care can pay long-term dividends in the form of job creation and wage growth.