Richard Florida
by Richard Florida
Thu May 5th 2011 at 10:15am UTC

Building America’s Third Great Job Machine

My oped in today’s 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 ten 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 21st century, 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.

6 Responses to “Building America’s Third Great Job Machine”

  1. R.A. Student Says:

    I wonder what Jacobs would say about this. Based on “Cities and the Wealth of Nations”, I would think that your suggestion would be described as a transfer payment. As fair and moral as those are, her import replacement model would not seem to support your assertions.

    Money that would have flowed into capital formation or R&D, would be forced to flow to worker compensation, disrupting the import replacement cycle, according to JJ that is.

    Seems also to correspond with the decline of manufacturing. As soon as those jobs paid livable wages, they began to dissapear (circa 1930-1940). In other words, as soon as workers forced their compensation to rise, the import replacement cycle broke down and manufacturing declined (just like a city does when it imposes to many transfer payments (or forces advanced-backward trade, or engages in unrelenting military expenditures).

    Now, that said, service jobs may be different because they really cant diffuse like manufacturing jobs can and did. So… perhaps this the import replacement cycle model laid out by jacobs is not relevant to this industry. Although I think Redbox may have shown that automation is a much more serious threat than you are thinking. Have you toured any Blockbusters lately?

  2. Isidoros Kyrlangitses Says:

    Sounds like a simple solution… “enforcing and raising minimum wage”

    Enforcement would get rid of the loop holes to circumventing minimum wage; Contract workers, changing titles to management, and undocumented work.

    Raising minimum wage raises how much we value everyone’s time, and as I witnessed in Denmark this passed fall… there’s an unexpected outcome. Minimum wage in Denmark is around $18/hr. Because payroll is so expensive, few people compete on price of products. What’s the difference between the $5 dollar domestic product and the $3 import when you are paying $18 to the person selling it? When price becomes less of a factor domestic products become more competitive as they focus on market needs. It was amazing to see a country of just 5 million producing domestic apparel, furniture, bicycles, toys, windmills, etc.

  3. Scott Watkins Says:

    I’d have to agree with R.A. Student here, with the corollary that rising wages would encourage automation. A fair number of service jobs could very well be automated or ‘productivised’ out of existence.

    A few examples:

    There’s an A&W restaurant downtown on Yonge street in Toronto with a kiosk next to the line-up which can take your order, upsell you and suggest combos, and take your payment. All the counter staff have to do when you get to the counter is give you the food, which is not far off what a vending machine could do.

    There are call centers in the US that process drive-thru orders from fast-food establishments anywhere in the country. One operator can handle several lines. See the vending machine angle above for what could happen to food delivery.

    Blockbuster failed not just because of Redbox kiosks, but because of Netflix and other online operators. No direct human interaction involved.

    Many major retail stores have large sections of their checkout counters replaced by self-checkout systems. One clerk now deals only with exceptional cases, doing the work of 4 to 6.

    There is a hospital in the UK where most orderly activities, such as transporting food, medicines, equipment, laundry, and garbage have been replaced by a fleet of robots.

    The elderly in Japan are increasingly having elements of their care supplemented by robots in their homes monitoring their condition and reminding them of basic tasks.

    The list goes on.

    In each of these areas there will be a few people who could easily make a better wage for what they do. But it will come at the expense of many additional jobs.

    So yes. Service industry jobs can be made to pay better, without a loss of profit. But what do we do when over half of those who used to do those jobs are now unemployed?

  4. Christine Says:

    When I worked as a reference librarian in a very wealthy suburb of Cleveland, I had an older woman come in to say that she’d recently been widowed and that since her husband had taken care of the financials, she was unsure what she was supposed to pay her new cleaning lady. So I showed her in the Occupational Outlook Handbook what the salary of a typical cleaning person was, and she blanched. “Oh my God. That’s it? How can anyone live on that?” “I’m sure she’d appreciate it if you paid her a little more,” I said.

  5. joana johnson Says:

    Not all cleaning ladies are desperately poor or unhappy. I know at least one who is not. The lady who cleans my home and cares for my children when I work earns $11.00 an hour. If she charged me any more, I would not afford her services and we would both be out of a job. If she doesn’t work for me, I cannot go to work myself.
    So, this lady works hard at three different (maybe more, actually) places. She works while her son is at school and takes home more than her husband. She saves money and now has bought a home in the suburbs and drives a Lexus she bought from a financially distressed yuppie couple. She’s originally from rural Mexico, the oldest of 11 children. Her father did not want his daughters to learn to read because it was a waste of time and would expose them to too much of the world. She married very young and came to US with her husband years ago. She is a US citizen now and her ten year old wants to become a pediatrician when he grows up. This woman’s life, so much better than the life her mother had, is full and she’s happy. I love her because she treats my children well and also because I am able to have a professional life because of her help. Our relationship seems win/win. She’s happy. I’m happy. I wish more women had the opportunities she has had– to make a life in a place where she and her children can rise socially and economically. And I also feel very lucky because I can put my good education to use doing work I love because of her help.

  6. Wish not to be identified Says:

    I think Canadian Employers can learn from their American Counterparts. Yes, automation will displace people, however, there will always be entrepreneurs out there creating the next future companies.

    My experience has been with the lack of respect and appreciation in Canadian Companies for Individuals. Its not the type of job you do, its how your employer treats you at the end of the day period. I have worked at 15 companies and can say without a hint of prejudice that all companies function the same way. There is no high fives in the office, constantly checking you have worked your 40 hours and not a minute less, constantly on your back for doing more etc…No thank you, or great job! That is why we have such a high turnover at companies because we are treated like commodities, the next guy/gal that comes in we can pay less and do more. It is this mentality that will kill the employment picture. We need companies like zappos to start in Canada in a hurry.

    The other problem with jobs in Canada is the lack of creativity involved in doing your job. Its more of a production line mentality even inside the office. There is no sense of cohesiveness, team participation and commitment on the part of the employer to train, participate or move up, its a doggy dog world. We are all creatives yet we are not utilizing not 1% of it in the workplace.

    Funny thing is that in my current position I am doing my best in getting fired but its been two months and my employer still hasn’t fired me. I hate this place and job with a passion, yet I’m still there because if I quit I will not qualify for unemployment. What a system!