April 17, 2018

Labor Market Implications as Economy Undergoes Structural Shift

Testimony before the House Committee on Ways and Means

Chairman Brady and distinguished members of the House Ways and Means Committee:

My name is Christine McDaniel. I am an economist and a senior research fellow at the Mercatus Center at George Mason University, and I work with the Program on the American Economy and Globalization. In recent years, my colleagues and I have been studying structural shifts in the American economy and labor market, and I am grateful for the opportunity to discuss our findings with you.

As my colleague Caroline Freund and I wrote for Bloomberg View back in July of 2017, the US economy has long been moving away from “hands” industries such as mining and manufacturing toward “minds” sectors such as finance, health, and education. From 1970 to 2016, the share of workers in the former declined from 38 percent to 16 percent of the labor force, while the share in the latter increased from 26 to 44 percent.

Men with less than a bachelor’s degree—that is, an education level of some college, high school, or less than high school—occupy more than three-quarters of “hands” jobs and have felt the sharp swing away from physical labor most acutely. By contrast, women comprised half of the “minds” as far back as 1970, and their share grew in subsequent decades as they increasingly joined the workforce.

The steadiness of the shift from “hands” to “minds” suggests that technology is the main driving force. “Minds” jobs became dominant in 1982—well before China joined the World Trade Organization in 2001—and continued at an unaltered pace during the hyperglobalization of the late 1990s and the 2000–2010 period. Although increasing trade with China contributed to the decline in demand for production workers, it clearly was not the primary force behind the trend.

Detailed data suggest that new technologies, which tend to have the largest effect at the lower end of the education spectrum, have been better at replacing “hands” work. Employment in some predominantly male occupations that require a high school diploma or less—such as metalworkers, printing press operators, and carpenters—has declined by more than a quarter since 2005. By contrast, employment in some traditionally female occupations with similar requirements—bakers, manicurists, personal care aides—has grown by more than a quarter.

The female advantage is evident in earnings as well. Although female-dominated occupations pay less on average at all levels of education, women are catching up. Since 2005, average incomes in female-dominated jobs have grown nearly 15 percent more than in male-dominated jobs—meaning that, for example, a nurse’s income has grown faster than a carpenter’s. Men are doing better only in fast-growing areas—such as engineering, computers, and finance—that require some college or a bachelor’s degree. At this level of education, men’s average pay was already more than 50 percent higher than women’s and is growing faster too.

These employment trends illustrate the importance of education in helping the men left out or left behind by the shift toward “minds” jobs.

Jobs for men with a high school education or less are not coming back. For instance, of the 3.5 million US truck drivers whose jobs are at risk of being automated, 95 percent are men. This means they will increasingly have to compete with women in occupations requiring more personal interaction—an area where they have not made much progress. Historically, jobs that are mostly male or mostly female have tended to remain that way.

Attempts to use trade policy as a quick fix to bring back the “hands” jobs are futile. Trade restrictions such as tariffs (import taxes) on steel, aluminum, and other inputs will just increase the cost of doing business in America for manufacturers and further hurt American manufacturing workers in industries that use steel. With or without international trade and foreign competition, innovation will continue, and the structural change throughout our economy and labor force will continue.

In an economy increasingly concentrated on “minds” jobs, everyone from the president and Congress to our local educators and communities must take the long view and recognize the need for more inclusive education in science, technology, engineering, and math. The “tech titans” already recognize this, and have called for coding in every public school. Goods and services are becoming smarter, and education and training need to keep up. It is the only way to give men a chance, to help women close the remaining wage gap, and to ensure good jobs for a wider swath of the population.

More details on these trends can be found in the attached op-ed. Thank you for the opportunity to discuss this research with you.