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posted on 30 May 2016

What Does The Changing Sectoral Composition Of The Economy Mean For Workers?

from the Chicago Fed

-- this post authored by Isaac Sorkin

Over the past quarter of a century, the share of jobs in the U.S. economy in manufacturing has declined, while the share of jobs in services has risen. A common view is that because manufacturing jobs are relatively high-paying jobs, this shift has been negative for workers. However, jobs also differ in other ways, so looking only at pay gives an incomplete picture.

In this Chicago Fed Letter, I ask whether the changing sectoral composition of the U.S. economy since 1990 has had, on net, positive or negative effects on workers. My analysis considers the pay of workers in the sector, as well as the possibility that sectors might offer different, nonpay rewards.

To measure sector-level pay, I look at systematic patterns of changes in pay when workers switch sectors. Hence, the measure of sector-level pay holds worker skills constant. To measure sector-level nonpay rewards, I look at the information contained in worker choices and especially job-to-job moves. The idea is that workers take into account both pay and nonpay rewards when deciding to switch firms, so I can infer the importance of nonpay rewards.

My first key finding is that the shifts in sectoral composition have, on net, been negative. Between January 1990 and March 2016, pay fell by 2.9 percentage points solely because jobs shifted to sectors with lower pay. However, these lower-paying sectors have more-desirable nonpay characteristics, offsetting roughly half of the pay losses due to sectoral shifts. Therefore, accounting for the changes in both pay and nonpay compensation, workers have lost about 1.4 percentage points of the value of jobs over the past quarter of a century due to the shifting sectoral composition of jobs.

My second key finding is that the trend toward lower-paying sectors has continued in this recovery: Since January 2010, the composition of jobs has shifted toward sectors that pay 0.5% less. Moreover, in contrast to earlier years, faster-growing sectors do not have more-desirable nonpay characteristics; so accounting for both changes in both pay and nonpay characteristics, sectoral shifts have reduced the value of workers' employment by 0.5% since January 2010.

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