Job Polarization And Labor Market Transitions

from the Cleveland Fed

Job polarization has been an important feature of the US labor market for some time. The term refers to the shift in the types of jobs that are available in the labor market, where, owing to the disappearance of occupations that handle routine tasks, the types of jobs remaining are manual labor jobs at one end of the spectrum and jobs requiring abstract skills at the other. Discussion about job polarization generally tends to center around the notion that technological change has replaced workers who primarily engage in routine work and has effectively “hollowed out” the pool of available jobs. In contrast, occupations that predominantly require abstract skills have gained ground, as they are less susceptible to technological change. Moreover, these trends have been exacerbated by recent business cycles (see Job Polarization and the Great Recession).

In this post, we want to shed some light on the unemployment experience of workers with different occupational skills and their transitions into different states of employment or unemployment. The broad trends we described above might be masking some of the dynamics experienced by workers with different occupational skills.

We divide the pool of unemployed workers into three groups based on the skillset required in the last job they held: abstract, routine, and manual workers following previous work by David Autor and David Dorn. For each of these groups we look at the length of time they typically have spent in unemployment, the shares of each that have transitioned out of the workforce, and the shares of each that have moved from one type of job to another.

Average unemployment durations show some variation across these groups. The average number of weeks spent unemployed between January 2000 and December 2013 was

• 23.2 for abstract workers
• 20.9 for routine workers
• 19.2 for manual workers

   

Because there were two jobless recovery episodes in this sample period, average unemployment duration, even within a group, changed quite a bit. From November 2001 until December of 2007, the average number of weeks spent unemployed was

• 18.8 for abstract workers
• 16.1 for routine workers
• 14.5 for manual workers

   

Since the Great Recession, the average unemployment duration has soared. The average number of weeks spent unemployed from January 2009 to December 2013 was

• 35.3 for abstract workers
• 32.7 for routine workers
• 30 for manual workers

The longer average duration of unemployment for abstract workers is probably not due to a lack of jobs for this type. The share of employment for this group has steadily increased in the US over time: from 28 percent in 1976 to more than 40 percent by the end of 2013. Maybe it suggests that these workers are more selective.

However, longer unemployment duration is not enough in itself to indicate that abstract workers are more selective than their counterparts with different skills. For instance, we have no way of knowing whether these workers declined some job offers while they were unemployed. On the other hand, we can look at the percentages of unemployed workers who decide to leave the labor force altogether. If someone deems the odds of finding a job relatively small, he or she might choose to leave the labor force to retire, to enroll in school, etc. Comparing transition rates from unemployment to nonparticipation across different types of workers should give us an idea of how attached each is to the labor force when they experience difficulty finding a job.

On this dimension, it looks like manual and routine workers have a higher propensity to leave the labor force when they are unemployed, relative to their counterparts with previous experience in jobs with abstract skills.

On average, the rate at which unemployed workers left the labor force each month between January 2000 and December 2013 was

• 22 percent for manual or routine workers
• 18 percent for abstract workers.

The discrepancy between the different types might be indicative of the different prospects workers are facing. If unemployed workers with abstract skills expect strong demand for those skills going forward, they might be less inclined to stop looking for work entirely. On the other hand, their relatively longer average duration of unemployment suggests that they might be looking for a particular job match.

For all of the different types of workers, there is a clear cyclical dimension to this particular transition. Since recessions are times when disproportionately more workers with stronger attachment to the labor force become unemployed, transition rates into nonparticipation go down. As the economy normalizes, this rate climbs up.

Our discussion has implicitly assumed that workers will look for a job in occupations similar to their previous one. However, the reality might be a little more complicated. Even though the majority of unemployed workers end up employed in similar occupations, they sometimes change occupation types.

Below we report the average transition probabilities between different skill types for unemployed workers who found a job while in our sample. We observe a certain fraction of workers for multiple months in the data. So whenever they make a transition from unemployment into a new job when they are in the sample, we can keep track of their new occupation characteristics and compare it to the prior one before unemployment. The diagonal gives the fraction of those who end up in a new job that is of the same type as their previous one.

Transition Probabilities into Different Job Types After Unemployment

Of the unemployed workers who find a job

• More than 80 percent of routine workers end up in another routine job
• About 60 percent of abstract workers end up in an abstract job; 36 percent move into routine occupations
• About 50 percent of manual workers stay in manual occupations; more than 40 percent move into routine occupations.

Routine jobs seem to attract a significant number of unemployed workers with previous experience in nonroutine jobs. Transitions between manual and abstract occupations hardly ever happen, in either direction. Only 9 percent of unemployed manual workers move into abstract jobs, and only 4 percent of unemployed abstract workers move to manual jobs. Perhaps the most striking asymmetry occurs between manual and routine jobs. Even though 41 percent of unemployed manual workers move into routine jobs, only about 6 percent of unemployed routine workers move into manual occupations when they find a job.

The secular (long-term) decline in the share of routine jobs and the rising share of abstract jobs may be the most noticeable trends in worker dynamics of late, but they are only a part of the full story. They disguise a much richer picture of the movement that goes on across labor market states by workers of different occupational skill types.

Source: https://www.clevelandfed.org/en/Newsroom%20and%20Events/Publications/Economic%20Trends/2015/Job%20Polarization%20and%20Labor%20Market%20Transitions.aspx