Smart Policies Can Restore a Thriving Middle Class
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The Fiscal Times
August 13, 2013

When I was younger, I lived in an agricultural area in Northern California where one of the crops grown widely was tomatoes. They are harvested mechanically, and in my early years the tomato farmers hired a lot of people to prepare the tomatoes for market. For example, it took five or so people just to sort the green from the red tomatoes as they moved down the conveyor belts.

But when I was in high school, the harvester manufacturers began installing electric eyes on the harvesters to sort the tomatoes. A metal “finger” would kick out the green ones, and do the job just as well or better than humans, but cost far less. The electric eyes displaced quite a few sorting jobs across all the fields and all the harvesters, and I can remember wondering what will happen to all those people? Where will they go and how will they support their families?

RELATED: THE MIDDLE CLASS IS HANGING ON BY A THREAD  

The answer, of course is that the labor freed up through technological change is supposed to find its way into other industries and increase the overall production of goods and services. We can produce more goods and services with the same amount of labor as before, and that should allow growth that makes us all better off.

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But does it make us all better off? I had always imagined that technology would free us from the drabbest, most repetitive, unproductive, lowest paying, and least valuable jobs. Workers who had previously stood all day in the hot sun sorting tomatoes would be freed to, perhaps, work on the production line of the electric eyes that replaced them. The new work would be more productive and valuable than before, and hence the workers would be paid better. They would be better off.

However, digital and other technology has advanced to the point where good, middle class jobs are being replaced rather than those on the lowest rung of the job ladder, and this is polarizing labor markets as the middle class is reduced in size. Some workers are still moving up to better jobs – that’s part of the polarization – but far too many people are moving in the other direction, toward lower paying jobs than they had before. As a recent summary of this research by economists Henry Siu and Nir Jaimovich noted: 

“[T]he disappearance of routine occupations in the past 30 years represents a ‘polarization’ of employment because the middle of the wage distribution has been hollowed out. ... Indeed, the influence of robotics is increasingly being felt on routine occupations in transportation and warehousing. Of equal importance is the disappearance of routine employment in ‘white-collar’ occupations - think bank tellers being replaced by ATMs, or secretarial work being replaced by personal computers... Thus, all of the per capita employment growth of the past 30 years has either been in ‘non-routine’ occupations located at the high-end of the wage distribution, such as software engineers and economists, or in low-paying jobs, such as service occupations like restaurant waiters and janitors. For this last set of occupations, this has been especially true in the past decade.”

The usual solution to this problem is a vague call for better education for those who end up at the bottom of the wage distribution, and that is certainly part of the answer. We can and should do better, especially where it comes to creating educational opportunities for the disadvantaged. Every student, for example, should have a way to get through college that doesn’t risk the accumulation of burdensome debt from student loans or require the choice of a lesser educational institution.

RELATED: HOW OBAMA’S BUDGET TAKES THE “MIDDLE OUT” DOWN  

We should also do much better at job training and retraining, and at providing social services for displaced workers. Campaign finance reform that gives workers more power in the political process along with strengthened unions to restore the balance of power between workers and firms wouldn’t hurt either.

But, as the authors emphasize, while it’s “reasonable to conjecture that the terms ‘routine’ and ‘low education ’are interchangeable,” they “show that this is not the case.” That is, it’s not just an education story.

College will never be the answer for everyone anyway, and that can’t be all we do. We must do a better job of attracting new industry to the US, especially the technological industries that will be the engine of future growth. We can’t just hope that jobs will magically appear if we somehow provide better education. I know that many economists, especially those on the political right, shun the phrase “industrial policy,” but it doesn’t have to mean picking winners and losers

It simply means creating the best possible business conditions – tax policy, infrastructure, and so on – so that firms will want to come here. If we can get new industries to locate here from the beginning, or attract existing firms from elsewhere, we have a chance of keeping them and further developing these industries within our borders.

The Obama administration is moving in this direction with its new “middle out” campaign for economic policy, but it seems much too focused on attracting manufacturing in a narrow sense. We need a much broader and serious effort to stop the erosion of the middle class. Otherwise, if the rising inequality associated with the erosion of the middle class continues, it may require us to adopt redistributive policies that those on the political right oppose even more than industrial policy. 

University of Oregon macroeconomist Mark Thoma writes primarily about monetary policy its effect on the economy. He has also worked on political business cycle models. Thoma blogs daily at Economist’s View.