As the service sector overtakes blue-collar jobs, we must mind the wage gap | Greg Jericho

The IMF’s latest world economic outlook report has found that the changing nature of work moving from blue collar to services need not increase inequality. But it also sounded a note of caution that without policies in place to encourage workforce participation, education and training as well as collective bargaining, inequality is likely to rise as the economy continues to change.

Over the past 30 years the change in our labour market has been extraordinary.

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In 1987, men working in traditional “industry” jobs such as mining, manufacture, construction, agriculture, transport and warehousing accounted for over a third of all employees. Now they account for just 24% and there are actually more men working in the “services” sectors:

Breakdown of employment

Created with Raphaël 2.1.2

30%

2017

20%

40%

60%

80%

100%

1987

1989

1991

1993

1995

1997

1999

2001

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2013

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2017

Women – industry

Women – services

Men – industry

Men – services

Chart: Greg Jericho Source: ABS 6291.0.55.003 , Table 6, derived Get the data Created with Datawrapper

Thirty years ago there were around 400,000 fewer women working in the services sector than there were men working in industry sectors. Now there are two million more women working in the services sectors compared with men in the traditional blue-collar industries:

Employment breakdown – women in services, men in industry

2,000,0002,500,0003,000,0003,500,0004,000,0004,500,0005,000,0001985199019952000200520102015

Women, services

Men, industry

Women, services

Men, industry

Chart: Greg Jericho Source: ABS 6291.0.55.003 , Table 6, derived Get the data Created with Datawrapper

It is a change that has seen many men very much struggling to cope. Jennifer Rayner’s recently published book, Blue Collar Frayed, looks at the situation of these men, noting that “it is brutally clear that the days are gone when blokes with a little schooling but lots of practical smarts had plenty of options for good and secure work”.

The IMF’s latest world economic outlook report has also noted these changes in the workforce across the major economies.

The big changes in workforce participation over the past three decades really have been about women. Over that time the level of men aged 25 to 64 in work has barely changed. Yes fewer are working full-time now, but overall the same level of men working is the same.

Whereas 30 years ago just half of women aged 25-64 were working, now over 71% do:

Employment to population ratio of men & women aged 25-64

40%50%60%70%80%90%19801985199019952000200520102015

Women

Men

Women

Men

Chart: Greg Jericho Source: ABS 6202.0, Tables 13 & 18, derived Get the data Created with Datawrapper

The IMF has noted a similar occurrence across the advanced economies – little change, or at worst a slight decline, in the employment participation of men, but a big jump in that of women.

The reasons are varied.

It found that for youth and prime-age male workers, most of the decline is due to factors common across advanced economies. These common factors include technological progress or globalisation, structural changes in work, rising life expectancy and also the “common scars from the global financial crisis”.

For women however, the big driver of increased workforce participation has been policies such as improved funding for childcare, parental leave and greater flexible working arrangements. These coupled with improved education have far outweighed the negative impacts of factors such as increased automation and outsourcing via trade:

Average contributions to changes in participation rates, 1995–2011 (advanced economies)

Persons aged 15–24Men aged 25–54Women aged 25–54Persons aged 55 and Older

Created with Raphaël 2.1.2

-2.5% pts

Actual

-5.0

5.0% pts

-0.6% pts

Policies

0.9% pts

Technology & trade

1.8% pts

Education

2.4% pts

Structural factors

0.1% pts

Output gap

-7.1% pts

Common effects

0.1% pts

Residual

-2.5% pts

Actual

Chart: Greg Jericho Source: IMF WEO, Fig 2.14 Get the data Created with Datawrapper

The importance of policies which encourage women entering the workforce and education is highlighted by comparing how poorly US women have fared compared with those in Europe and other advanced economies, where there has been a much higher rate of policy advancement on parental leave and childcare:

Average contributions to changes in participation rates, 1995–2011 – women aged 24-54

All Adv economiesEuropeUSAOther Adv economies

Created with Raphaël 2.1.2

8.4% pts

Actual

5.0% pts

5.0% pts

Policies

-1.7% pts

Technology and trade

4.7% pts

Education

2.9% pts

Structural factors

0.1% pts

Output gap

-2.9% pts

Common effects

0.4% pts

Residual

8.4% pts

Actual

Chart: Greg Jericho Source: IMF WEO, Fig 2.14 Get the data Created with Datawrapper

It is a nice reminder of what happens when you leave things to the “free market” – automation and technological changes ensured a fall in the level of women working.

A similar situation occurred for male prime-aged workers. The US saw a much larger fall than other advanced economies due to a lack of education or policies designed to counter the impacts of automation and other factors:

Average contributions to changes in participation rates, 1995–2011 – men aged 24-54

All advanced economiesEuropeUSAOther Adv economies

Created with Raphaël 2.1.2

-0.8% pts

Actual

-2.0

-1.0

0.1% pts

Policies

-0.4% pts

Technology and trade

0.2% pts

Education

0.2% pts

Structural factors

0.0% pts

Output gap

-0.9% pts

Common effects

0.0% pts

Residual

-0.8% pts

Actual

Chart: Greg Jericho Source: IMF WEO, Fig 2.14 Get the data Created with Datawrapper

The IMF notes that the workers most at risk of unemployment are those in work “vulnerable to automation”. But they note that “increasing investment in education and training can not only make the workforce more resilient to changing labour needs, but also encourage labour force participation”.

It concludes that investing more in the education of the young is also critical to prepare them for the jobs of the future.

This suggests some concern in Australia, given the fall in trades apprentices and traineeship numbers.

While there has been a massive fall in the number of non-trade traineeships, mostly that is actually a good thing given the rorting that occurred after Rudd-Gillard government’s changes to Vet Fee-Help funding that have now been stopped.

But that does not excuse the fall in trades apprenticeships and traineeships.

In 2012, 215,500 people were in a trades traineeship or apprenticeship; last year that number had fallen 22% to 168,000. In that context, Pauline Hanson’s deal to get a pilot program of 1,000 apprenticeship placements in exchange for her voting for the government’s company tax cut is, as I noted last month, pretty laughable:

Trades apprenticeships and traineeships

In trainingCommencementsCompletions

Created with Raphaël 2.1.2

50,000

100,000

150,000

200,000

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

Chart: Greg Jericho Source: NCVER Get the data Created with Datawrapper

But the concern as well is that the shift from industry to services work will exacerbate inequality.

Here the IMF is somewhat optimistic. It notes that the key driver behind greater pay inequality seems to be the “dislocation of middle-skilled workers through technology and trade – and the resultant downward pressure on wages for medium- and low-skill jobs” rather than a shift of people moving from industry to services work.

It also found that countries with high levels of inequality within industry workers also had high levels of inequality within services sectors:

Labour income inequality: industry versus services

A higher value = greater inequality

0.000.020.040.060.080.100.120.140.160.180.200.220.240.000.020.040.060.080.100.120.140.160.180.200.220.24AustraliaUSASweden

Industry

Services

Chart: Greg Jericho Source: IMF WEO, Fig 3.21 Get the data Created with Datawrapper

As such it argues moves to improve inequality should not be about trying to prevent the growth of the services sector or trying to protect traditional blue-collar industries. Rather they argue government should focus on trying to “raise productivity across all sectors and make the gains from higher productivity more inclusive”.

To this end the report argues for “expanding access to training and education programs aligned with the needs of the evolving economy (including job-search assistance and training)” and crucially the need for “safety nets and redistribution policies targeted at displaced workers”.

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But it also strikes a note of caution. While some problems may seem solvable through greater skills and education, it notes that “displaced middle-skilled manufacturing workers may end up experiencing prolonged unemployment spells or dropping out of the labour force rather than taking low-wage jobs in services”.

And that would inevitably lead to an increase in inequality.

It also notes that “manufacturing jobs tend to be characterised by formal employment arrangements with associated benefits for workers” and also “collective bargaining via unions”.

A lack of these aspects within the services sectors will certainly cause inequality to rise – and as we have also seen, a slowing of wage growth for all workers.