Friday, July 24, 2009

Where the jobs actually are

The New York Times argues in this editorial that "with low-wage work expected to be the most plentiful in the years to come, raising the minimum wage and growth opportunities should be a priority of the White House." (Quote is not in the article, but in the snippet provided when I shared this article on Facebook.) It states that "according to the Labor Department, 5 of the 10 occupations expected to add the most jobs through 2016 are 'very low paying,' up to a maximum of about $22,000 a year. They include retail sales jobs and home health aides. Another 3 of the 10 are 'low paying,' from roughly $22,000 to $31,000, including customer-service representatives, general office clerks and nurses’ aides."

This seemed fishy to me, so I went ahead and checked out the actual Labor Department data. It turns out that by definition, low-paying job categories tend to be larger. To see why this is a problem, consider the following example. Suppose for simplicity that there are 1M low-paying jobs divided into 10 categories, and 1M high-paying jobs divided into 100 categories. Also suppose that the low-paying categories are projected to grow by 5%, and high-paying ones by 20%. Then each low-paying category would add 5,000 jobs, while each high-paying category would only add 2,000 jobs, so by the NY Times' methodology, we'd reach the false conclusion that low-paying industries are expanding faster.

The actual data is not as stark, but the pattern is definitely there. In fact, “very low” paying occupations are projected to add 3.65M jobs from 2006 to 2016, “low” paying 3.38M, “high” paying 3.34M, and “very high” paying 5.22M. These classifications are quartiles, each containing occupations representing 1/4 of workers in 2006. So as you can see, the data cited by the NY Times actually undermines their point, since "very high" paying jobs are projected to grow the fastest, with all other categories growing about equally fast. Sadly, this statistical sleight of hand forms the basis of much of their argument, so the entire editorial is pretty worthless.

This is not to say that I oppose a higher minimum wage in the U.S. or Canada: I haven't made up my mind on the issue. But what this data suggests is that, in fact, education needs to be a high priority in the U.S., since it is jobs in the top quartile, i.e. those that require the most skills, that are going to be created the fastest over the next few years. And I doubt that the situation would be very different for Canada. In fact, in the long-run, education is the best tool for combating inequality: increasing the supply of high-skill workers and decreasing that of low-skill workers will automatically reduce wage differentials without economically distortionary government interventions.

So, thanks to the NY Times for pointing me to that interesting data, but FAIL for reaching the wrong conclusion. (Again, I'm not saying that higher minimum wages are bad, just that the facts mentioned by the NY Times do not support their case.)

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