U.S. Workforce's Changing Nature

The Changing Nature of the American Workforce

It is well known that the structure of the economy has evolved significantly sine WWII, but the magnitude of the change is probably not as well understood as it should be. The three graphs below show the number of people working in 12 different sectors since 1939 (the St. Louis Fed database allows only four data series per chart).

As the population has grown, so have most of the categories of jobs. The one glaring exception to this is Manufacturing, which has been in a secular decline since the late 1970’s and was a slow growth sector even in the "golden years" of U.S. manufacturing -- the 1950’s and 1960’s. As recently as the early 1960’s, manufacturing accounted for more jobs than Government (all levels), Education & Health and Construction combined.

It was not until just before the 1991 downturn that government employment passed that of Manufacturing. Education & Health (E&H) passed it during the 2001 recession.

There are now fewer Americans working in Manufacturing than there were right after WWII. The other thing to note is that both Government and E&H both form very steady lines, consistently adding jobs in most economic conditions, while manufacturing is very volatile.

Construction is also a volatile sector, and while it has grown over the years, it has not kept pace with other sectors. Yes, globalization has played a big role in the decline of manufacturing employment in the country, but technology has probably had an even bigger effect.

Information Services was supposed to be the great hope for new "good jobs," but it peaked out in 2000. Financial jobs might have been expected to have really grown as a share of total employees given how dominant the sector became in the economy -- especially before the current downturn -- but that is really not the case. It grew, but not nearly as much as some other areas.

Actually the biggest single sector for employment is in Wholesale Trade, Transportation and Utilities shown on the pink graph (not really sure why they group them together). Those jobs have historically grown quickly during expansions and flattened out during downturns. However in the current recession and the last, they actually saw fairly sharp declines.

The same is true for Professional and Business Services (blue graph). This recession is notable in that sectors which previously had been able to skate through recessions relatively unscathed are themselves losing jobs. This is probably part of the reason why the duration of unemployment is stretching out so much this time (see "Unemployment Duration Stays Up" and "Long-Term Unemployment Effects" for more details).

Workers in these sectors are not simply called back to their old jobs when the recession is over the way that Manufacturing workers are. This is one of the reasons that I think that the jobs recover will be even slower this time around than it was in the last two downturns, let along the earlier recessions.

Prolonged unemployment means that the long-term growth rates of sectors like retail are likely to be greatly diminished even after the recession is officially over. As such, even if firms like Macy’s (M), Saks (SKS) and Nordstrom (JWN) are able to stay in the black through aggressive cost-cutting (and most have been doing a very good job of that, hence better-than-expected earnings), those earnings should get a lower multiple in the market. Also, jobs should be slow to return in retail.

The sectors that have been growing are the ones that are least susceptible to the twin forces of globalization and technology. However, technology and globalization are starting to impact even previously safe sectors through outsourcing.

Leisure and Hospitality is probably still safe, since it is hard to have a bartender in Bangalore pour you a drink when you are in Boston. The same is not true for Professional and Business Services. Those jobs are not going to follow Manufacturing right away, but they will not show the sort of growth seen in the last three upturns in the economy.

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Read the full analyst report on JWN