Structural Imbalances in the U.S. Economy The uneven pattern of employment and income growth in the current economic recovery Phillip LeBel, Ph.D. Emeritus Professor of Economics Montclair State University Montclair, New Jersey

The U.S. is a global leader in output recovery, but lags in employment growth.

Lags in employment reflect a structural shift from traditional blue collar manufacturing to a knowledge-based human capital skills economy

Part of the employment shift has been driven by outsourcing of traditional manufacturing. The current rift in Congress over fast-track trade negotiations reflects concerns over the pace of adjustment, not unlike the debates over NAFTA twenty years ago. Today, this is being counter-trended somewhat by insourcing of jobs from foreign direct investment in the U.S.

As real wages have grown more slowly, there has been a major increase in two-person working households, in greater annual working hours, and in fewer vacation days. Much of this shift has been well documented by Juliet Schor in The Overworked American (Basic Books, 1992), and updated periodically by many studies since then.

While productivity has grown, average wages have remained stagnant, with most increases in income accruing to those at the upper end of the income scale.

Some differences in income can be explained by the number of hours worked, and some can be explained by a secular decline in wage and salaried workers under collective bargaining agreements. But most of the changes reflect the overall shift from manufacturing to service employment in the economy in which human capital skills are key.

Women now outnumber men in terms of undergraduate college degree graduation numbers, account for a majority of law school and medical school graduates and other human capital intensive occupations. All of this is reflected in an uneven shift in the composition of household activity, and in the formation and dissolution of households. Hanna Rosin examines these changes in her book The End of Men and the Rise of Women. (Penguin Riverhead Press, 2012).

Not surprisingly, in a structurally changing economy, while nominal economic indicators point to more robust health, poverty has risen, as measured by the number of food stamp recipients, and the overall poverty rate.

As a result of both the deep recession that began in late 2007 and the uneven pattern of economic recovery, federal spending and federal deficits have been under upward pressure. Without structural reforms in incentives, austerity alone will not lead to a sustainable recovery in either jobs or in public deficits. Reforms need to address the changing nature of work in a human capital intensive service economy.