* High- and low-skill jobs benefit at expense of the middle
* Boston Fed paper shows little role in "jobless recovery"
* Fed's new rates policy has all eyes on labor market
By Jonathan Spicer
NEW YORK, Dec 18 Some economists and U.S.
Federal Reserve policymakers worry that a declining market for
middle-skilled jobs exacerbated unemployment during the Great
Recession and is now hurting the recovery.
But a new paper on "job polarization" from the Boston
Federal Reserve Bank punches some holes in that theory. Among
other things, it finds that the disappearance of midlevel jobs
is not behind the troubling mismatch between the skills workers
have and the skills employers seek.
The paper, published last week as the Fed gathered to decide
its next move, may undermine hard-line policymakers who warn
that high unemployment could be the new normal and that the
central bank has gone too far in its efforts to get Americans
back to work.
Job polarization has been spreading for decades.
Employment opportunities have eroded for factory workers,
kindergarten teachers and others in the "middle" of the skills
spectrum. At the same time, opportunities have become more
plentiful for higher-skilled professionals, such as engineers,
and lower-skilled workers, like groundskeepers.
The paper highlights this troubling trend, which could get
more attention now that the central bank has said it plans to
keep interest rates near zero at least until the unemployment
rate drops down to 6.5 percent, from 7.7 percent last month.
Some economists have argued that polarization went into
overdrive in the 2007-2009 recession and left a lasting scar on
the labor market.
If they are right, the jobless rate may not return to
pre-recession levels around 5 percent, and the Fed's
unprecedented steps to boost employment might be wrong and
'STRUCTURAL' VS. 'CYCLICAL' UNEMPLOYMENT
The Fed's decision last week to tie interest rates to
achieving a specific jobless level underscored how closely
monetary policy will hinge on achieving progress in the labor
With policymakers trying to determine why employment growth
is so sluggish, the findings of the Boston Fed paper might turn
Examining the job-finding prospects for those in the
troubled "middle-skill" category, the paper's authors concluded
that polarization had little to do with the slow U.S. recovery
and was not responsible for a skills mismatch seen in the
so-called Beveridge curve, which shows unemployment has remained
high even while job openings are plentiful.
Further, the paper finds, the salesmen and construction
workers and others who lose their middle-skill jobs in
recessions are no more likely to move to high- or low-skilled
jobs, or to leave the labor force, than they are in boom times.
"If unemployment today is structural - so that some workers
are doing well while others are not - the classification of the
winners and losers doesn't line up neatly with the
classification stressed in the polarization literature," said
Christopher Foote, a Boston Fed senior economist and policy
adviser who wrote the paper with bank research associate Richard
Essentially, the findings are a blow to those who argue that
the labor market has undergone longer-term "structural" changes
due to the deep 2007-2009 recession and who attribute at least
part of that to polarization.
And they could provide support to Fed Chairman Ben Bernanke
and others who argue that an accommodative monetary policy can
help repair the shorter-term "cyclical" damage to the market.
LOOKING FOR ANSWERS
Automation and the transfer of U.S. jobs to other countries,
particularly in manufacturing, partly explain the hollowing out
of middle-skilled employment over the last 30 years and the
growing divide between the nation's wealthy and poor.
While automation can replace routine jobs like car assembly,
demand has grown for those adept at new technologies. On the low
end of the skills spectrum, jobs in areas like child care and
food preparation cannot be shipped overseas.
Among central bank policymakers, the effect of polarization
on unemployment is a hot topic.
A Fed policy meeting in September included a discussion on
the "ongoing process of polarization in the labor market," which
suggested "a lower level of potential output and thus reduced
scope for combating unemployment with additional monetary policy
stimulus," according to minutes of the meeting.
Later that month, Philadelphia Fed President Charles Plosser
said monetary policies could not cure the "frictions" and
"structural adjustments" that are holding back the labor market.
In a notable paper published earlier this year, economists
Nir Jaimovich of Duke University and Henry Siu of the University
of British Columbia concluded that polarization was behind the
"jobless recoveries" in the last three U.S. recessions.
But the Boston Fed paper disputes that finding and argues
that polarization did not accelerate during recent recessions.
Some 75 percent of middle-skilled workers who lost their jobs
ended up back in that category, more than workers who lost high-
or low-skilled jobs, the paper said.
"We don't find micro-level evidence for the type of link
between jobless recoveries and polarization" that Jaimovich and
Siu offer, Foote said.