Does the Improving Economy Offer Opportunities to Raise Social Mobility?

The word “economy” is on everyone’s lips.  Things are looking bright for those who have a stake in the economic system. Markers in the service and manufacturing sectors are progressive and provide opportunities to put people to work while lowering the nation’s growing income disparity. The new economy offers the possibility to resize an unbalanced ship so that it finds benefits in hydroplaning to new levels. 

The Institute for Supply Management’s non-manufacturing index increased to 58.7% while sixteen U.S. non-manufacturing industries led by construction and education also experienced growth (1).  To complement this growth the service sector also realized expansion adding further strength to the recovery and providing higher levels of employment.

According to the Commerce Department manufacturing also received positive growth numbers (2).  The U.S. is moving into a stronger competitive position that furthers its ability to maintain momentum. Manufacturing increases employment opportunities and heightens income opportunities for families that need a solid wage and opportunities.  

A particular problem rears its head when the cost of education is increasing thereby creating a class of people who do not have the skill to go to college or the financial resources to finish a degree program. The inability to obtain a meaningful education leaves them out of many highly skilled manufacturing jobs and thereby locking them out of Middle Class lifestyles. 

Despite the positive economy there are some serious risks if the income is not spread properly among varying social classes and peoples. According to a new report by Standard and Poor income inequality is reaching extreme levels that may hamper future national growth (3).  The problem has become so pronounced that it retards future forecasts by 2.5% creating a drag on the economy.

The benefits of improving on middle class wages and raising people out of poverty outweigh many other expensive programs. Those with financial resources and high incomes are becoming wealthier leaving behind the masses causing instability. Changing public policies and avoiding poor economic decisions is important for encouraging higher overall human development to meet national needs.

The S&P report also mentions that raising minimum wages is not the answer as even though income rises the opportunities may decrease leaving less total jobs. It could also push inflation rates where the dollar is worth less tomorrow than it is today. Part of income disparity is based in actual earning power beyond the amount of dollar bills obtained.

Education is a major component for social mobility. Traditional sports arena oriented college models have become unsustainable with its expensive tuition, declining state budgets, large buildings and the re-shifting of financial responsibility onto families. Reforming higher education will help in bringing more people forward with the necessary skills to work in this century helping them reach Middle Class status and creating greater social mobility that helps raise opportunities for the future of everyone.

Changes and Opportunities in the Post-Recession Economy

The economy is adding jobs and that is great news. Unfortunately, the types of jobs have moved more into service sector and administrative positions that do not carry the same high wages as pre-recession employment. According to a report by the National Employment Project (NELP) low-wage industries have grown significantly since the end of the recession but this is leaving many Americans without significant savings. A mixed economic blessing that teeters between recovery and replacement.

Lower-wage industries have accounted for 22% of the recession loss but 44% of the employment growth over the past 4 years. It now employs 1.85 million more workers than it did in the past. Mid-range employment jobs lost were around 37% while recent increases are around 26% for a total of 958,000 lost. High wage losses include 41% and a 30% increase leaving us with a 976,000 fewer jobs.

The recession was longer than anticipated and even though the jobs have returned they have returned at a lower wage rate.  Since January 2008 to the low of 2010 the economy lost 8.8 million jobs while the study indicates that as of March 2014 a total of 8.9 million jobs have been raised. The positive news is that people are again finding various types of work in different sectors.

The study focused primarily on the private sector work recovery. However, government positions declined 627,000 jobs of which 44% were in education. Private sector work recovered in the service industry, the professional service and scientific industries, and private education and health services. The results for construction were mixed.

The changes also indicate an adjustment in the demographics of the country based upon global trends. Moving manufacturing to cheaper locations overseas impacts a major source of middle class income. There are efforts to raise the high tech sectors of manufacturing to create additional jobs and growth within the country. The use of higher skill and scientific work is one method of ensuring that processes and products are not easily copied or displaced.

The Boston Consulting Group released a report that the U.S. will soon reach parity with low cost manufacturers like China. This creates an opportunity to reverse trends in manufacturing losses and bring back a higher percentage of middle class jobs. However, this industry will need to push a larger section of the sector into the high technology manufacturing areas to develop the industry to a greater extent.

Highly developed manufacturing encourages mass manufacturing at a later date. New technologies that are cutting edge eventually make their way into mass distribution in the future. Innovation and development lead to greater opportunities that continually push manufacturing dominance. New products require a higher level of resources, science, strategy, and skilled labor that create first mover advantages that are later followed by lower cost copy cats.

The news is not all bad. The service industry is growing which means more people can find additional employment opportunities. A 2013 study confirms that employees can find greater pay increases within the service industry when compared with other low-earning lines of work. They may not start out high but they have opportunities to grow within this developing industry. The nature of the work is different than the past but the industry is budding and may someday come to full bloom.

Having employment opportunities across various sectors of society is important for people who desire to either move up within their careers, cross breed into other industries, search out various types of education, or attend training to raise their earnings potential. Diversity within the sectors also helps the U.S. maintain a competitive advantage in multiple arenas as well as maintain the potential as new opportunities rise. Ensuring and developing economic and human capital advantages in potential high growth areas keeps jobs at home.

The Report

Service Industry Not the Cause of Wage Polarization

Wage polarization is a growing concern among both academics and government officials. Wage polarization is an occurrence where lower skilled workers and higher skilled workers are vastly different in their earning potential. Research by Author and Dorn (2013) discuss the reasons why such polarization is occurring and which industries are raising lower skilled employment opportunities.

The advent of technology is here! Computerization of routine tasks is apparent and those who have not mastered new skills are finding their jobs displaced. The past 25 years have experienced a decline in lower skilled earnings and employment opportunities. The authors indicate that changes are likely to occur across four dimensions:

1.) Greater adoption of information technology;

2.) Reallocation of low-skilled workers from routine tasks to service occupations;

3.) Larger increases in both employment and wages at both the highly skilled and lower skilled labor markets;

4.) Larger inflows into both the high and low skilled labor markets.

The news isn’t all bad for lower skilled labor markets. Service industry workers have an easier time finding employment and higher wages. Between 1980 and 2005 the share of hours worked in the service occupations rose by more than 50%. Real wages also increased 11 log points significantly exceeding every other low skilled industry in the country.

The reason why this phenomenon occurs is because routine tasks are easily replicable by computers while the skills of communication and flexible customer care cannot be easily programmed into strict computer processes. The ambiguous nature of handling customers and their needs requires people who can make decisions on a constantly changing basis.

Who is capitalizing on new technology? Higher skilled and educated workers can use computers to complement their creative, abstract, problem-solving, and coordination skills. This is raising their productive power in society and naturally raising their compensation. A greater divide between the lower skilled displaced worker and the higher skilled worker is apparent.

The service industry is helping employ a greater proportion of displaced workers. It will be necessary to train low skilled workers to find value on the market and raise their market earning potential. Some will be able to move into the service industry while others will need to move into training programs. Those that do neither are more likely to enter the chronically unemployed market.

Enhancing Networks for Knowledge Creation

Knowledge diffusion is naturally affected by the quality of organizational information networks. These networks encourage the transference and use of higher levels of information that impact the service functionality of an organization. Dong, et. al. (2011) explores the need to understand these networks, enhance them, and effectively use them to develop organizations. Their explanation moves into the need to train workers on how to manage information in order ensure that information resources are fully utilized. 

Service and information systems are “value co-creation configurations of people, technology, value propositions connecting internal and external service systems, and shared information” (Maglio & Spohrer, 2008, pp. 18). Organizations that use information properly can ensure that they are receiving the right kind of information and putting that information to good use for service effectiveness. Each network has inherent value fostered by their ability to connect to rich elements within the internal or external environment. 

The success of an organization is based both on its employee’s talents and the way in which they interact (Hildalgo, 2011). Firms should ensure that productive interaction is fostered for greater growth and knowledge development. It is the process of obtaining information and applying it to constructive projects that encourages productive use.

There are three major types of networks. Networks can be random, small world, or clustered. Random networks are based in knowledge intensive industries, small world networks are used in focused intensive work environments, and clustered networks are common in organizations where people form knowledge sharing cliques. 

Developing industries need the larger random networks to obtain enough information to develop multiple areas within an industry. Organizations often cluster information based on how people relate to each other and which group they identify with. Small world networks can be used in inter or intra organizational development projects. Knowing which type of network does which function is helpful in using them properly. 

The researchers found that a stronger information network model is helpful in formulating the effectiveness of structures. The way in which information flows and is collected is important for overall utility. They also believe that improving upon randomness to include additional information into a more open system is beneficial for knowledge creation. Experienced information and network users are able to capitalize on these networks for growth but may need additional training to enhance skills. 

Dong, S. et. al. (2011) A benchmarking model for management of knowledge-intensive service delivery networks. Journal of Management Information Systems, 28 (3).

Hidalgo, C. (2011). The value in the links: Networks and the evolution of organizations. In P. Allen, S. Maguire, and B. McKelvey (eds.), Sage Handbook on Management and Complexity. London: Sage, 2011, pp. 257–569.

Maglio, P., and Spohrer, J. (2008). Fundamentals of service science. Journal of the Academy of Marketing Science, 36, (1). (Spring 2008)