Job Gap Widens in Uneven Recovery

Split in Employment Market Undermines Broader Economic Rebound

By BEN CASSELMAN CONNECT

The Wall Street Journal

Updated Nov. 11, 2013 9:45 p.m. ET

America's jobs recovery is proceeding on two separate tracks—a pattern that is persisting far longer than after past economic rebounds and lately has been growing worse.

Despite three years of steady job gains, and four years of economic growth, many Americans have yet to experience much that could be described as a recovery. That sort of pattern isn't unusual in the aftermath of a recession, but it usually eases as growth picks up steam.

Youth unemployment, for example, nearly always improves after recessions more slowly than that of prime-age workers, those between 25 and 54. Following the 2001 recession, it took six months for the gap between the youth and prime-age unemployment rates to return to its long-run average. After the early 1990s recession, it took 30 months. This time, it has been 52 months, and the gap has hardly narrowed.

For those with decent jobs, wages are rising, albeit slowly, and job security is the strongest it has been since before the recession. Many families have paid down debts and are seeing the value of assets, from homes to stocks, rebound strongly.

But many others—the young, the less educated and particularly the unemployed—are experiencing hardly any recovery at all. Hiring remains weak, and the jobs that are available are disproportionately low-paying and often part-time. Wage growth is nearly nonexistent, in part because with so many people still looking for jobs, workers have little bargaining power.

Take Kyle King of Massachusetts. When Mr. King began working at a Burger King in downtown Boston nine years ago, he worked full time and earned $8 an hour. Since then, he has received a single 15-cent-an-hour raise and in recent years has had his hours cut back to part time.

In a better economy, Mr. King might have been able to leave fast food work for a better-paying sector. But with unemployment high, employers can afford to be choosy, and Mr. King has had no luck. Instead, he lives with his brother rent-free, keeps his heat turned down as low as possible and takes the bus to work, yet still finds it hard to cover food and clothes.

Mr. King, 46 years old, says that for him, the recession never ended. "We're still in it," he said. "It feels like we're still in it, and we're getting worse."

The two-track nature of the recovery helps explain why the four-year-old upturn still doesn't feel like one to many Americans. Higher earners are spending on cars, electronics and luxury items, boosting profits for the companies that make and sell such goods. But much of the rest of the economy remains stuck: Companies won't hire or raise pay without more demand, and consumers can't spend more without faster hiring and fatter paychecks.

Indeed, households earning $50,000 or more have become steadily more confident over the past year and a half, according to a monthly consumer survey conducted by RBC Capital Markets, though confidence dipped during last month's partial government shutdown. Among lower-income households confidence has stagnated. The gap in confidence between the two groups is near its widest ever, noted RBC chief U.S. economist Tom Porcelli.

"If you look at guys with just a high-school diploma or less than a high-school diploma, those guys are still in a recession," Mr. Porcelli said. The confidence figures, he said, "really drive home this idea of a bifurcation in the U.S. economy."

That bifurcation, Mr. Porcelli added, isn't only bad for those being left behind. It is also hurting the broader recovery, because it means many families are able to spend only on essential items. Consumer spending rose just 0.1% in September after adjusting for inflation, the Commerce Department said Friday, and Morgan Stanley last week said it expected the 2013 holiday shopping season to be the weakest since 2008.

The share of the adult population that is out of the labor market—neither working nor looking for work—hit a 35-year high in October, the Labor Department said Friday. Employers added a relatively healthy 204,000 jobs, but more than a third of them were in the generally low-paying restaurant and retail sectors. Wage growth, which usually accelerates after recessions, has barely outpaced inflation, rising 2.2% in October from a year earlier.

Economists aren't sure what is behind the trend, or how long it will continue. Low-wage sectors are often the first to hire during a weak recovery, and less desirable workers—whether because of their age, education or other factors—are the last people hired in almost any scenario.

"It's not just harder to get a job—it's harder to get a good job," said Harry Holzer, a professor of public policy at Georgetown University who has studied low-wage jobs. "Companies are more willing to create jobs right now if they're low-wage jobs and they don't have to pay much in benefits or make a major commitment to their employees."

Heidi Shierholz, an economist at the Economic Policy Institute, a left-leaning think tank, said the best remedy for the uneven job market is simply a stronger recovery.

To be sure, the recovery has been weak for nearly everyone. Median household income was roughly flat in 2012, after adjusting for inflation. Total employment remains roughly 1.5 million beneath its prerecession peak. Gross domestic product, the broadest measure of economic output, accelerated in the third quarter of the year, the Commerce Department said Thursday, but only because companies built up unsold inventories; many economists expect growth to slow again in the final three months of the year.

Top-line measures such as jobs and GDP often obscure the uneven progress underneath. The long-term unemployed, for example, have seen hardly any improvement in their chances of finding employment, even as job growth has been steady. The unemployment rate for those with less than a high-school diploma is 10.9%, compared with 3.8% for those with a college degree, and the unemployment rate for those under 25 is over 15%, versus 6.1% for those 25 or older. The jobs that are available are often low-wage or part-time. More than eight million Americans are working part time because they can't find full-time work, a figure that has improved little over the past year. Of the 2.3 million jobs added in the past year, 35% are in sectors that pay on average less than $20 per hour. And competition for entry-level jobs has kept a lid on wages: Hourly wages for nonmanagers in the lowest-paying quarter of industries are up 6% since the recession ended; in the highest-paying quarter of industries, wages are up more than 12%.

There are some who say the current labor-market divide is part of a longer-term trend, not just the byproduct of a particularly deep recession. Paul Osterman, a professor at the Massachusetts Institute of Technology's Sloan School of Management, said that in recent decades, low-skilled workers have struggled even during good times.

In the 1990s, the best job market of recent decades, "the situation of people at the bottom of the labor market improved but not dramatically," Mr. Osterman said. "Median wages have been basically flat for 30 years."

Meanwhile, for those further up the income ladder, the recovery has been stronger. Layoffs are back at or below prerecession levels, meaning those who do have jobs are likely to hold on to them. Stock markets are near record highs and home prices are rebounding strongly. Low interest rates, among other factors, mean that Americans—especially homeowners—are spending less of their income on debt payments than they have in decades.

Gary Riggs Home, a Dallas-based interior-design firm, has seen strong business this year, which vice president and general manager Steve McKee attributes to rising home prices and increased confidence among the company's generally affluent clients.

"We are seeing an uptick with more major projects," Mr. McKee said. "When [customers] see the value of their home improving and increasing, they're all of a sudden more comfortable spending on furnishings and furniture."

Write to Ben Casselman at ben.casselman@wsj.com