Was Job Quality “Job One” in the Tri-State Region’s Economic Recovery?

As of October 2004, the U.S. was still down about a half million jobs since the peak in employment at the start of the last recession in March 2001, 43 months earlier. At a similar stage during the last recovery, the U.S. had added about 2.75 million jobs. This year, we have begun to see gradual improvement in the pace of job growth.¹ As of October, payrolls in Pennsylvania, New Jersey, and Delaware, the three states in the Third Federal Reserve District, had just recovered to the level of the last peak in employment. (Since the end of the recession, New Jersey has shown the strongest job growth of the three states and Pennsylvania the weakest.) Unlike the nation, our region is doing considerably better this time compared to 1990-91 – then, it took over four years to get back to the previous employment peak, reflecting the relative severity of the 1990 recession in our region. We are on track for a somewhat swifter return this time compared to 1991, and our recovery has been similar to the nation’s.

But what types of jobs are being added in our region? Are they high quality jobs in terms of paying a high wage, or are they low-paying jobs? Have secular shifts in the distribution of employment led to different types of jobs being added compared to earlier recoveries? Does the pattern of job growth differ in our region relative to the nation?

Aaronson and Christopher (2004)² recently examined this issue for the nation and concluded that the distribution of jobs between higher paying and lower paying industries during this recovery has been similar to that of previous recoveries. Typically, when a recovery begins and employment begins to grow, the first jobs added are in those industries that are relatively low paying, while higher paying jobs are added later on as the economy and employment continue to expand.

In this note, we apply a modified version of the Aaronson and Christopher methodology to examine the recent employment experience in the three states of Pennsylvania, New Jersey, and Delaware.³ Similar to Aaronson and Christopher, we find that the private sector adds more lower paying than higher paying jobs at the beginning of recoveries both in the region and in the nation. As the economic expansion takes hold, the ratio of high-pay to low-pay jobs added increases. For example, by our measure, it was not until the end of last year that the average monthly growth in higher paying jobs over the past 12 months exceeded average monthly growth in lower paying jobs in the nation. Our region has lagged the nation somewhat in the process of adding higher paying jobs, but this milestone was reached in June. For example, in the 12 months ending in October 2004, the region added an average of about 9,500 private-sector payroll jobs per month (monthly growth averaged 0.11 percent). Of these jobs added, about 5,600, or 59 percent, were in higher paying industries, and 3,900, or 41 percent, were in lower paying industries in the region (monthly growth of jobs in higher paying industries averaged 0.066 percent, while monthly growth of jobs in lower paying industries averaged 0.045 percent). In contrast, a year ago, the region had lost an average of about 2,900 private-sector payroll jobs per month in the 12 months ending in October 2003 (monthly growth averaged −0.033). There were average losses of 4,700 per month in higher paying industries and average gains of 1,800 per month in lower paying industries (monthly growth averaged −0.054 percent and 0.021 percent, respectively). So to answer the question in the title, job quality was not “job one” in the region’s recovery, since low-paying jobs were added first. But as the expansion continues, if the typical pattern holds, relative job quality will rise both in the region and in the nation.