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12.3: Problems in Work and the Economy

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    Learning Objectives

    1. Outline recent trends in jobs and wages.
    2. Discuss the effects of unemployment.
    3. Summarize the problems associated with increasing economic inequality.

    The economy and the quality and quantity of work certainly affect the lives of all Americans. At the same time, work and the economy give rise to many kinds of problems that also affect millions of Americans. This section examines several of these problems.

  • The Loss of Jobs and Wages

    Because the American economy greatly weakened as the nation went into a deep recession in late 2007, it should come as no surprise that millions of jobs have been lost during the past half-decade and that wages have declined for many Americans. Yet long before the recession began, certain ominous trends in the American economy were evident. These trends involved a general loss of jobs in many sectors of the American economy and stagnating wages.

    These trends partly reflected the fact that the United States has joined other industrial nations in moving into a postindustrial economy. In a postindustrial economy, information technology and service jobs replace the machines and manufacturing jobs that are hallmarks of an industrial economy. If physical prowess and skill with one’s hands were prerequisites for many industrial jobs, mental prowess and communication skills are prerequisites for postindustrial jobs.

    This move to a postindustrial economy has been a mixed blessing for many Americans. The information age has obvious benefits too numerous to mention, but there has also been a cost to the many workers whom postindustrialization and the globalization of the economy have left behind. Since the 1980s, many manufacturing companies moved their plants from US cities to sites in the developing world in Asia and elsewhere, a problem called capital flight. Along with the faltering economy, these trends have helped fuel a loss of 5.5 million manufacturing jobs from the American economy since 2000 (Hall, 2011).

    A related problem is outsourcing, in which US companies hire workers overseas for customer care, billing services, and other jobs that Americans used to do. China, India, and the Philippines, which have skilled workforces relatively fluent in English, are the primary nations to which US companies outsource their work. According to projections, some 3.4 million jobs will have been lost by 2015 because of outsourcing (Levine, 2012). Many call centers employ workers in India, and when you call up a computer company or some other business for technical help, you might very well talk with an Indian. Because these call centers have cost Americans jobs and also because Americans and Indians often have trouble understanding each other’s accents, outsourcing has been very controversial since it became popular in the early 2000s.


    Many American jobs have been lost because of outsourcing to other countries.

    Paul Keller – wanted – CC BY 2.0.

    All these problems reflect a more general shift in the United States from goods-producing jobs to service jobs. Although some of these service jobs, such as many in the financial and computer industries, are high paying, many are in low-wage occupations, such as restaurant and clerical work, that pay less than the goods-producing jobs they replaced. Partly as a result, the average hourly wage (in 2009 dollars) in the United States for workers (excluding managers and supervisors) rose by only one dollar from $17.46 in 1979 to $18.63 in 2009. This change represented an increase of just 0.2 percent per year during that three-decade span, as workers’ wages have essentially stagnated during the last three decades (Economic Policy Institute, 2012).

    Wage changes in recent years also depend on what social class someone is in. While the average compensation of chief executive officers (CEOs) of large corporations grew by 167 percent from 1989 to 2007, the average compensation of the typical worker grew by only 10 percent (Mishel, Bernstein, & Shierholz, 2009). Another way of understanding this disparity is perhaps more striking. In 1965, the average compensation of CEOs was twenty-four times greater than that of the typical worker; in 2009, their compensation was 185 times greater than that of the typical worker (Economic Policy Institute, 2012). These figures reflect growing economic inequality in the United States, a problem we further examine later in this chapter.

  • The Decline of Labor Unions

    One of the most important developments accompanying industrialization in the nineteenth century was the rise of labor unions and their conflict with management over wages and working conditions (Dubofsky & Dulles, 2010). The pay that workers received was quite low, and the conditions in which they worked were often miserable. The typical employee worked at least ten hours a day for six or seven days a week, with almost no overtime pay and no paid vacations or holidays. To improve wages and working conditions, many labor unions were founded after the Civil War, only to meet determined opposition from companies, the government, and the courts. Companies told each other which workers were suspected of being union members, and these workers were then prevented from getting jobs. Strikers were often arrested for violating laws prohibiting strikes. When juries began finding them not guilty, employers turned to asking judges for injunctions that prohibited strikes. Workers who then went on strike were held in contempt of court by the judge as juries were kept out of the process.


    From the 1870s through the 1930s, labor unions fought companies over issues such as low wages and substandard working conditions.

    DonkeyHotey – Together We Bargain – CC BY 2.0.

    Labor strife also marked the Great Depression, when masses of people blamed business leaders for their economic plight. Huge sit-ins and other labor protests occurred at auto plants in Detroit. In response, the Congress passed several laws that gave workers a minimum wage, the right to join unions, a maximum-hour workweek, and other rights that Americans now take for granted.

    Today labor unions have lost some of their influence, especially as postindustrialization has supplanted the industrial economy and as the United States has lost much of its manufacturing base. Four decades ago, about one-fourth of all private-sector nonagricultural workers belonged to labor unions. By 1985 this figure had dropped to 14.6 percent, and today it stands at only 7.2 percent (Hirsch & Macpherson, 2011). In response, labor unions have intensified their efforts to increase their membership, only to find that US labor laws are filled with loopholes that allow companies to prevent their workers from forming a union. For example, after a company’s workers vote to join a union, companies can appeal the vote, and it can take several years for courts to order the company to recognize the union. In the meantime, the low wages, substandard working conditions, and other factors that motivated workers to want to join a union are allowed to continue.

    Just as the growth of unions during the late nineteenth and early twentieth centuries helped to raise workers’ wages, the decline of unions has lowered wages. Two reasons explain this decline (Mishel et al., 2009). First, union workers earn about 14 percent more than nonunion workers (controlling for experience, education, occupation, and other factors), a phenomenon known as the union wage premium. Because fewer workers are now in unions than four decades ago, they are less likely to benefit from this premium. Second, as unions have declined, there has been less pressure on nonunion employers to raise their wages to match union wages.

    Because the union wage premium is greater for African Americans and Latinos than for whites, the wage decline caused by the decline of unions has probably been steeper for those two groups than for whites. It is also true that union workers are more likely than nonunion workers to be covered by employer-paid health insurance and also to have lower health premiums and deductibles. The decline of unions has thus meant that the average worker today is less likely to have employer-paid health insurance and, if they do, more likely to have higher premiums and deductibles.

  • Unemployment

    Unemployment is a fact of life. There will always be people laid off or fired, who voluntarily quit their jobs, or who just graduated school and are still looking for work. But most unemployed people are involuntarily unemployed, and for them the financial and psychological consequences can be devastating, as we saw in the news story that began this chapter.

    Unemployment rates rise and fall with the economy, and the national unemployment rate was as high as 10.2 percent in October 2009 amid the Great Recession that began almost two years earlier. It was still 8.3 percent in February 2012, amounting to almost 13 million people. But whether unemployment is high or low, it always varies by race and ethnicity, with African American and Latino unemployment rates much higher than the white rate (see Figure 12.3 “Race, Ethnicity, and Unemployment Rate, February 2012”). Unemployment is also higher for younger people than for older people. In February 2012, 23.8 percent of all teenagers in the labor force (aged 16–19) were unemployed, a figure three times higher than that for adults. The unemployment rate for African Americans in this age group was a very high 34.7 percent, twice as high as the 21.3 percent figure for whites in this age group (Bureau of Labor Statistics, 2012).

    Figure 12.3 Race, Ethnicity, and Unemployment Rate, February 2012


    Source: Bureau of Labor Statistics (2012). Employment & earnings online. Retrieved from

    Unemployment figures are misleading in an important respect, as they do not include people who are underemployed. Underemployment includes the unemployed and also two other types of people: (a) those who are working part-time but who want to work full-time—the so-called marginally attached, and (b) those who have stopped looking for work because they have not been able to find a job. Many economists think that underemployment provides a more accurate measure than unemployment of the number of people with employment problems.

    For example, in December 2011, when the unemployment rate was 8.5 percent and 13 million people were officially unemployed, the underemployment rate was 15.2 percent, equal to 23.8 million people (Shierholz, 2012). These figures are almost twice as high as the official unemployment figures. Reflecting the racial/ethnic disparity in unemployment, 24.4 percent of African American workers and 22.3 percent of Latino workers were underemployed, compared to only 12.5 percent of white workers. Reflecting on the great amount of underemployment during the Great Recession, one economist commented, “When you combine the long-term unemployed with those who are dropping out and those who are working part time because they can’t find anything else, it is just far beyond anything we’ve seen in the job market since the 1930s” (Herbert, 2010, p. A25).

    We have just seen that unemployment rises when the economy falters and that race and ethnicity affect the probability of being unemployed. These two facts provide evidence supporting the sociological imagination (see Chapter 1 “Understanding Social Problems”). As C. Wright Mills (1959) emphasized in his original discussion of this concept, unemployment is best viewed more as a public issue than as a personal trouble. When so many people are unemployed during an economic recession and when there is such striking evidence of higher unemployment rates among the persons of color who have the least opportunity for the education and training needed to obtain and keep a job, it is evident that high unemployment rates reflect a public issue rather than just a collection of public troubles.

    Several kinds of problems make it difficult for people of color to be hired into jobs and thus contribute to the racial/ethnic disparity in unemployment. The Para 12.142 box discusses these problems.

    Applying Social Research

    Race, Ethnicity, and Employment

  • >As the text discusses, people of color are more likely than whites to be unemployed or underemployed. While a relative lack of education helps explain these higher rates for people of color, other kinds of problems are also apparent.

  • >One problem is racial discrimination on the part of employers, regardless of how conscious employers are of their discriminatory behavior. Chapter 4 “Gender Inequality” recounted a study by sociologist Devah Pager (2003), who had young white and African American men apply independently in person for various jobs in Milwaukee. These men wore the same type of clothing and reported similar levels of education and other qualifications. Some said they had a criminal record, while others said they had not committed any crimes. In striking evidence of racial discrimination in hiring, African American applicants without a criminal record were hired at the same low rate as white applicants with a criminal record.

  • >Pager and sociologists Bruce Western and Bart Bonikowski also investigated racial discrimination in another field experiment in New York City (Pager, Bonikowski, & Western, 2009). They had white, African American, and Latino “testers,” all of them “well-spoken, clean-cut young men” (p. 781), apply in person to low-level service jobs (e.g., retail sales and delivery drivers) requiring no more than a high school education; all the testers had similar (hypothetical) qualifications. Almost one-third (31 percent) of white testers received a call back or job offer, compared to only 25.2 percent of Latino testers and 15.2 percent of African American testers. The researchers concluded that their findings “add to a large research program demonstrating the continuing contribution of discrimination to racial inequality in the post-civil rights era” (p. 794).

  • >Other kinds of evidence also reveal racial discrimination in hiring. Two scholars sent job applications in response to help-wanted ads in Boston and Chicago (Bertrand & Mullainathan, 2003). They randomly assigned the applications to feature either a “white-sounding” name (e.g., Emily or Greg) or an “African American–sounding” name (e.g., Jamal and Lakisha). White names received 50 percent more callbacks than African American names for job interviews.

  • >Racial differences in access to the informal networks that are often so important in finding a job also contribute to the racial/ethnic disparity in employment. In a study using data from a nationwide survey of a random sample of Americans, sociologist Steve McDonald and colleagues found that people of color and women are less likely than white males to receive informal word of vacant, high-level supervisory positions (McDonald, Nan, & Ao, 2009).

  • >As these studies indicate, research by sociologists and other social scientists reveals that race and ethnicity continue to make a difference in employment prospects for Americans. This body of research reveals clear evidence of discrimination, conscious or unconscious, in hiring and also of racial/ethnic differences in access to the informal networks that are often so important for hiring. By uncovering this evidence, these studies underscore the need to address discrimination, access to informal networks, and other factors that contribute to racial and ethnic disparities in employment.
  • The Impact of Unemployment

    Although the news article that began this chapter gave us a moving account of unemployed people at food banks, survey data also provide harsh evidence of the social and psychological effects of being unemployed. In July 2010, the Pew Research Center issued a report based on a survey of 810 adults who were currently unemployed or had been unemployed since the Great Recession began in December 2007 and 1,093 people who had never been unemployed during the recession (Morin & Kochhar, 2010). The report’s title, Lost Income, Lost Friends—and Loss of Self-Respect, summarized its major findings.

    Of those who had been unemployed for at least six months (long-term unemployment), 44 percent said that the recession had caused “major changes” in their lives, versus only 20 percent of those who had never been unemployed. More than half of the long-term unemployed said their family income had declined, and more than 40 percent said that their family relations had been strained and that they had lost contact with close friends. In another finding, 38 percent said they had “lost some self-respect” from being unemployed. One-third said they were finding it difficult to pay their rent or mortgage, compared to only 16 percent of those who had never been unemployed during the recession. Half had borrowed money from family or friends to pay bills, versus only 18 percent of the never unemployed. Of all the people who had been unemployed, almost half had experienced sleep difficulties, and 5 percent had experienced drug or alcohol problems. All these numbers paint a distressing picture of the social and psychological impact of unemployment during the Great Recession that began in late 2007.


    Unemployment lines were all too common in recent years. Long-term unemployment often causes various social and psychological difficulties.

    Rawle C. Jackman – The line of hope… – CC BY-NC-ND 2.0.

    Unemployment also has a significant impact on children whose parent or parents are unemployed. The Note 12.21 “Children and Our Future” box discusses this impact.

    Children and Our Future

    The Hidden Casualties of Unemployment

  • >As unemployment soared in the wake of the Great Recession that began in 2007, many more children lived in a household where a parent had become unemployed. By early 2010, 11 percent of American children, or 8.1 million children overall, had an unemployed parent. Just slightly more than two years earlier, this number had been much smaller, 4.8 million. In just over two years, then, the number of children with an unemployed parent grew by two-thirds.

  • >After their parents became unemployed, these children began to suffer various psychological effects. One news report summarized this psychological impact as follows: “For many families across the country, the greatest damage inflicted by this recession has not necessarily been financial, but emotional and psychological. Children, especially, have become hidden casualties, often absorbing more than their parents are fully aware of. Several academic studies have linked parental job loss—especially that of fathers—to adverse impacts in areas like school performance and self-esteem.”

  • >The emotional and psychological effects for children occur for at least two reasons. First, unemployed parents tend to experience extra stress and to become withdrawn. Second, married parents and unmarried partners often experience interpersonal conflict when one of them becomes unemployed. Both of these consequences of unemployment in turn affect children in a household where at least one parent is unemployed.

  • >Children have suffered in other ways from the rise in unemployment. More children have become homeless as their households fell into poverty. In addition, children of an unemployed parent are more likely to repeat a grade or, if they are adolescents, to drop out of school. Child abuse has probably also increased in families where a parent became unemployed.

  • >In view of all these consequences for the children of the unemployed, the United States should do everything possible to put parents and other adults back to work and to help the children of unemployed parents deal with the devastating effects of the Great Recession.

  • >Sources: Lovell & Isaacs, 2010; Luo, 2009

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