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Middle out: Obama's economy and the service sector

President Barack Obama addresses the state of the economy during a speech at Knox College on July 24, 2013 in Galesburg, Ill.

President Obama was in Galesburg, Ill., today to give what the White House has been billing all week as a major economic policy address. The goal is to try to refocus attention in the media, the public, and Congress back on job creation and other bread-and-butter issues, away from controversies over national security, guns, telephonic surveillance and the IRS.

Galesburg is a significant locale for the president: he gave a seminal speech at Knox College in Galesburg as a senator in 2005, just after a Maytag refrigerator factory closed there, the last of many similar factory closures. Nearly a thousand jobs went to Mexico and the local economy suffered. The jobs later moved to China. 

The president’s speech in Galesburg today was long on values and aspirations, short on specific policy proposals or costs and funding mechanisms.

President Obama started by looking back to a period when the U.S. middle class was strong and U.S. industry was the envy of the world. “In the period after World War II,” said Obama, “a growing middle class was the engine of our prosperity. Whether you owned a company, swept its floors, or worked anywhere in between, this country offered you a basic bargain -- a sense that your hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement, and, above all, to hand down a better life for your kids.

“Unfortunately, opportunities for upward mobility in America have gotten harder to find over the past 30 years,” Obama continued later in the speech. “That’s a betrayal of the American idea. And that’s why we have to do a lot more to give every American the chance to work their way into the middle class.” He sketched out broad goals for giving Americans a better shot at the American dream: from more effective job training, more affordable higher education, more access to preschool, and more technology in schools; to initiatives promoting homeownership; to investments in infrastructure like roads, bridges and ports; to raising the minimum wage.

Near the end of the speech, the president called for “a better bargain for the middle class and folks working to join it. An economy that grows from the middle-out.”

The buzz-phrase ‘middle-out’ -- as contrasted with ‘trickle-down’ -- has been among the Administration’s economic talking points lately. The idea is to make the economy strong again by reviving, in-sourcing, rebuilding -- pick your verb -- middle-class jobs.

A lot of those jobs used to be in manufacturing, making things like cars, and refrigerators -- the stuff they’re not making much of in Galesburg anymore. In 1972, manufacturing accounted for nearly one quarter of U.S. employment. In 2012, it was less than 10 percent.

The vast majority of Americans now work in services, from data-entry to fast-food to finance to nursing. What does a ‘middle-out’ economic strategy mean for them?

“I’m laughing. I mean, no one knows what that means -- that’s the ultimate in sloganeering over policy substance,” quips Douglas Holtz-Eakin at the American Action Forum. Holtz-Eakin ran the Congressional Budget Office during the first George W. Bush Administration.

Holtz-Eakin sees many of the policy initiatives of the first four Obama years as either ineffective or inimical to building more middle-class prosperity. He blames the president for raising taxes -- including on middle-class families, especially those in the upper reaches of the demographic -- and imposing costly new government programs such as health care reform.

As far as the president’s middle-class jobs record is concerned, says Holtz-Eakin, “He sees the government as a venture capitalist in electric batteries and solar power -- particular industries that he thinks are nice ones. He doesn’t have a great record in that regard, and it’s tough to figure out what the middle-class jobs of the future are.”

Michael Strain at the American Enterprise Institute says he knows where most of the jobs of the future are not. “I don’t think the key to rebuilding the middle class is in the manufacturing sector,” says Strain.

It’s in the service sector, Strain says, adding that the president’s promise of more job-training, and more affordable higher education, might help in that area.

“It will require some creative public policy to train workers to meet the needs of service-industry firms, needs that can’t be met by a computer, or that can’t be met by offshoring work,” says Strain. 

But a lot of the service-sector jobs that can't easily be automated or done overseas are low-skilled and low-paid, says Christine Owens, director of the National Employment Law Project. She cites a study of occupations and wage rates since the recession, from 2009 to 2012.  “Most of our job growth has been concentrated at the low end,” she says.

That’s in jobs like short-order cook, waiter, home health aide, housekeeper and maid. Owens says real median wages have fallen five percent or more in those jobs since 2009. Her recipe: a higher minimum wage, paid sick leave, laws to promote stronger unions and to unleash union organizing.

“I don’t think it’s enough to build from the middle out. I think we have to build from the bottom up as well,” says Owens.

Not all service jobs are at the bottom, though.

Economist Charles Ballard at Michigan State has been watching well-paid jobs disappear from auto plants across the Midwest for decades. Some of those workers, or their children. have gone into services.

“If you’ve moved into the health care sector as a nurse anesthetist, then you’re making very good money,” says Ballard. “If you’re just working changing bed pans, those are not great jobs.”

The challenge is to get these low-paid workers to break out into the middle class, too.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.
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“I’m laughing. I mean, no one knows what that means -- that’s the ultimate in sloganeering over policy substance,”

"Holtz-Eakin ran the Congressional Budget Office during the first George W. Bush Administration."
A bit more partisan than just the CBO.
Chief economic policy adviser to U.S. Senator John McCain's 2008 presidential campaign.

It isn't that complex a concept. It is a focus on jobs for workers, not bonuses for hedge fund managers

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