The unemployment rate in the U.S. is still very low at 3.7% — it’s ranged between 3.4% and 3.7% for more than a year now. And the U.S. economy has added jobs for 29 consecutive months. In other words, companies are still hungry to hire and struggling to get all the workers they need.
And yet, at the same time, many workers are unable to escape poorly paid, precarious jobs. One theory about why that might be the case is that the U.S. job market has actually evolved into two job markets. In other words: a dual labor market. And in those different labor markets, workers experience different economies.
This theory has been floated before, and it’s getting another look now thanks to a new economic study from the Federal Reserve. Marketplace’s senior economics contributor Chris Farrell has been looking into it. He spoke with “Marketplace Morning Report” host Sabri Ben-Achour, and the following is an edited transcript of their conversation.
Sabri Ben-Achour: So a dual labor market, explain that.
Chris Farrell: All right, so, there’s a primary labor market, and it has relatively high wages, good working conditions, opportunities for advancement. A secondary labor market includes people who work at low wages, bad working conditions, unstable employment. And key to the idea of a dual labor market is that each sector differs greatly in its degree of employment stability, and that there is limited mobility between the two sectors.
So several decades ago, there’s a group of economists that argued that the U.S. had a dual labor market. But the framing fell out of favor for a variety of reasons. Just to give you one, the American labor market has historically been considered more flexible and fluid. And, even though this is deeply wrong, the attitude was, “Well, workers in low-wage jobs, these are low-productivity workers, they’re unable or unwilling to get the skills needed for higher paying jobs.”
Ben-Achour: We’ve seen in recent decades this increase in contingent workers — temp workers, basically. Plus gig workers. How do they fit into this dual-labor-market view of the economy?
Farrell: It’s time to revisit this thesis for the U.S., which three economists recently did. And their analysis finds three distinct segments. They document a primary workforce, which comprises about 55% of the population. And these workers, they have high levels of employment stability, and when they’re unemployed, it’s for a very short period of time.
Ben-Achour: And the other two layers, I guess, don’t have that luxury?
Farrell: No, so the secondary labor market makes up about 14% of the population. But workers in this segment, their work lives a constant state of flux. The secondary market accounts for 61% of unemployment in the economy. And they did mention a third sector — you can kind of wonder why they call it a “dual market” when they document three segments … OK. But the third segment, 32% of the population, but people in this segment work very, very infrequently. So a good example might be retirees.
Ben-Achour: So let’s assume that this is accurate. What do we do with that information?
Farrell: So I want to highlight what I think is the most important implication when you go through the dual labor market literature. And it tends to emphasize the difference between good jobs and bad jobs, rather than the current focus on the skills gap, the unskilled and the skilled worker. Specifically, what kinds of policies would get industries and businesses to transform these bad jobs into good jobs, or at least narrow the gap?
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