Challenges to Climbing the Ladder of Prosperity

A recent economic paper suggests that the difficulties American workers face in climbing the economic ladder have roots in real experiences, though some dismiss these issues as too abstract. It’s becoming quite clear that using one job as a stepping stone to a better one has become increasingly challenging.

This research effectively highlights the decline in job mobility, yet misses a significant factor: the dual influence of industrial hollowing out and mass immigration.

Firstly, they nail it when they assert that for most workers, substantial raises don’t typically come from performance reviews or internal promotions. Rather, they often surface through better offers from other employers. However, when those offers dwindle, wages stagnate, even amidst job creation.

This essential insight comes from a paper by Niklas Engbom from New York University, Aniket Bakshi from the University of Melbourne, and economist Daniele Caratelli. They analyzed four decades of data and revealed a troubling truth: the so-called “job ladder” in America has weakened significantly. In fact, today’s workers are about half as likely to receive higher-paying external offers compared to those in the 1980s. This change alone accounts for roughly a third of the slowdown in real wage growth since 1980, shedding light on why so many Americans feel like they’re just treading water despite being in what should be a thriving economy.

However, the authors struggle to pinpoint why this ladder has faltered. They tend to fall back on a conventional belief that issues stem from management practices, overlooking the impact of American policy on the economy. They mention factors like increased employer concentration and non-compete agreements, which are valid but not the primary drivers of change.

The real underlying issues are larger and more complex: a loss of manufacturing jobs paired with workforce restructuring caused by immigration.

The Value of Manufacturing Jobs

Too often, discussions around manufacturing focus solely on the good pay associated with these jobs. Yes, that’s important, but there’s something else to consider. Manufacturing not only creates well-paying jobs; it also sets the stage for better job opportunities in the future.

Workers in manufacturing-driven economies aren’t typically tied to a single employer; they are surrounded by a network of suppliers, competing factories, logistic firms, and maintenance contractors. This broader industrial web fosters skill transferability and encourages businesses to compete for talent, resulting in various job clusters, like Detroit for automobiles or High Point, North Carolina for furniture. Such competition drives wages upward.

Now contrast this with scenarios where those jobs have been replaced with low-wage or minimally productive service positions. Sure, these might generate jobs, at least for the time being, keeping people busy. However, they don’t provide the same upward movement opportunities. Instead of climbing, people find themselves stuck, barely able to escape to better prospects, and there’s a lack of concentration in skilled labor that would attract competitors.

This concept isn’t confined to manufacturing, either. Look at finance and tech industries; companies are always trying to poach skilled workers from each other, which leads to lucrative jobs concentrated among high-end professionals with advanced degrees. Yet, these aren’t roles accessible to everyone.

There’s a crucial difference between mere job creation and generating jobs that facilitate upward mobility. This distinction often gets lost in economic conversations. We tally jobs, but we don’t ask enough about which jobs truly lead to better opportunities.

With this in mind, examining state-level Census Bureau data reveals an undeniable pattern. States with substantial manufacturing bases show a stronger transition to better jobs. Surprisingly, states that have maintained a robust manufacturing presence over time have retained stronger employment ladders as well.

This point is vital. It’s not merely about abstract payroll metrics. The manufacturing ecosystem—medium to large businesses creates real competition among themselves, particularly for workers. When they vanish, the ladder becomes essentially flat.

This fact clarifies a longstanding conundrum for political figures. The U.S. can lose a significant number of manufacturing jobs and replace them with service roles yet still avoid massive unemployment. So why does the country feel poorer and more stagnant? Because while jobs persisted, the means for upward mobility just disappeared. Workers found themselves slipping down the ladder into dead-end roles.

Effects of Immigration Composition

A secondary aspect that the paper overlooks is immigration. It’s not just about wages in a narrow scope; it’s about how the labor market is structured. Engbom and his colleagues focus on the declining job ladder by assessing where workers start and finish. If a growing portion of the workforce starts low and moves up slowly—due to language barriers, differing qualifications, limited networks, and legal constraints—then the ladder appears weaker, even if native workers haven’t lost as much as it indicates.

This issue compounds over time, not just following recent influxes. Immigrants who started at the bottom years ago and gradually rose through the ranks remain part of the wage structures economists consider. These effects accumulate over time. While the authors considered age, gender, race, and education in their analysis, the factor of nativity seems to have been neglected.

When we examined state-level data, a clear pattern emerged: states with larger immigrant populations experience slower upward job movement. Compared to employment from unemployment, this is particularly notable. In simple terms, although immigrants fill jobs, they’re less effective at generating the job-to-job transitions that lead to genuine wage growth.

This correlation isn’t by chance. A reason many major companies in the U.S. advocate for large-scale immigration is that it creates a more compliant workforce. Mass immigration allows politicians to cultivate new citizens while enabling large employers to replace a more abundant workforce that might be inclined to say, “Take this job and good luck.”

Dissecting Immigration and Trade Dynamics

America hasn’t just transitioned into a realm where employers are more frugal and contractual terms have tightened. Frankly, employers have been tight-fisted for as long as anyone can remember. The real shift came over decades, as America’s past trade policies hollowed out once-rich sectors, while years of immigration policies transformed the workforce and diminished upward mobility. We continued to track job numbers, neglecting the conditions that make jobs genuinely better.

This explains why many workers have endured prolonged economic struggles across recent decades. They were informed the economy was thriving, that numerous jobs were available. Yet, a vital form of mobility—the capacity to turn today’s job into a better one tomorrow—was quietly deteriorating.

The latest paper deserves accolades for clearly illustrating this breakdown. But to grasp the complete picture of what’s happened to American workers, we need to delve deeper than the safe targets like non-compete clauses or employer concentration. Over the decades, America has dismantled its manufacturing base and restructured its labor market through immigration, ultimately weakening upward mobility even further.

It’s also worth contemplating how we view the evolution of today’s labor market. Traditional media sources often characterize the labor market as “stagnant” or “stuck” due to the slowed pace of job creation. But that viewpoint seems outdated. With fewer foreign workers entering the market and many Americans aging out, a focus on bolstering our workforce, fostering competition among workers, and restoring America’s job ladder is crucial.

The core issue isn’t just a lack of jobs. It’s a shortage of pathways to better opportunities. Prioritizing the restoration of that ladder to better jobs should be a key focus for today’s leaders.