How It Got Harder for Americans to Climb Toward Prosperity
A new economics paper puts its finger on something that American workers have felt for years, even though economists keep describing it too abstractly: it has become much harder to use one job as a springboard to a better one.
The paper is very good at establishing the decline of upward job mobility. But it misses the major causes: deindustrialization and mass immigration.
Let’s start with what they get right. For most workers, the biggest raises don’t come from annual reviews, cost-of-living adjustments, or even internal promotions. They come from getting a better offer somewhere else. When those offers stop coming, wages stagnate even if the economy is still cranking out jobs.
That is the big insight from the new paper by Niklas Engbom of New York University, Aniket Baksy of the University of Melbourne, and private-sector economist Daniele Caratelli. Using four decades of data, they show that what they helpfully call the American “job ladder” has weakened dramatically. Workers today are roughly half as likely as they were in the 1980s to receive a better-paying outside offer. That single change, they calculate, explains about one-third of the entire post-1980 slowdown in real wage growth. And it helps explain one of the central economic frustrations of the age: why so many Americans kept working in what was supposedly a healthy economy without feeling like they were getting ahead.
Where the authors stumble is the explanation of what broke the rungs of the ladder. They are trapped in the conventional thinking in which the problems of workers must be rooted in something that management did rather than something American policy did to the economy. The authors point to increased employer concentration and noncompete agreements. Those are very safe targets for a trio of academic economists to take aim at.
And they may matter. But they are not the main story. The deeper causes are larger, more concrete, and closer to the broader experience of the American economy: the destruction of the manufacturing base and the reshaping of the work force through large-scale immigration.
The Manufacturing Ladder
Too many people still talk about manufacturing as if its value were simply that factory jobs paid well. True enough, but it misses the larger point. Manufacturing mattered not just because it provided good jobs. It mattered because it provided better next jobs.
A worker in a manufacturing economy isn’t stuck with one employer and one rung. He’s surrounded by suppliers, rival plants, logistics firms, maintenance contractors, machine shops. There’s a whole industrial web that grows up around making things. Skills travel across employers. Companies have to compete for workers who know how to do the job. That’s one reason we had so many manufacturing clusters—think Detroit for cars or the High Point area of North Carolina for furniture. And that competition pushes wages up.
Now compare that with an economy that replaces those jobs with low-wage or low-productivity service work. It may still generate plenty of employment. It may keep the unemployment rate from looking too bad. But it doesn’t generate the same kind of upward movement. It keeps people busy without giving them many opportunities to defect to a new shop. And it doesn’t cluster the skilled workers in a way that invites poaching.
This is not completely unique to manufacturing, of course. It’s true for high finance, where Wall Street firms are constantly poaching each others workers, and for tech. Not surprisingly, both of those have remained clustered and high paying. But those are jobs reserved for high-end knowledge workers, often with advanced degrees and highly cognitive skill sets.
The distinction between the creation of a job and the creation of a job that provides upward mobility is one that our economic debate misses over and over again. We count jobs, but we don’t ask often enough what kinds of jobs lead to better jobs.
We looked at state-level Census Bureau data with that question in mind. The pattern was hard to miss. States with a bigger manufacturing base tended to have stronger movement from one job to a better one. Even more striking, states that held on to more of their manufacturing establishments over time had stronger job ladders today.
That last point matters. The key isn’t just manufacturing payrolls in the abstract. It’s the manufacturing ecology — the firms themselves, especially the mid-size and larger establishments that create real competition for workers. Those firms are the rungs. When they disappear, the ladder flattens.
This helps explain something that has confused the political class for years. America could lose much of its industrial base, replace it with service jobs, and still avoid catastrophic unemployment. But the country would still feel poorer, more stagnant, and more brittle. Why? Because the jobs survived while the upward mobility didn’t. American workers were sent down a chute of dead-end employment.
The Immigration Composition Effect
The second story the paper misses is immigration. Here again the issue is not just wages in the narrow sense. It’s the structure of the labor market. Engbom and his coauthors measure the weakening of the job ladder by looking at the gap between where workers start and where they end up. If a growing share of the labor force enters at the bottom and climbs slowly — because of language barriers, credential gaps, thinner networks, or legal constraints — that can make the measured ladder look weaker even if native-born workers haven’t lost as much ground as the aggregate numbers suggest.
And this is a cumulative effect, not just a story about this year’s inflow. An immigrant who arrived decades ago, started at a low wage, and spent years moving up slowly is still part of the wage structure economists are measuring today. The effect builds over time. The paper’s authors control for age, gender, race, and education when they estimate the decline. But they don’t control for nativity.
When we looked at state data, the pattern showed up clearly. States with larger immigrant shares had weaker movement from one job to a better one, especially relative to hiring from unemployment. In plain English, they were still bringing people into work but were weaker at generating the upward job-to-job movement that drives real wage gains.
This is not accidental. One of the reasons so many large businesses in the U.S. love large scale immigration is that it brings in a more compliant workforce. One effect of mass immigration is that it allows politicians to elect a new people. For large employers, it allows them to replace an uppity pool of labor with one less likely to tell them to take “this job and shove it.”
Breaking the Ladder with Immigration and Trade
America didn’t just become a country with stingier employers or more legal fine print in employment contracts. To be honest, bosses have been stingy for as long as anyone has been employed by someone else. What happened is that decades of America-last trade policies hollowed out a ladder-rich sector, and decades of invite-the-world immigration policies reshaped its labor force in ways that made upward mobility weaker. We kept counting jobs while neglecting the conditions that make one job lead to a better one.
That is why so many workers have experienced the last few decades as a long stretch of economic frustration. They were told the economy was growing. They were told jobs were plentiful. But one of the most important forms of mobility — the ability to turn today’s job into tomorrow’s better one — was quietly breaking down.
The new paper deserves credit for seeing that breakdown clearly. But if we want to understand what really happened to the American worker, we have to go further than the safe targets of noncompetes and employer concentration. America spent decades dismantling the manufacturing base that helped workers climb, even as it reshaped the labor market through immigration in ways that made upward movement weaker still.
This should also inform how we view labor market developments today. The legacy media likes to describe the current labor market as “stalled” or “stagnant” because the volume of jobs created is low. But that’s just a sign they are caught up in the old, flawed paradigm. Job creation is low because we aren’t adding as many foreign workers, and many Americans are aging out of the workforce. That puts a premium on workers we have, creating competition for workers and a restoration of the American job ladder.
The problem was never just a shortage of jobs. It was a shortage of better next jobs. Restoring the ladder toward the better next job should be the policy priority of today’s leaders.
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