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MainStreet Macro: What color is your collar?

January 29, 2024 | read time icon 3 min

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This week brings the first jobs report of the new year, and already people are asking about the outlook for 2024.

Worries about inflation and recession have been supplanted by labor-market anxiety. Layoffs in technology and finance have triggered unease that white-collar jobs might be vulnerable to a hiring slowdown this year.

The century-old terms “white collar” and “blue collar” refer to broad categories of work. While there’s no hard-and-fast definition, blue collar work commonly refers to jobs tied to the production of goods, and white collar lines up with the delivery of services, jobs typically done in an office setting.

White-collar work has evolved to encompass higher levels of education. Blue-collar jobs are skills based and historically done by graduates of vocational school or apprenticeships.

And when it comes to compensation, these rough categories boil down to this: White-collar workers are paid for what they know, and blue-collar workers are paid for what they do.

I think those definitions might be changing to make room for a new, third kind of worker who is gaining importance in the U.S. economy. The resulting trajectory of white-collar and blue-collar jobs will shape the economy in 2024 and beyond. Here are three trends to watch.

The demand slowdown

Construction has a high concentration of blue-collar workers, including plumbers, electricians, equipment contractors, and other skilled trades. The professional service sector, by contrast, is comprised largely by white-collar workers—think lawyers, accountants, and computer programmers.

Construction averaged about 377,000 job openings per month in the first 11 months of 2023, according to the Bureau of Labor Statistics. That’s a 4 percent decrease from 2022.

The much bigger professional services sector saw much greater erosion in hiring demand, with monthly average job openings falling nearly 20 percent to 1.7 million openings.

The collarless

Initial estimates show the U.S. economy grew by a robust 3.3 percent in the fourth quarter, after expanding by a robust 4.9 percent in the third quarter of 2023.

While we’re waiting for more data on the last three months of the year, let’s look at that third quarter print. The construction sector, despite its relatively small size, contributed 0.65 percentage points to third-quarter growth. Professional services added about half that amount.

All jobs are important. Increasingly, however, jobs that fall outside the traditional blue- and white-collar divide are contributing more to economic growth. For example, retail and media information provided the greatest value to the economy in the third quarter, contributing 1.36 percentage points and 0.75 percentage points, respectively.

The surprise hidden in new hire pay data

Another way to assess the economic value of blue-collar versus white-collar jobs is to see how much companies are willing to pay workers in these categories. Among tenured workers who have been with their employers a year or longer, white-collar jobs pay more.

The median annual pay for workers in the construction industry stood at $69,465 at the end of last year, according to our Pay Insights report.  The median pay in professional business services was higher, at $78,257.

But that picture is reversed when we look at people who joined their employers in the last three months. Median pay for new hires in construction was $48,089 at the end of last year, up 5.1 percent from the pay for new hires a year earlier. The pay for new hires in professional services was nearly $10,000 lower, at $39,520, up just 2.7 percent from a year ago.

Pay for new hires is more sensitive to real-time labor market conditions, and the pay differences between new hires and tenured workers suggest that the scales are shifting on blue-collar and white-collar work.

My Take

I grew up in the Rust Belt, that corridor in the Midwest and Northeast where blue-collar jobs tied to manufacturing had a stronghold before they were disrupted by automation and liberalized trade.

Now white-collar jobs are facing the new challenges of a rapidly transformative digital economy and innovations in artificial intelligence. One perk of this transformation is that work can be done remotely from almost anywhere. The downside is the value of this work likely will erode as new technologies take root.

And in this evolving economy, there’s a category of jobs that increasingly are in short supply. Until I can think of a better name, I’ll call them “no collar” jobs. These are jobs that can’t be automated. Jobs that must be done on site.

People in these jobs can’t neatly be defined as skilled laborers or knowledge workers because they do both. These are the workers who build houses, care for the elderly, and tap new sources of energy. Increasingly, the economy is rewarding workers who do and know.

We don’t know which sectors will drive the 2024 labor market. But we do know that, in this new era of work, the difference that defines blue- and white-collar jobs is fading fast.