Education, wages, and economic inequality

Thanks to commenter Howard for sending along a couple of interesting stories regarding what’s happening in the US economy to workers with different educational credentials.

This WSJ article looks at the long-term decline in the labor force participation rate among prime working-age men (the LFPR is the percentage of a group’s members who are either employed or looking for work). The LFPR among this group has been declining for more than half a century, and has now fallen to 83% among 25-54 men with a high school degree or less (it’s 94% among 25-54 men with a BA degree or more).

Meanwhile Georgetown’s Center on Education and the Workforce has put out a report estimating that 99.2% of the jobs created since the end of the Great Recession have gone to workers with at least some college education.

Now to the extent that estimate is accurate it would appear to mean that workers “need” at least some college credits to be competitive for new jobs. But “need” is a tricky concept in this context. Do workers need college credentials because the jobs that demand them require either enhanced human capital or skills training provided by college in order for the jobs to be done, or at least done adequately? Or are employers using higher ed as a sorting and signaling device because they can?

One clue is provided by wage rates. If employers are hiring the college-educated because these credentials indicate that employees are acquiring scarce assets, either in the form of enhanced human capital or practical skills, then the increased wages paid to them should reflect that scarcity. On the other hand, if credentials are simply being used as sorting devices to winnow a overly large labor pool, then we wouldn’t expect to see wage increases for the lucky winners of this lottery.

In fact, median wages for men with a bachelor’s degree or more have declined by about 7% over the past 15 years, and are only slightly higher than they were a quarter century ago. (I don’t have the comparable figures for women at hand). As Krugman notes when commenting on a recent paper regarding the “skills gap” for workers:

What strikes me about this paper — and in general what one still hears from many people inside the Beltway — is the continuing urge to make this mainly a story about the skills gap, of not enough workers having higher education or maybe the right kind of education. The paper acknowledges, sort of, that the trends people thought they saw in the 1990s aren’t visible in later data, but then jumps right back into discussing education as the solution as if nothing had happened.

But if my math is right, the 90s ended 15 years ago — and since then wages of the highly educated have stagnated. Why on earth are we still hearing the same rhetoric about education as the solution to inequality and unemployment?

The answer, I’m sorry to say, is surely that it sounds serious. But, you know, it isn’t.

It’s important not to get categories confused here: in regard to educational credentials, American workers fall into three groups of roughly equal size: those with four-year college degrees or more, those with some college but no four-year degree, and those with no college. Krugman’s sobering numbers apply only to the most-educated third of this population: for those with no college degree, or no college experience at all, wages have fallen even more.

This problem is addressed in an interesting article by Eric Levitz, who argues that Democrats would be making a big mistake in writing off white working class voters, as fully 34% of Obama’s 2012 vote total came from whites without college degrees.

Levitz argues that the cavalier attitude of some Clinton advisors in regard to the effects of globalization on American workers is both a moral and practical problem:

During a discussion on the links between Brexit-backers and the Trumpian proletariat, NPR’s economics reporter Adam Davidson offered the following explanation for right-wing populism’s current appeal:

I know Hillary Clinton’s economic team fairly well, and I’m very impressed by them. They really are top-notch economists and economic policy thinkers. They don’t have anything for a 55-year-old laid-off factory worker in Michigan or northeastern Pennsylvania. Or whatever. They don’t have anything to offer them. And so I think it’s intuitively understandable that a screaming, loud, wrong answer is more compelling than a calm, reasonable, accurate, right answer: Your life is going to be worse for the rest of your life — but don’t worry, these hipsters in Brooklyn are doing much better.

[…] The threshold for wages has gone up. There was a long period in the 20th century where, simply being willing to go to a building reliably everyday for eight hours or 12 hours and do what you’re told was worth a lot. […] And you didn’t need to read, you didn’t need to write, you didn’t need to have any kind of education. Those jobs are all but fully gone. […] So in this country, we don’t have demand for the high-school-only graduates and the high-school dropouts we have, and that’s a big population. Something like 80 million people.

The “accurate, right answer” is that your life is going to get worse because you’ve fallen beneath the threshold for wages. This is how a well-sourced reporter summarizes the consensus of the Democratic nominee’s policy team. And we wonder why so many voters disdain elite expertise.

Of course, no politician would ever phrase Davidson’s argument in such stark terms. But his basic premise — that the economic decline of America’s non–college educated workers is an inexorable fact of economics — is often implied in the rhetoric of Democratic politicians.

Levitz goes on to argue that policy makers have chosen not to try to protect the American working class from the effects of globalization and free trade, while at the same time they’ve been willing to shield professional class workers from competition:

Both Republican and Democratic administrations entered trade agreements designed to put downward pressure on the wages of domestic manufacturing workers. This was a deliberate choice and not a foregone conclusion — these same governments did not subject professional workers to similar international competition. As economist Dean Baker notes, our trade deals could have established clear standards that would allow “students in Mexico, India, and China to train to U.S. levels and then practice as professionals in the United States,” thus providing enormous savings to consumers in the form of cheaper health care and legal fees. But policymakers decided that maintaining the living standards of our professional workers was more important than consumer savings. They reached the opposite conclusion about the living standards of our blue-collar labor force.

At the same time, these governments did little to compensate the “losers” of globalization; made it more difficult for workers to unionize; and further decreased their leverage over employers by cutting the social safety net. This policy framework has left non–college educated workers — a group that makes up 65 percent of our labor force — with a median wage $1.30 lower than it was in 1980.

While I agree with a lot of Levitz’s analysis of the broader problem of stagnating wages, he exaggerates the extent to which middle class and even upper class workers below the top 1% or perhaps 5% have had their wages protected from the forces of globalization. Certainly lawyers have not had their wages protected by government policy: the average lawyer makes less money today than 20 years ago. And as the statistics Krugman cites indicate, median earnings for professional class workers have declined since the 1990s.

Where Levitz is right on the money is when he emphasizes that, contra the implications of much of Obama’s and other progressives’ rhetoric, creating increased opportunities for class mobility doesn’t necessarily do anything at all for egalitarian values, and in fact can be inimical to them:

In a 2011 speech in Osawatomie, Kansas, President Obama declared income inequality to be “the defining issue of our time.” But his overriding prescription for addressing this issue was higher education, which he described as “the surest route to the middle class.” The plight of those who failed to take that route was framed as tragic, but unavoidable:

It’s heartbreaking enough that there are millions of working families in this country who are now forced to take their children to food banks for a decent meal. But the idea that those children might not have a chance to climb out of that situation and back into the middle class, no matter how hard they work? That’s inexcusable.

Millions of working families reliant on food banks is heartbreaking — but, implicitly, excusable — so long as their children have a “chance” at escaping their parents’ deprivation. The president reiterated this emphasis on education throughout his speech, arguing that today’s “innovation economy” requires America to “up our game” — an effort that “starts by making education a national mission.”

Obama struck a similar note at the opening of his 2016 State of the Union, in which he argued that the central question facing America’s economic policymakers over the coming decades would be, “How do we give everyone a fair shot at opportunity and security in this new economy?”

The ambition here is not to ensure that all full-time workers enjoy economic security, but merely that they have “a fair shot” of attaining it.

All this indicates the extent to which among many progressives “more college education” has become a far too facile response to problems of growing economic inequality.