What’s the future for unskilled workers, and will they have to be supported by highly-paid workers?
Saturday, August 8, 2009 at 03:49PM
Skeptic in Education, Employment, Favorites, Middle Class

Gregory Clark suggests that in the future unskilled workers will have ever-declining incomes and that the only solution is to tax the better off to keep the masses out of poverty—a backdoor "from each according to his ability, to each according to his need." Mark Thoma quotes liberally from the Clark piece and says he isn't so sure the future for low-skill workers is that bleak. Among the many comments on Mark's blog is this one from Skeptic.

The distribution of incomes amongst high- and low-skill jobs will probably depend more on the total number of jobs created than on the mix of skill sets. If we don't create enough jobs in the aggregate, even degree holders will be scrambling for jobs waiting tables. We already have a shockingly large number of B.A. holders working in jobs for which no college is required, including one-quarter of travel agents and retail sales supervisors, one-third of flight attendants, and one-half of aerobics instructors according to this report.

The US private sector aggregate job growth rate has fallen seriously behind population growth. Between 1950 and 2000, the decennial rates of population increase were in the range 9.8% to 18.5% (0.98% to 1.85% annually without compounding). From July 2000 to July 2008, the population increase was 7.7% or 0.96% per year. As there are about 109 million private sector jobs, we needed to create more than 10 million incremental jobs just to keep pace with population growth between July 1999 and July 2009. What happened? Only 121,000 new jobs, according to this NYT report. The jobs growth rate was essentially zero. As a baseline against which to compare that disaster, the job creation rate was reliably about 2% annually from about 1967 to 2001 but has been steadily declining ever since according to the graphic in the NYT piece. In 2008 the job growth rate sank below the population growth rate for the first time since about 1965.

We need a demand-side jobs creation strategy more than we need a Field of Dreams supply-side education and skills strategy. If we can figure out how to create annually 1-2 million domestic private sector jobs of any mix, I would trust market signals to get the supply-side skill mix about right. If we don't create that many additional jobs, the chronic oversupply of labor must continue downward pressure on incomes in almost all job categories, and a mass upgrading of skills, as recommended by McKinsey and many others, would just put pressure on the wages of skilled workers as well.

Mark isn't sure about the long-term direction of wages, and neither am I. But I'm pessimistic because offshoring and trade deficits seem likely to continue, and I don't see what the next new big thing might be that would generate the necessary boom in overall job growth. What positive factors am I missing?

Update on Monday, August 10, 2009 at 09:05AM by Registered CommenterSkeptic

Dean Baker points out that the Clark piece in WaPo is a rare contradiction of the editors' view that an ongoing worldwide demographic shift to much older populations will create a huge labor shortage in 20-30 years.

In short, Mr. Clark is exactly right that the Post is spewing nonsense in its demographic meltdown spiel, but he is wrong in worrying about an excess supply of people with few skills. The relative supply and demand for people with less education will be determined by politics, not the natural workings of technology or the market.


Update on Wednesday, August 12, 2009 at 04:13PM by Registered CommenterSkeptic

Paul Krugman reacts to the Clark piece by republishing something he wrote in 1996 that was supposed to be an imaginary look backward from 2096. Here is what he said about one of 5 things prognosticators got wrong:

The devaluation of higher education. In the 1990s everyone believed that education was the key to economic success, for both individuals and nations. A college degree, maybe even a postgraduate degree, was essential for anyone who wanted a good job as one of those "symbolic analysts".

But computers are very good at analyzing symbols; it's the messiness of the real world they have trouble with. Furthermore, symbols can be quite easily transmitted to Asmara or La Paz and analyzed there for a fraction of the cost of doing it in Boston. So over the course of this century many of the jobs that used to require a college degree have been eliminated, while many of the rest can, it turns out, be done quite well by an intelligent person whether or not she has studied world literature.

This trend should have been obvious even in 1996. After all, even then America's richest man was Bill Gates, a college dropout who didn't seem to need a lot of formal education to build the world's most powerful information technology company.

Or consider the panic over "downsizing" that gripped America in 1996. As economists quickly pointed out, the rate at which Americans were losing jobs in the 90s was not especially high by historical standards. Why, then, did downsizing suddenly become news? Because for the first time white-collar, college-educated workers were being fired in large numbers, even while skilled machinists and other blue-collar workers were in high demand. This should have been a clear signal that the days of ever-rising wage premia for people with higher education were over, but somehow nobody noticed.

Eventually, of course, the eroding payoff to higher education created a crisis in the education industry itself. Why should a student put herself through four years of college and several years of postgraduate work in order to acquire academic credentials with hardly any monetary value? These days jobs that require only six or twelve months of vocational training -- paranursing, carpentry, household maintenance (a profession that has taken over much of the housework that used to be done by unpaid spouses), and so on -- pay nearly as much as one can expect to earn with a master's degree, and more than one can expect to earn with a Ph.D.. And so enrollment in colleges and universities has dropped almost two-thirds since its turn-of-the-century peak. Many institutions of higher education could not survive this harsher environment. The famous universities mostly did manage to cope, but only by changing their character and reverting to an older role. Today a place like Harvard is, as it was in the 19th century, more of a social institution than a scholarly one -- a place for the children of the wealthy to refine their social graces and make friends with others of the same class.

Article originally appeared on realitybase (http://www.realitybase.org/).
See website for complete article licensing information.