Technology or Power?

from John Schmitt

Within the economics profession, the standard explanation for rising inequality over the last three decades is that we have been experiencing a long-term shortage of college-educated workers. Technological progress, the story goes, has increased demand for the kind of highly skilled workers that colleges produce, but, young people have not been going to college in sufficient numbers to meet that demand. The result, these economists argue, is that the earnings of the third or so of the workforce with a college degree have pulled ahead of the rest, creating a widening gap between the top and bottom of the income scale. 

Data that Janelle Jones and I assembled for a recent CEPR report (pdf), however, raise serious doubts about this commonly held view. For the United States we analyzed trends since 1979 in “good jobs,” where we defined a good job as one that pays at least $37,000 per year, has employer-provided health insurance, and an employer-sponsored retirement plan. We found that, overall, the share of jobs that meet these three criteria has declined since 1979 –despite a more than 60 percent increase in GDP per person.

What was even more surprising, though, was that in the United States the share of workers with a college degree or more who held a good job also fell. As the figure below illustrates, in 1979, 43.2 percent of college-educated workers met our threshold; by 2010, the share had dropped to 40.5 percent. The decline is even more remarkable when you consider that the share of workers with advanced degrees (M.A., J.D., M.D., Ph.D. or similar) almost doubled over the same period, from 6.5 percent in 1979 to 11.8 percent in 2010.

Good jobs, by education, 1979-2010

If inequality is being driven by our inability to keep up with rapid technological change, wouldn’t we expect to see the share of college-educated workers with good jobs rising, not falling? Of course, over the same period, workers with less education fared even worse. But, the story the figure above tells is one where something is consistently pulling the bottom out of the labor market, not one where something is pulling the top away –at least not the top as defined by broad education categories.

As Janelle and I emphasize in our report, the real culprit is the systematic decline in the bargaining power of American workers –reflected in a drop in the inflation-adjusted value of the minimum wage, a collapse in the unionization rate in the private-sector, the deregulation of previously well-paying industries, the privatization of state and local government jobs, a series of business-biased trade deals, a dysfunctional immigration system, poor enforcement of already weak labor standards, and high unemployment.

College-educated workers do consistently better than those with less education. But, even workers with a college degree have not been able to avoid the shift in the balance of power away from workers and toward their employers.

(This post originally appeared on the CEPR blog.)

  1. August 13, 2012 at 10:03 pm

    To what extent does automation increase the risk (dollars lost per employee screwup) due to poor quality employees ?

    to take a silly example (I’m thinking of the Humphrey Bogart movie where he plays a factory worker who is passed over for a promotion and joins a neo nazi party, only to repent at the end) if you have a manual drilling machine, the worst a bad employee can do is break a drill bit and screw up a small amount of stock.

    However,if you ahve an automated half million dollar CNC robotic machining station, a bad employee can do a lot of damage

    I’m not talking eductional level, but rather employee quality – attention to detail, not coming in hungover, etc

  2. Manuel Angeles
    August 14, 2012 at 3:33 am

    Does anyone now remember the profit erosion thesis? These data makes one think of temps perdu

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