Why Educational and Tech Skills Gaps Do Not Explain Income Disparities

A consistent theme in this economy is the rise of individual responsibility. Whether it's bagging your own groceries, managing your own financial banking or trying to navigate through online help menus when something goes wrong with your computer, the burden has shifted from the enterprise to the individual.

We are told this is due largely to the need for competitiveness, the unspoken threat of Chinese hordes stealing western jobs, but if pressed, some idealogues and corporate executives will acknowledge that there is a moral component to this: taking responsibility is the right thing to do. Becoming dependent on government is bad.

So when the debate about underemployment heats up, at least one side tends to cite the belief that, once again, the fault lies with the individual: who hasnt gotten sufficient education or kept their skills up in a rapidly changing technologically driven economy. But, as the following article explains, the data suggest that that argument is incorrect and possibly specious.

The average tech worker in the US - not the highly paid coders at a few prominent Silicon Valley companies - makes an average wage by US standards. Recent college grads, by which we mean those who graduated in the last 15 years, the era in which technology emerged as a driving socio-economic force, have not seen wages rise in that entire period.

The reality is that the benefits of self-improvement have not redounded to those who have invested in improving their own situation. Human capital has tremendous value but to realize that value a more holistic approach to economic policy may be required. JL

Pedro da Costa reports in Real Time Economics:

Wages for college graduates overall have not risen since 2000. 
Gaps in educational achievement and shifts in technology, often cited as key reasons for widening income and wealth inequality, do very little to explain the trend, said Lawrence Mishel, president of the Economic Policy Institute, a think tank in Washington.
Speaking at a conference on “Equality of Economic Opportunity” hosted by the Federal Reserve Bank of Boston, Mr. Mishel criticized the event’s narrow focus on local actions to reduce inequality when other possible approaches lie in the realm of broader economic policy.
“Most of the policy discussion is limited to school interventions, go to college – totally a human capital orientation,” said Mr. Mishel. “Even some of that is a little bit outdated because, as I’m going to argue, this implicitly accepts skill-biased technological change as a driver of inequality.”
That widely held point of view, he says, is largely discredited by the data.
“The intellectual basis for that in my view has collapsed. It has very little to contribute to the understanding over inequality over the last 20 years, and is not the basis for thinking about the future so much,” Mr. Mishel said.
“So if we want to talk about changing income inequality, a lot of it is about broadening wage growth and better jobs. And that’s a different set of policies than just human capital development,” he said, referring to efforts to boost workers’ education and skills. “And it even includes addressing the top 1% which is something we haven’t really talked about,” he said, referring to the top 1% of the population by income or wealth.
Mr. Mishel said the surging wages at the very top of the income distribution had more to do with high executive pay and financial sector excesses than gaps in educational achievement. At the same time, he said wages for college graduates overall have not risen since 2000, suggesting income stagnation affected a much wider swath of the population than just poor communities.
“We have to really think about the structure of the labor market, the forces at play including unemployment, including business practices, including having unions, the minimum wage, and think about shaping the wages that people earn on their jobs,” Mr. Mishel said. “If we don’t do that we won’t get the mobility that we want.”
U.S. authorities also must think about ways of directly restraining surging compensation and wealth at the very top, a politically sensitive topic in Washington, he said.
“We can’t avoid the top 1%. In Washington the political parlor game is we don’t want to talk about income inequality in the top 1% because it sounds like income redistribution and we’ve got to raise money from all those people,” said Mr. Mishel. “So let’s just talk about social mobility. And to me that’s playing pretend. And I don’t want us to play pretend.”