In America today there is a crisis. That crisis is economic inequality. The U.S. workforce has been blamed and dismissed for the growing gap between rich and poor. Much effort has gone into blaming the victim. Americans have been called fat, lazy and stupid along with the never ending drumbeat claim U.S. workers are uneducated and do not have enough technological skills. The droning mantra to blame workers themselves for the growing income gap just got a loud blast of not so fast. Now a new study blows that blame the workers mantra out of the water. There is no evidence that technological shifts, a lack of education or the lack of technical skills is the cause of the great, growing cataclysmic chasm of income inequality in the United States.
Many economists contend that technology is the primary driver of the increase in wage inequality since the late 1970s, as technology-induced job skill requirements have outpaced the growing education levels of the workforce. The influential “skill-biased technological change” (SBTC) explanation claims that technology raises demand for educated workers, thus allowing them to command higher wages—which in turn increases wage inequality.
Current SBTC models do not adequately account for key wage patterns (namely, rising wage inequality) over the last three decades.
The great American workforce economic wipe out is not due to a lack of skills and education. This should be no surprise since America has the best higher education institutions in the world and is home to most of the technological innovations of the last 130 years.
The paper authors found these critical points, listed below, in their analysis of occupational statistics to show the great wage wipe out is not due to the American workforce:
- Technological and skill deficiency explanations of wage inequality have failed to explain key wage patterns over the last three decades, including the 2000s.
- History shows that middle-wage occupations have shrunk and higher-wage occupations have expanded since the 1950s. This has not driven any changed pattern of wage trends.
- Evidence for job polarization is weak.
- There was no occupational job polarization in the 2000s.
- Occupational employment trends do not drive wage patterns or wage inequality.
- Occupations have become less, not more, important determinants of wage patterns.
- An expanded demand for low-wage service occupations is not a key driver of wage trends.
- Occupational employment trends provide only limited insights into the main dynamics of the labor market, particularly wage trends.
Let's translate these findings into English for the research is dense. The first point means if skills were a driver of high salaries, we'd see increasing wages at the top of the occupational skill heap. That's not the case. The authors are also saying occupations are decoupling from wage levels. In other words no matter what your abilities, wages are static and flat and meritocracy may very well be dead. Workers are simply not being rewarded for their abilities and efforts on the job as they were in the past. The study authors also found crappy jobs, those low wage restaurant worker and big box store type of occupations, are not the reason for the great and growing wage gap. Paychecks in the middle and the top occupations have not increased much, that's the bottom line.
Relative employment in all low-wage occupations, taken together, has been stable for the last three decades, representing a 21.1 percent share of total employment in 1979, 19.7 percent in 1999, and 20.0 percent in 2007. Second, the expansion of service occupation employment has not driven their wage levels and therefore has not driven overall wage patterns.
One graph from the paper spells it out, wages are flat regardless of how educated one is, how skilled one is. The below graph shows occupations broken down by skill percentile. The higher the percentile on the bottom line, the more that occupation requires advanced college degrees and advanced skill sets. The scale on the left of the graph shows the percentage change from 2000 until year 2007. The black line represents the change in wages as we go up the skill requirement percentile line and the red line are wage changes per actual occupation percentile from 2000 to 2007. The blue line is the change in employment as a percentage of the work force. Bottom line since year 2000 there has been a flat line change in wages, across the board.
If technological shifts and a lack of skills or education were to blame for the growing gap between rich and poor, the above graph would show increasing wages for the jobs requiring the most advanced degrees and jobs skills. Such is not the case.
Job polarization is when there are lots of jobs with very high skills and lots of jobs which require low skills and this is relative to the middle skilled jobs, which have declined. In other words, there would be more Research jobs and more burger flipper jobs, yet less in the middle of the skill range sorts of occupations. Occupations which require high skills should correspond to high wages and conversely unskilled labor jobs should show low wages. If one graphs initial wages per occupation by skill requirements against increased employment, it should result in a U shape graph if job polarization exists. The below shows this is not the case starting around year 2000.
Another graph which exposes the great lie Americans are not highly skilled and educated is the below, showing the dramatic increase in workers' education levels. Think about putting people on the moon and the innovations of the 1950's. Not only were these people Americans, very often they had Bachelors degrees and less. Workers are much more educated than they were in 1973, yet income inequality has dramatically increased. In other words clearly it is not the lack of an educated workforce which explains growing economic inequality in America.
The authors blast the typical rhetoric and claims made by those wanting income inequality to be about a skills gap. In particular they point out the flawed model used to come up with such spurious conclusions.
We also note that Autor and Acemoglu do not consider several additional critiques of the “canonical model,” particularly: (1) the failure of education wage differentials to capture much, if not the majority, of the growth of wage inequality, which happened among workers with similar education and experience (so called “within-group” wage inequality); (2) the failure to explain the extraordinary rise of wages among the top 1 percent of earners; and (3) the possibility that observed education wage gaps could be driven by factors other than changes in the price of skills, including changes in the minimum wage and unionization, industry deregulation, and globalization, all of which could affect relative wages by education but have nothing to do with technological change.
The authors also found increasing wage inequality within the same occupation, the same work. They also discovered a general decoupling of job type to wage and reward. In other words, for all folks getting a paycheck, everyone is suffering economically. It is an illusion, a lie that you're broke due to a lack of ability, knowledge and training.
We find that the importance of occupations in explaining wage variance slowed in the 1990s and reversed somewhat in the 2000s, and that a large and increasing share of the increase in wage inequality in recent decades is occurring within occupations,
There is much more to the paper and the work is dense. Yet the author's conclusions have been validated by other methods. As they say, don't blame the robots for the growing income inequality problem of the United States. The problem is not workers and technological shifts. The Census occupational statistics will bear that much out when using accurate analysis and models. The paper also notes wage trends just are not explaining what is happening to the U.S. labor market overall and that the reason for repressed wages must be found elsewhere. Blaming workers and robots for the never ending gap between rich and poor is just another tall tale. Skill-biased technological change is yet another fairy story to add to the mythology being crafted in order to justify wiping out the America middle class to the point of extinction.