Bacon's Rebellion

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IG of the Day: Occupational Pay Polarization

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James A. Bacon
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Source: Goos, Manning & Salomons, cited in “Losing Middle America: The Polarization of Jobs in the United States.“

Continuing our discussion of the sources of income disparity in the United States… The chart above shows that the hollowing out of middle class jobs, and concomitant gains in low-skilled, low-paid jobs on the one hand and high-skilled, high-paid jobs on the other, is not unique to the United States. The polarization of occupational pay is evident in every major economy in Europe. (Click on chart for more legible image.)

So, I must confess, the evidence is compelling that the income disparity is largely structural in nature, rooted in the changing nature of work in the knowledge economy. In a previous post (“The Great Divergence“), I played with the idea that the rise of big, overweening government was a major contributor, and it may be on the margins. But when confronted with the evidence above, I have no choice but to backtrack (although I reserve the right to backtrack again if presented evidence that sheds new light).

The great challenge confronting the U.S., I would suggest, is to increase the percentage of the population earning high-paying jobs. In a global economy, that should be not be impossible — all we have to do is ensure that Americans are acquiring the skills required by the knowledge economy. Unfortunately, that is precisely where we are failing. While we have a world-class higher education system (it’s way too expensive, but it is world class), our K-12 schools and popular culture are failing to inculcate the basic skills that would allow 50% to 60% of Americans to get anything out a college experience. Bottom line: there appears to be a glass ceiling on upward social mobility.

The second great challenge is figuring out, given the failure of our educational system (or of half the population to be educated), is what to do about the widening income disparity. Do we transfer more wealth from the rich to the poor? If so, how do we do so in such a way as to avoid enervating the poor and deepening the culture of dependency and entitlement? I don’t have ready answers.

(One last note: The chart above shows why income disparities are widening. But it still does not answer the question in “The Great Divergence” why total compensation (regardless of how it is distributed) is not keeping pace with employee productivity. That issue remains to be explained.)

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4 responses to “IG of the Day: Occupational Pay Polarization”

  1. TMT Avatar
    TMT

    Enforcement of the immigration laws, especially against employers, would enable those Americans and legal immigrants with lesser education and skills to obtain higher wages. But some prefer the ability to pay little to illegal aliens to take work from others or to avoid making investments in technology to handle low-skill tasks. And others want to import poverty to maintain the welfare state and votes for Democrats.

  2. James A. Bacon Avatar
    James A. Bacon

    According to classical economic theory, you are right. If the supply of unskilled labor were constricted, wages and compensation would increase. Conversely, if illegal immigration increases the supply of unskilled labor, then the price of that labor in the form of wages is held down.

    Here’s my question: Let’s say there are 100 million Americans that would be considered “low skill” labor (or have skills, like furniture lathe working, that are no longer in demand in the United States). And let’s say there are 15 million illegal immigrants in the U.S. Are the illegal immigrants numerous enough to have a major impact on the general wage level for unskilled workers?

  3. Darrell Avatar
    Darrell

    It depends on the occupation. The illegals cluster in certain fields, say as a bricklayer, which forces the American bricklayer to find a new line of work. Which puts more Americans in the same job pool as the former bricklayer, lowering wages there.

  4. larryg Avatar
    larryg

    the Hispanics – both the “illegals” and legals work and live together as a family unit – a generational family unit – in much more density than typical American subdivisions were predicated on and that’s why there is such an uproar when they start moving into a neighborhood.

    it makes perfect sense if you are going to work at a lower skill, lower pay job that you live a leaner lifestyle and doubling up on bedrooms is not an unheard of circumstance – well.. pretty much around the world – except here.

    Americans don’t want those many of those jobs. Farmers of certain kinds of crops will tell you that they are out of business without low-cost labor.

    re: ” I played with the idea that the rise of big, overweening government was a major contributor, and it may be on the margins. But when confronted with the evidence above, I have no choice but to backtrack (although I reserve the right to backtrack again if presented evidence that sheds new light).”

    what can I say?

    want to see what’s happened to the rest of the American workforce happen to health care?

    Dr. Watson: How IBM’s supercomputer could improve health care

    http://www.washingtonpost.com/opinions/dr-watson-how-ibms-supercomputer-could-improve-health-care/2011/09/14/gIQAOZQzXK_story.html?hpid=z4

    I predict we are on the cusp of revolutionary changes in health care.

    and what has happened to the rest of the American workforce in terms of automation and productivity will happen to health care.

    of course at some point – a majority of people will be making 1/2 what they used to make – including health professionals ……

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