April 22, 2015
Those of us who work for progressive think tanks are always happy when one of the better funded centrist outfits replicates our work, since the findings are then more likely to get attention in major news outlets. For this reason, it was great to see that the Robert Rubin funded Hamilton Project had done a short paper analyzing trends in earnings by education level over the last two decades. This piece got written up in the NYT’s Upshot section by Neil Irwin.
While the Hamilton Project folks got some things right — workers without college degrees have been big losers over the last two decades — they also missed much of the story. Since they only looked at endpoints, they failed to recognize that even workers with college degrees have seen their wages stagnate since the turn of the century.
This makes the technology driving down wages story harder to sell. That story is supposed to mean that there is a shift in demand from less-educated workers to more educated workers. But if even the wages of college grads are falling or stagnant, then it is hard to make a case that there has been a shift in demand towards more educated workers.
They also are somewhat sloppy in discussing globalization as though it is an event that occurred as opposed to a policy of the U.S. government. We have designed our trade agreements to put U.S. manufacturing workers in direct competition with low paid workers in the developing world. The predicted and actual effect of this competition is to drive down the wages of U.S. manufacturing workers and less–educated workers more generally.
However, we have largely left in place the barriers that protect doctors, lawyers, dentists and other highly paid professionals from competition with their lower paid counterparts in the developing world. This was a policy choice, not an inevitable process of globalization.
The focus on endpoints also caused the Hamilton Project folks to miss the sharp upturn in wages for less-educated workers during the low unemployment years of the late 1990s. Our research has found that low rates of unemployment disproportionately benefit those at the bottom end of the wage distribution. We have not returned to the low unemployment of the the late 1990s because of a decision not to have a larger stimulus or to address the problem of an over-valued dollar that is giving us large trade deficits. (Yes, this is directly relevant to the lack of currency rules in the Trans-Pacific Partnership.) As a result, the economy does not have the demand needed to get back to full employment. (If the Federal Reserve Board raises interest rates to slow growth, it also will not help in the effort to get back to full employment.)
In any case, the decision to not have a full employment economy is also a policy choice. In short, it’s touching to read the Hamilton Project people’s plea that we should see inequality as both an issue of policy and technology, but if they had done more careful research, they would realize they don’t have much evidence for the technology portion of their argument.
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