Education is Important, but not in the Fight Against Inequality

Norman Rockwell (1894-1978) Norman Rockwell Visits a Country School

Norman Rockwell (1894-1978)
Norman Rockwell Visits a Country School

David Leonhardt is confused about inequality, at least according to his shallow dive into Thomas Picketty’s Capital in the Twenty-First Century.

Specifically, Leonhardt writes under the delusion that better public education is the key to reversing the continued trend toward more inequality predicted by Picketty’s formulation: r > g. Observing the fact that other developed countries in Europe have seen income gains distributed more equitably throughout the population than in the United States, Leonhardt goes on to argue that what most accounts for this difference are educational outcomes. He makes this claim based, I assume, on intermediary evidence found either in Picketty’s book or elsewhere, but which in either case Leonhardt decides not to share upfront with the reader.

“The great income gains for the American middle class and poor in the mid-to-late 20th century came after this country made high school universal and turned itself into the most educated nation in the world,” writes Leonhardt. And yet, if education were truly the great inequality slayers so many make it out to be, wouldn’t the American middle class and poor be doing even better today since they are more educated than at any other time in the nation’s history? Leonhardt continues,

“Education continues to pay today, despite the scare stories to the contrary. The pay gap between college graduates and everyone else in this country is near its all-time high. The countries that have done a better job increasing their educational attainment, like Canada and Sweden, have also seen bigger broad-based income gains than the United States.”

But as Lane Kenworthy showed some time ago, countries like Sweden transfer much larger amounts of money to lower income households than the U.S. does. In addition, international differences in educational achievement come no where close to explaining the differences in Gini coefficients between those same countries.

Maybe that’s why even Leonhardt isn’t too married to his earlier notion that closing the achievement gap in education would do much in the way of shrinking national inequality, deciding by the end of his piece that “changes in education — not to mention the tax code — are not nearly large enough to counteract the forces pushing in the other direction.”

Instead, he concedes,

“A true attack on inequality would require that the country move the issue to the center of every political debate: how we tax wealth, how we tax the income of the middle class and poor (often stealthily through the payroll tax), how we finance schools and measure their results, how we tolerate income-sapping waste in health care, how we build roads, transit systems and broadband networks. These are precisely the sort of policies pursued by countries with better recent middle-class income growth than the United States.”

Still, it’s worth emphasizing, lest Leonhardt and others forget, that far from being a panacea for inequality, education is often the largest driver of it. Matt Bruenig has written often and excellently on this very subject. As long as education remains a gentrified hierarchy and glorified sorting machine, it will always be instrumental to helping one group of people edge out another. A college education is a great investment decision for most, but the financial, social, and cultural advantages it bestows are predicated, in part, on the very fact that others don’t have it. That’s how credentialing works. Could anything be more bizarre than offering up a process designed to separate persons based on skill, knowledge, and/or aptitude as the very same thing that can help make them more equal?

Freddie DeBoer draws out this exact point from a thought experiment Picketty allegedly used to help Leonhardt understand his book,

“The children of the large farmer existed, and their decline relative to the improvements of the children in the small village represents growing inequality. Even if we take Leonhardt’s little fable about education and economics at face value (and we shouldn’t), he’s describing a process that exacerbates economic difference, not that closes it.”

It’s the same confusion that seeps in when people consider the situation facing an individual, and then extrapolate from there in order to offer solutions for the country as a whole. Thus, a teacher who is laid off due to local budget cuts is perhaps rightly encouraged to retrain for a new career, maybe in nursing. But this isn’t a solution for everyone else who is currently unemployed, at least in the current labor market. There simply aren’t enough good paying jobs available at the moment to get one through any other means than by taking it from somebody else.

Please do be so kind as to share this post.
TwitterFacebookRedditEmailPrintFriendlyMore options

93 thoughts on “Education is Important, but not in the Fight Against Inequality

  1. While i agree in general the value of any sort of skill, not just education in general, is predicated on others not having it. Being a mechanic or plumber or electrician all have value because most people, especially myself, can’t do those things. Education can help lift people up but can’t remake a society. That said, the post ww2 world was a unique time that in many ways we were the primary beneficiaries from. That time isn’t come back. Giving kids a good education certainly helped us take advantage of that time though.

    Report

    • “the value of any sort of skill, not just education in general, is predicated on others not having it.”

      Nope. Ricardo’s Law of Comparative Advantage. I might be a better plumber than Joe The Plumber, but I’m a better engineer than I am a plumber, so the maximally-productive arrangement is for me to do the mechanical engineering and him to do the plumbing.

      Report

      • huh? Are you suggesting the world actually works in the maximally prodcutive manner? It certainly seems like people with rare and hard to master skills get paid a lot more than people with common and easily mastered skills.

        Report

      • Very true. By fixing that drip yourself instead of calling a plumber and spending those ten minutes mechanical-engineering, you have created an inefficiency that makes the whole world poorer.

        Report

      • Supply still matters. Even if nobody does his own plumbing, the price of plumbing services will still be a function of the number of people capable of doing it. Take cleaning, for example. There’s no nothing inherent in the difference between plumbing and cleaning that should lead plumbing service to cost several times more per hour than cleaning service, but it does, because virtually anyone can clean, but comparatively few people can do plumbing work.

        Report

      • One quibble here, there is a distinction that is missing.

        I can do some of my own plumbing work (fix a faucet or drain, etc.), but at some point I will have to call in a plumber because I don’t have the know how or possibly the tools to do it (many trades have specialized tools that make the job easier, or make it possible at all, and the cost of such tools is prohibitive for a homeowner who has to do this one thing once), or because the city/state has mandated that such work must be done by a plumber (or at least inspected & approved by a plumber).

        Report

      • Yes, I know. And I can get epoxy for joining copper lines, or gator/shark fittings that are solder free.

        Still doesn’t mean I want to plumb a whole house, or a commercial building to code, or try to make sure the water main & sewer lines are connected to code.

        Report

      • “By fixing that drip yourself instead of calling a plumber and spending those ten minutes mechanical-engineering, you have created an inefficiency that makes the whole world poorer.”

        Translated: “I wasn’t paying attention in Econ 101”

        Report

  2. Here is my general stance on where we stand with higher education and equality right now. This is highly unscientific:

    1. People are almost certainly damned to not being part of the middle class or above if they don’t get a college education.

    2. We are fast approaching a time when college education only provides a chance rather than a guarantee at being middle-class or above especially because of student loan debt.

    I have no idea how to solve this problem and I am generally a romantic who believes in education for the sake of education. This is not tenable in a society where you need massive loans to go to college though. There might be a small romantic adventure in being bohemian for a year or two after college but not for anything longer than that.

    Our big problem is the small amount of good-paying jobs. The recession destroyed a lot of decent to excellent jobs and replaced them with horrible ones in terms of pay, benefits, and working conditions.

    Speaking of Freddie De Boer, he recently engaged in a hissy fit with people at LGM because they criticized a take-down he did of Elias Isquith.

    League on League fighting!

    Report

    • 1) A college education or acceptance to one of the skilled trades (plumbers, electricians, etc make more than I do, and their skill sets are still in demand, even if they are looked down upon).

      2) This is tough, since the ease of getting & the inability to discharge through bankruptcy student loans is one of the drivers of the rise in education costs. But at the same time, such loans have given a larger swath of Americans access to college. I have no idea how to keep the benefit while reducing the cost/penalty.

      Report

    • 1. People are almost certainly damned to not being part of the middle class or above if they don’t get a college education.

      I disagree with this. There are lots of career paths that don’t necessitate college that can lead to a comfortable middle-class life. Learning a trade, followed by starting your own business can easily lead to a six-figure income. There will always be a demand for plumbing, carpentry, electrical work, etc. Also, computer programming and other tech fields are areas where you can forego a degree if you can adequately demonstrate that you have the skills to do the job.

      And of course the easiest way to amass wealth is to go where your money goes the farthest and live frugally. Neither of those things require a college degree.

      Report

      • There’s a couple of oolies in that analysis though.

        The first one is that running your own business requires a more complete skill set than trade skills, including but not limited to marketing, accounting, and most importantly, management and leadership.

        These last two skills are the most important because of the other aspect of highly skilled, yet still manual labor – your body ain’t going to be able to do it forever, unlike most ‘desk’ jobs.

        By the time you are forty, you better have the talent and ability to be mentoring some young’uns to keep up your total revenue stream, because your back and knees ain’t going to be able to be put in the hours much longer.

        Report

      • The reason that I said learning a trade and then starting your own business is in recognition of the toll that physical labor can take on the human body.

        And I never said that this path doesn’t require education and human capital accumulation. I just said that it doesn’t require a degree.

        Report

      • Not disagreeing with you at all. But the other problem is that a whole bunch of incentives line up against that path these days.

        If you have a ‘leadership’ quality, every high school guidance counselor is going to push you towards college, and most colleges will gobble you up. On the other side, human nature is such that if you’re making good money early in life, it’s the norm for you to be thinking not too hard about your future – you need a good deal of discipline and inner strength. (the extreme example is all the tales of lottery winners completely exhausting their fortunes in just a few years).

        Enlisted Military recruiting, particularly for the ‘smart’ fields (e.g. nukes) tackles this dilemma every day – they need people that are plenty capable enough to go to college, but for some reason, are not actually there.

        Report

      • @kolohe:

        I think police forces have a similar problem. Your ideal police candidate has great people skills, good physical fitness, an analytical mind, good moral character and self-control, the confidence to wade into and resolve confrontations, and a willingness to get shot at if necessary. People like that have a lot of other stuff they could be doing.

        Report

  3. Leonhardt is like two fads out of date, at least in explaining why some countries do better than others. Ayiyi. (No, I’m not claiming to know the research well enough to say which fad actually does better scientifically.) After education came “science!” and then came “entrepreneurship!”

    Report

  4. It’s worth noting that the economics world is rather divided on whether Piketty’s book is awe-inspiring or a bit of a sham. For my part, although I haven’t read it yet, a claim like the following makes me rather suspicious of the quality of Piketty’s analysis.

    the US economy was much more innovative in 1950-1970 than in 1990-2010, to judge by the fact that productivity growth was nearly twice as high in the former period as in the latter, and since the United States was in both periods at the world technology frontier, this difference must be related to the pace of innovation.”

    Piketty appears to completely overlook a key difference in the 1950-70 period vs. the ’90-’10 period: labor mobilization.

    In the ’70s it was semi-popular to point to the spectacular growth of the Soviet Union, in comparison to the much lower growth rate of the U.S. Later it became the Asian Tigers that were the subject of awe, and more recently China. But each of those examples has a common variable that set it apart from the U.S. from the mid-70s on, which is that each was in a process of labor mobilization, which necessarily increases productivity (because you’re shifting labor from low-productivity pursuits like agriculture and housekeeping to higher-productivity manufacturing jobs).

    But once you’ve completed your labor mobilization, keeping up productivity growth requires technological improvements, which are harder to come by than just drafting or incentivizing people to work in the factories.

    Maybe Piketty, being French, just doesn’t know American economic history that well, and this has no bearing on his real argument. But as an economist he surely knows about labor mobilization.

    Report

      • I don’t think Saul is talking about labor mobilization. I think he is pointing out that the views of Piketty’s book, at least among economists, divide upon nearly ideological lines. I am seeing some of that as well.

        Report

      • But as with law, those ideological lines map pretty closely onto some pretty fundamental methodological/theoretical lines. As those are ideas, we could call it ideology, but it’s a lot deeper than just left-right, as most people (left and right) would like to conveniently see it. And I think they see it that way because it’s a lot easier than actually figuring out what the real arguments in the theoretical/methodological debates are, because they are truly difficult.

        Report

      • @dave

        Largely what Dave said. This is generally in the popular press. Kevin Drum was somewhat underwhelmed by Capital in the 21st Century but he did not disagree with it. The book is not going to be read by everyone but books can still be influential without being widely read. The ideas will get sent to the broader through Krugman, Cowen, Brooks, etc.

        Brooks went into a typical right-wing sneer at the thesis when he described Capital as being a book of the 5 or 10 percent who are jealous of the 1 percent (I think he used the example of a Hedge Fund Manager).

        Almost everyone is skeptical about the global tax fix but Pinkerty admits that this is a pie in the sky solution as well.

        He does have a really cool name though.

        Report

      • The arguments like all others (even though economists often like to think they transcend politics) seems to divide upon nearly ideological lines.

        That’s not a good characterisation of economics generally. There are many issues where there is strong cross-ideological agreement among economists, not to mention technical issues where there is no ideological position to take.

        Ideological divisions tend to pop up in economics when an issue is poorly understood – when evidential quality is poor everyone tends to default to their priors. It’s one of the sad paradoxes of economics that the areas of economics with the strongest expert consensus are the areas where economists have the least influence.

        Report

      • Brooks is a strawman. I mean, he’s a real person, but his primary function is to make leftists feel good about themselves, not to present the best arguments the opposition has to offer.

        Report

      • Kind of like Ayn Rand. And Rush Limbaugh. And Sarah Palin. And pretty much everybody on Fox .

        Well, yeah. The popular media do not select for great thinkers or sophisticated arguments.

        Report

      • Brandon,
        In order to have capital pile up, as you put it, it needs to start out relatively flat. It is not the capital accumulation that I object to, it is the persistence of said piles beyond what is Absolutely Necessary to give people Incentive to Create. (and I’m even a bit of a squish on that, I’m willing to give kids a $1 million inheritance, per kid).

        Report

      • The need for capital accumulation isn’t about incentive. It’s about funding. Production in a modern economy takes capital, and lots of it. Capital to build factories, capital to buy tools, capital to pay researchers and engineers while the product is still in development. Rich people don’t actually keep their money in big cash vaults like Scrooge McDuck. They invest it, and that investment is what makes it possible for workers to do things more productive than subsistence farming.

        The worst people to tax are the people like Gates and Buffett who are so rich that they have literally zero marginal propensity to consume and all the taxes come out of investments and charitable contributions.

        Report

      • Brandon,
        The more money the middle class has, the better the folks like Gates are at accumulating money. They don’t give a fuck if we tax ’em more, because they will pretty much always be better than the rest of us at getting money.

        Taxes aren’t for punishing the people making productivity improvements. They’re for moving money out of the pockets of people who are risk-averse and putting it in pockets of folks that are more risk-tolerant. And the middle class in America loves to start new businesses, take risks, see what comes of it.

        Because these folks you’re talking about? They leave easy money on the table, not because they are idiots, but because a lot of easy money is just a bit risky. Even something as Simple And Easy as microfiber towels — something already under production, already sold all throughout Europe, already loved by millions — took someone with a bit of Vision (well, more particularly “I Want That”).

        Leave the money alone, and it passes from hands of smart folks to stupid folks — law of averages, not even the rich always have brilliant offspring, and they want to make sure all their bairns are taken care of.

        Yeah, sure, capital’s great and all that. But is there any reason why the workers in a plant can’t own the plant too? Is that actually a better business model, particularly for a non-fledgling business?

        Woot.com wasn’t started by someone big — but Amazon did buy it up *and immediately crappify it*

        Report

      • I agree with you that the middle class is more willing to take risks with capital. However, I don’t see governments taxing the rich & boosting the middle class. It either goes to the desperately poor, who rarely turn it into growth, or it gets handed over to cronies, etc.

        Report

      • MRS,
        All those government DOD workers are middle class.

        But also, all the money that goes to desperately poor folks isn’t saved. It’s just pushed back into the economy (and by doing so, we help to create an economy that will sell horrible meat and meat byproducts, not simply GrassFed Organic Beef). Not a net sink. The middle class (or at least the upper middle) can afford to bank enough to start a business (eventually).

        Nobody’s in favor of crony companies (“privatization”)…

        Report

      • privatization != cronyism. Stop that.

        Paying government employees to perform a government service is not a transfer of wealth.

        If you want to claim the taxes the wealthy pay are meant to boost the middle class, you would need to point out tax funded programs that provide low cost small business loans, or that fund tax or regulatory relief for entrepreneurs trying to get a business off the ground & growing. Etc. Otherwise you are merely talking about the market working alongside a welfare program.

        Report

      • MRS,
        at $1,000 a pop, it’s hard to imagine a businessman NOT bribing his local politician to get the business.
        [Yes, in an ideal world, everything runs on biddable contracts. I’m skeptical that bids happen on Half the “privatization” that occurs.]

        MRS,
        Mortgage subsidy is certainly designed to give a tax break to the landed middle class. (note how it disadvantages AA and Hispanics).

        Report

    • I haven’t read the book yet either, but how productivity is being measured is a big question on my mind. It’s kind of THE issue in so far as a big driver of inequality is the decreasing percentage of GDP which consists of wages, and the diminishing amount of wages taken home by lower income percentiles i.e. decoupling of productivity from wage growth.

      Report

      • how productivity is being measured is a big question on my mind

        Yeah, and he seems to be doing it differently than it normally is (at least in the U.S.). That could be a sign that he’s cherry-picking, or it could be a sign that he’s got a better measure (or at least sincerely and reasonably, and not just for cherry-picking reasons, believes it’s a better measure–it’s not as though there’s a good objective test for the best way to measure productivity; sadly).

        Report

      • James,
        As for the discrepancy in productivity measurements, it seems to me that a lot of Industrial II productivity enhancements are in the home, with subsequent transfer of time to volunteerism. I’m not sure if standard measures of productivity even measure volunteerism as part of GDP? (for that matter, do they get the black market as well? And how does this affect the error bars?)

        Quick google:
        http://www.american.com/archive/2008/march-april-magazine-contents/a-nation-of-givers

        Report

    • A lot of people seem to use economics as a signal unifying theory these days and I am against this. Not everything can be explained or solved by economics. There is also substantial disagreement about whether minimum wage helps or hurts employment among economics. It seems to me that economists have a reputation of being apolitical, nonideological, and above the fray but I think they have their conclusions and are just as willing to work backwards to prove them.

      Report

      • You can’t answer questions like the minimum wage without taking into account the underground economy. Which economists do measure.
        But the idea that one can just raise the minimum wage, and everyone will do exactly as you just put into law? That’s not liberalism, that’s stupidity.
        -all- laws have unintended consequences.
        Look before you leap.

        Report

    • James,
      We’re going to see a dramatic increase in productivity in the next twenty years. I don’t think it’s going to lead to increased wages. Rather the opposite, really. Too much labor, too little demand. Well, that and the rich are tilting more towards “stealing money from their workers” rather than “creating productivity improvements”.

      Report

    • Piketty appears to completely overlook a key difference in the 1950-70 period vs. the ’90-’10 period: labor mobilization.

      Haven’t read Picketty’s book, don’t know if I will. But when discussing available labor and economic growth through this period, I constantly see economists (and others) who know better make a mistake; the same mistake they make when looking at household income over time instead of wages per hours worked over time: the expansion of the workforce from women entering it.

      To my mind, the 1950-1970 era had a one-two growth punch, the GI Bill followed by women going to work. Combined with the massive destruction in the wake of WWII, those decades saw opportunity unlike anything in history.

      Report

      • the same mistake they make when looking at household income over time instead of wages per hours worked over time: the expansion of the workforce from women entering it.

        Likewise, those who look at household income after the 1970s fail to account for divorce, and the fragmenting of households. I question whether household income measures what any of us are really concerned about.

        Ditto on your ultimate paragraph. Whether its liberals or conservatives talking about how great the economy of the ’50s was compared to today, it makes me want to bang their heads together.

        Report

      • Labor productivity (which is what I assume the passage is talking about) is output divided by total hours worked. Women entering the workforce would be accounted for in the divisor.

        Report

      • perhaps; as I said, I haven’t read the book.

        Often, my difficulty with writing about this stuff is not the original work of an economist, but the shoddy work of the folk reporting on what the economist say. It’s just a pet peeve of mine; but the context of growth that doesn’t include women entering the workforce for the halcyon days of 1960-1990 drives me nuts. That, in great part, was the growth.

        Report

      • T-Frog,

        Labor mobilization isn’t just people “entering” the work force, but shifting people from low-productivity work like agriculture to higher productivity work like manufacturing. Women in the work force traditionally were in low productivity work, but moved more and more into manufacturing (after they did such a bang up job on tanks and B-24s and such, it was hard to make them all go back to being switchboard operators).

        Report

      • Can’t labor mobilization also go the other way? Like someone switching from a decent paying manufacturing or construction or clerical job to a low-wage and no benefit service job?

        There might be all sorts of reasons why economists think this is a good and natural thing to happen but it does not mean that someone who is going through the experience will think the same. I hardly expect someone who went through this to think of it as good because of economics.

        Report


      • Can’t labor mobilization also go the other way? Like someone switching from a decent paying manufacturing or construction or clerical job to a low-wage and no benefit service job?

        Labor demobilization. Sure, it can happen at an individual level. But if it happens at a mass scale–if it produces a mass decline in productivity–your economy’s in a shitload of trouble.

        There might be all sorts of reasons why economists think this is a good and natural thing to happen
        Which, mobilization or demobilization? I’m going to treat you as meaning mobilization and hope I guessed right. And yes, it’s very good, because society produces more with the same amount of input, and in the long run that’s the only way a society becomes wealthy. In fact it’s the only way a society ever moves beyond subsistence agriculture.

        but it does not mean that someone who is going through the experience will think the same.
        They usually like it, because it makes them more well off. Look, despite shit wages and lousy working conditions people in developing countries are lining up for factory jobs. They want them because it improves their lot in life. It’s fair to want better wages and working conditions for them, but to suggest they don’t think this mobilization is a good thing is a western arrogance.

        Now that’s not necessarily the case for people who are forced off their land and into factories by an authoritarian government (e.g., the USSR), but that’s where choice matters.

        I hardly expect someone who went through this to think of it as good because of economics.
        They think it’s good because of their personal economics. I doubt many people at any time in history care primarily about moving into a higher productivity job on the grounds that it’s good for the country’s economy. But it’s good for their household economy, and I expect they do think of it as good in that way.

        Now if you’re talking about de-mobilization, it’s not good for either the national or the household/personal economy, so, no, I doubt many people do think of it as good. Except for the relatively uncommon person who’s downsizing, or people who are happily shifting to semi-retirement. But not the average person. And economists would almost unanimously agree with them.

        Report

      • “But if it happens at a mass scale–if it produces a mass decline in productivity–your economy’s in a shitload of trouble.”

        well, that’s kind of Saul’s point, isn’t it?

        Report

      • Well, I’m not sure. I’m left wondering if he’s saying economists think labor de-mobilization is a good thing. There was just enough ambiguity in his writing to make me uncertain. (Not trying to attack you, Saul. And I welcome your clarification if I misread you.)

        Report

      • Not generally, no. Some individuals may find themelves personally out of work or shoved into lower productivity work, but historically creative destruction has not destroyed good jobs on net, and certainly not over the long run (which is the time frame on which mobilization is generally measured).

        Report

      • Likewise, those who look at household income after the 1970s fail to account for divorce, and the fragmenting of households. I question whether household income measures what any of us are really concerned about.

        the income statistics have done worse than those for families so if anything the data on families presents a better picture than reality since families have been able to make up for lost income by having women enter the workforce.

        Report

    • Haven’t read it, so take with the obvious caveats, but my understanding is that whether or not he specifically addresses labor mobilization, his broader point remains true: the post-war boom is the exception, not the rule, for a whole bunch of reasons. One of those reasons may well be labor mobilization–and I wouldn’t be shocked to see that wartime destruction and/or reallocation of capital had something to do with that. In any event, our policies (per Piketty) shouldn’t use a historically unusual period as a baseline for expectations about growth and inequality.

      Report

    • What is labor mobilization? A worker goes from a low-productivity occupation like subsistence farming to a higher-productivity one like manufacturing; sounds like that’s captured by measuring productivity. So is labor mobilization just an increase in worker productivity, and demoblilization a decrease? Or do you need to go from a job that’s in some sense off the books, like perhaps subsistence farming and certainly homemaking, to be involved in labor mobilization – is that what this quantity captures that isn’t productivity? Or what?

      Report

  5. Maybe instead of fretting about how much education we need to get to the average person, we could always, you know, pay people enough money for the work they do that they could afford to live decent lives.

    …Just sayin’.

    Report

      • The enlightened self-interest of employers, especially larger employers, may well suggest higher rates of pay generally. At least, that’s the theory I keep hearing from people with degrees suggesting they are qualified to opine in this arena.

        The law can serve as a backstop to ensure people don’t cheat out of such a system and collectively defeat its purpose.

        And I certainly have never claimed to be a pure libertarian. Libertarian-ish means (to me) that as between two roughly equally valid and desirable policies, the one that creates more individual autonomy should be favored. But first you have to find two policies that are roughly equal otherwise.

        Report

      • Burt,
        That’s just the problem. Either the capitalists are growing more stupid (which I think we can empirically prove, use the Kochs as an example if you must), or the enlightened self-interest of employers has actually changed, so that it is now a better plan to employ slaves (in this country or others) rather than paying people a fair wage.

        Throughout history, most wealth aggregation has been folks stealing others’ labor, and hoarding the rewards. Wealth aggregation through productivity improvements has historically been relatively rare, and is diminishing.

        Report

      • The enlightened self-interest of employers, especially larger employers, may well suggest higher rates of pay generally. At least, that’s the theory I keep hearing from people with degrees suggesting they are qualified to opine in this arena.

        Which people? Or rather, what argument are they making for this?

        Report

      • “Either the capitalists are growing more stupid (which I think we can empirically prove, use the Kochs as an example if you must), or the enlightened self-interest of employers has actually changed, so that it is now a better plan to employ slaves.”

        This may be slightly off topic, but the other day I heard a rumor that at least one of the Koch brothers is actually Keyser Sose.

        Food for thought.

        Report

    • Burt,

      For many folks at the bottom that means they must work much harder and be far more productive. A quick case study:

      In the account I currently run we have two rates we charge our customer, a) ad-hoc b) transactional. With rate A there is a set fee charged for every hour those employees work. This is skilled labor like tech repairs, administrative functions, advanced reporting, etc. We make a nice profit on all of those hours.

      With rate B we charge a transactional rate for every piece the employees touch. We usually lose money on this because our daily volume of work is very erratic and if you don’t quickly shrink your labor pool to meet daily demand, you start running in the red. In order for me to make a profit on a given day I need these people to operate at a very high level of productivity which means a hard, stressful day. Then we create quality problems.

      The transactional rate is set in the contract with the customer and while yes, it could be priced higher, my company offers this as an enticement to get other more lucrative parts of the customer’s business. So we know we will operate certain areas at a loss but we are profitable as a whole. The problem is that we must pay a lower wage for the transactional workers due to their low skill sets and the needs of the overall business. These people would most likely be working for much less elsewhere but as it stands they still struggle unless they do one magic thing that helps their lives enormously…they get married. Now two incomes become one and things change a LOT. I’ve seen it happen over and over. That’s why I believe so strongly in a marriage-friendly tax code.

      Report

      • Perhaps I’ve been listening too much to a colleague who has immersed himself in “Lean Management Theory” and become a disciple of W. Edwards Deming. But it seems to me that viewing labor as a necessary evil, and workers as units of production that come with a variable cost to be paid grudgingly and minimized whenever possible, can be a really short-sighted way to do business.

        The two-tier billing system you describe sounds like the transactional employees are treated exactly this way: the company pays them grudgingly and as little as possible so as to minimize costs. Some, maybe many, of them can’t rely on this as a steady source of income because the employer has to vary the amount of employment they can give so as to avoid running in the red.

        Does that affect their morale? Does their morale affect their productivity?

        Does the billing structure have to be in this two-tier format? How educable are these lower-level employees; how much would training and education and streamlined process systems benefit their output?

        Does reputation matter in your industry, and if so does a low-performing, unhappy transactional worker affect the company’s ability to attract the higher-margin ad hoc work?

        It may seem like someone must have thought all of this through at some point and the existing system is the best they could come up with. Is that really true? How much of the status quo is actually the result of inertia as opposed to intent?

        Now, I realize too much asking of these sorts of questions might make you unpopular. They don’t do much to endear me to the folks I report to, either, who don’t want to hear about what a legal industry without billable hours might look like (hint: it involves flat fees for pretty much everything) and for some reason don’t want to believe that workers can actually improve their productivity. Well, “for some reason” isn’t true; the reason is a more productive worker deserves a higher pay and their instinctual reaction to that is “higher payroll means lower profits” only is that really true?

        Like I say, maybe that’s a bunch of happy-management-consultant stuff I’ve been exposed to for the past several months. Maybe it’s all a bunch of bullshit. The empirical evidence I have for it is that my clients who make the most money pay their employees more than do their competitors and they get more out of their people than their competitors do. There seems to be a correlation between good workers, higher profits, and more-generous compensation schemes.

        Report

      • Burt,
        it really depends on the industry. I firmly believe that the creative class functions best with higher pay and better working conditions. I’ve seen things SNAFUed all too often otherwise.

        I’m not qualified to talk about plumbers and such. Though I must say I didn’t mind paying our general contractor a bit more to help his hourly workers get through the winter (he was still doing work, just not as efficiently).

        Report

      • Burt,

        When I say that we quickly downsize our labor force to meet volume, what I mean by that is that we either flex them to another account (we have over 4,000 employees on 1st shift so we have some options there) or in extreme cases where all of our accounts are slow we send them home with the option to take vacation time so they don’t lose pay.

        It does affect morale though. They burn through their vacation time when they don’t want to take it and if we flex them somewhere else they get upset because they are in an unfamiliar account usually doing the most unpleasant task available. Unfortunately the nature of our business is that the employees at that level aren’t protected from those types of problems. Further up the ladder I am going to find work for the ad-hoc employees because we want to get that 40 hours of ad-hoc time for each of them.

        The direction we are moving in is to streamline the operation as much as possible so we can eliminate an employee completely, thus ensuring an adequate amount of work for the two remaining employees. The problem of course is that if you have a call in or someone wants a day off, that means one employee has to shoulder a huge burden. That’s where flex employees are good.

        Report

      • Marriage shouldn’t be a policy crutch that the government hands to business to help them make their low-wage business models more viable. No one should have to deal with an employer that has the attitude, “Well, our wages wouldn’t feel so low if you were married.” That’s the employee’s business, not the employer’s. If you pay a low wage, you pay a low wage. That’s it. Own it. Such a bald statement of the reason for including this kind of bribery in the tax code is exactly the kind of thing that repels me from this policy. Granted, there might not be a better approach to try to get me on board (not that it matters; it’s staying in regardless), but I think there likely is and in any case, this is not it.

        Report

  6. “But this isn’t a solution for everyone else who is currently unemployed, at least in the current labor market. There simply aren’t enough good paying jobs available at the moment to get one through any other means than by taking it from somebody else.”

    In a reasonably dynamic market, this would not be a problem. The question then arises of what have we done to gum up the markets? What is getting in the way of starting new businesses to capitalize on these highly skilled workers? What is interfering with the price (wages) from matching supply and demand? What social programs have we built that reduce the incentives to find and maintain jobs?

    Questions worth considering.

    On the issue of education, I would redirect the focus from expensive, indebted* college education and aim it toward effective and efficient primary schools. An entire generation of lower class and minority kids have been condemned to substandard schools. There is no reason we couldn’t get schools as good or better than Sweden’s.

    *And for the record, Community colleges and local state universities are still affordable options for many kids.

    Report

    • 1) We have tilted the scales so that Finance is tugging people out of more creative realms. Finance isn’t supposed to be most of our economy.
      2) We have tilted it so that capitalists make more money than workers, on a dollar per dollar basis. This reduces their incentive to work, and makes them kinda vicious about hiring the smartest people to make them more money. So they don’t even need to know how to invest.
      3) General risk-aversion on the part of investors (this is cultural, if nothing else — people who grade themselves on “how much money do I have” aren’t likely to gamble on something risky).

      Report

  7. I have some major problems with the premise of the post, as I believe that education is still pretty important for social mobility. There will always be a large pool of people who choose not to get that education and so if this is a zero-sum game I don’t think we have to worry about suddenly everyone having college degrees and diluting the skilled labor market.

    What I will also say is what others have touched on: redefining ‘education’ in more broad terms. Technical training, two-year degrees and maybe most importantly, on the job training. I am constantly amazed how many of my employees have no interest in learning some additional skills that we are happy to provide them with. Taking on additional responsibilities feels like doing work for free in the short term but it’s still a whole lot cheaper than college. That’s how I advanced within a business that has nothing to do with what I went to school for. I grabbed the opportunities to learn and slowly figured things out. It seems a lot of people have no interest in doing that anymore, or at least in my anecdotal experience.

    Report

    • I’ll add about education that it seems to afford a degree of social cachet and confidence when interacting with third parties. I sure notice the difference in court between people of varying levels of education, and I think that it’s got to have some economic feedback.

      Report

  8. I was just reading that Mike Rowe has $1M in full ride scholarships to top trade schools he can’t seem to give away, even though the trades are desperate for workers.

    Part of that might be a failure of marketing, but I wonder how much.

    Report

    • I’ve been trying to figure out the “trades are desperate for workers” thing for a long time. Wages clear markets. If you’re desperate for workers and can’t find any, the wage you’re paying is too low. If the wage you’d need to pay is higher than the marginal product of labor, your business model is going nowhere and Mike Rowe can’t save you.

      I have a great business model for essentially a McDonald’s for medical advice. It’s staffed with physicians standing behind a counter earning minimum wage, and they dispense medicine in $5 increments while you wait. It would be super profitable. I’m just waiting for our educational system to catch up to this idea.

      Report

      • tf,
        some folks are taking former felons in.
        Part of the issue is that you need to get people trained.
        Someone says “we don’t have enough nurses” and lo and behold you have a “free school for nurses” program that opens up.

        Still takes time to clear the arbitrage, though.

        Report

      • If you’re desperate for workers and can’t find any, the wage you’re paying is too low.

        Not necessarily. Even if pay is good, it is often the case people won’t go through the requisite training due to the perception that the jobs are vulnerable to outsourcing, for example, or people just don’t know that there are good paying jobs available. Add this to the collective action problem that is job training, and you can have quite a dilemma.

        In other words, doubling the pay for welders doesn’t help if there aren’t enough people training to become welders.

        It’s not just skilled jobs (I’ve seen wheat field jobs go unfilled at $20/hr in a place where that’s a boatload of money), but it’s particularly a problem where people need job training.

        Report

      • Will,
        Also, you may need a certain level (and variety) of intelligence for certain types of jobs.
        You can have all the yutzes showign up, but if you need a schmart guy, you’re still not finding him.

        Report

      • With the exception of people being unaware of the job posting, all of those reasons sound like reasons why the pay is too low. If you offered $1M a year, you’d fill your positions. If everybody offered $1M a year, we’d get all of the welders and machinists we needed in about the amount of time it takes a welder or machinist to train up. It was just a training bottleneck, we wouldn’t be hearing about this “problem” year after year. We’d hear it for a short time while wages spiked and new tradesmen trained up, and then we wouldn’t hear it any more. The fact that it’s a chronic headline indicates that we have as many skilled tradesmen as we’re going to get at the current market price.

        Free training will help that a little bit, but I don’t think it takes that much to amortize the cost of learning most trades, so doing away with that cost will change availability a little bit, but it won’t suddenly result in millions of auto mechanics who are willing to work for slave wages.

        This isn’t unique to skilled trades. Engineering jobs are often outsourced and require substantial training. But the pay is high and people train up as engineers. Companies bitch and moan about there not being “enough” of them, but the obvious solution of higher pay is not in the cards, so there will never be “enough.” I can’t get “enough” electricity at $0.001 per kwh or “enough” gasoline at $0.10 a gallon, but that’s not a shortage, and it’s not something that indicates a major structural problem with the world. That’s just me wishing the things I need to buy were cheaper.

        The only structural problem we may have is that the rush to higher education has created a social stigma that keeps some otherwise qualified people from going into the trades. I’ll say with some certainty that that’s bad for all of us. But for enough extra money, even that stigma can be overcome.

        Report

      • It’s not just skilled jobs (I’ve seen wheat field jobs go unfilled at $20/hr in a place where that’s a boatload of money), but it’s particularly a problem where people need job training.

        This, specifically, rings alarm bells for me. If the job requires limited training and people know about the job, then the wage is too low. Full stop. There’s no barrier to entry, so what’s the structural solution? If $20 is the absolute maximum they can pay without losing money, then the business model is broken. They either don’t need that employee or they need to be doing something other than farming wheat.

        Report

      • Someone says “we don’t have enough nurses” and lo and behold you have a “free school for nurses” program that opens up.

        The world of nursing freaks me right out. From the people I know in the nursing business and from the articles I read, the following things seem to be true at the same time:

        1) Places that employ nurses can’t find enough nurses and are paying them shittons of money.
        2) Trained nurses are having a hard time finding full time work (as opposed to contracting jobs that ship them all over the place with spotty hours and other weirdness).

        That screams “broken market” to me, and it seems like there has to be a regulatory problem somewhere. Either that or somebody somewhere has seriously broken expectations (like employers who can’t find experienced software engineers for $50k per year, or nurses who will only take 9-5 shifts).

        Report

      • Yes and now. I take comfort in the fact that there’s a difference between what people say and what they do. People may say that there’s a “shortage” of skilled workers, but they end up hiring the correct number at the market price. For all of the howling, supply and demand are meeting. People just have pie in the sky wishes about the way things “should” be.

        There will always be a huge gulf between the dreams of employers and the dreams of employees. Employers wish that everybody worked for free and employees wish that they got paid tons of cash to surf the web all day, but in the real physical world where it really matters, people work when the wage is sufficient and employers pay what needs to be paid when they need work to get done. Supply and demand almost always seem to intersect, and everything else is just dreams and wishes.

        Report

      • Re: Welding: Arguably, the problem with welding is “bad information” (and misconceptions). Maybe they could overcome this by advertising jobs for $1,000,000 a year, but that’s not a realistic solution. The failure to implement that solution is not indicative of the lack of a problem. (Maybe there is no problem, but it’s not clear to me that there isn’t.) Engineering, despite the threats of outsourcing, has a very different perception. That could be the primary difference. The perception of job security. I don’t think there’s a government solution for it, though I support Rowe in pushing back against the “college or bust” perception prevalent in our national discussions.

        Re: Wheat fields: Arguably (my favorite word this comment), the structural solutions are either (a) eliminate the safety net so that the people who can’t find work have to work on the wheat fields to eat, or (b) increase immigration. This could be at least partially a product of government policy (in the form of immigration restrictions or welfare), even if we support government said policy. I will say that where my mind turned wasn’t “They need to pay people $40/hr” but rather “We need to bring people into the country willing to do this.”

        Report

      • To pivot a bit, what you’re talking about quite rings true for North Dakota right now (western ND in particular). They’re throwing a whole lot of money at people to work there and are still short-handed. So they’re going to have to throw more*. In large part because people know of a lot of the unpleasantness out there. They know about the job insecurity (the jobs likely won’t be there forever). They know that they’re going to have trouble finding places to live. And that they’d have to pick up and move for the privilege.

        But when it comes to, say, welders, I think a lot of people are harboring under misconceptions. They tend to think of all of those jobs as gone or going when I’m not at all sure that’s the case. Arguably (there’s that word again), it really is a perception problem in the way that North Dakota isn’t.

        I wonder if perceptions aren’t at issue with nursing, as well. The extent to which people went to nursing school expecting 9-5 jobs when they got out despite the fact that’s not really where the jobs are most available (unless you want to move to ruralia). With my wife working at a hospital, I am also inclined to believe that the hospitals are being unreasonable (or are the ones being most unreasonable). I remember at my wife’s previous employer, they kept hiring MA’s because they allegedly couldn’t find nurses… while they were busy running off the nurses they had.

        * – Unless we implement my Kansas City Plan. Which would qualify as government interference, though benign government interference in my view.

        Report

      • From what I’ve heard Mike Rowe say, his impression is that we’ve created this shortage by over-selling the idea of college to the detriment of skilled trades. I.E. A plumber/electrician/welder is not a respected profession, but an Engineer is. This is despite the fact that a tradesman can make just as much, if not more money than an engineer.

        Report

Comments are closed.