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Earnings of the average US worker with an undergraduate degree have not kept up with gains in productivity in recent decades, according to research by academics at MIT that challenges traditional explanations of why income inequality is rising.

The findings, which will be presented to the New America Foundation on Tuesday, come amid widespread unease about the sluggish trend in middle class income growth, both in absolute terms and relative to the new superstar class of chief executives, hedge fund managers and other financiers.

While in the short term labour market conditions are now good for most US workers, the state of the “American dream” is already emerging as a big theme in the run-up to the 2008 presidential election.

In a recent speech, Hillary Clinton, the Democratic frontrunner, complained that “while productivity and corporate profits are up, the fruits of that success just hasn’t reached many of our families . . . It’s like trickle-down economics but without the trickle.”

Meanwhile, John Edwards, the former senator, has made “eliminating poverty within 30 years” a centrepiece of his left-leaning campaign, which stresses the problems of inequality in the US.

The Massachusetts Institute of Technology economists, Frank Levy and Peter Temin, repeat earlier findings that the gap between the earnings of the average university graduate and high school graduate – which was stable for much of the 1960s and 1970s – expanded relentlessly from 1980 to 2000, before slowing a little in recent years.

This is consistent with the conventional explanation that the rise in inequality is largely due to technology trends that disproportionately benefit skilled workers.

But Mr Levy and Mr Temin go on to show that, while graduates certainly did better than non-graduates in recent decades, the average graduate also failed to keep up with gains in economy-wide productivity, once those productivity gains are adjusted for the composition of the workforce.

Male graduates in particular failed to capture a full share of productivity advances, with female graduates keeping pace until the last five years – probably due to increasing opportunities for women in the workplace. This casts doubt on the conventional argument that the solution to rising in-equality is to improve the standard of education across the workforce as a whole, and encourage more people to go to university.

“Is the average bachelor’s degree still sufficient to catch the rising tide? In the case of men at least, the answer is no,” the authors conclude.

They point out that rising inequality may still be caused by “skill-biased” technical change – but of a kind that disproportionately benefits the very skilled, rather than the merely educated.

If so, this creates a huge headache for policymakers because while it is in principle at least possible to greatly expand the number of basic college places, it is not possible to send every worker in the US to Harvard Business School.

Mr Levy and Mr Temin argue that the failure of workers even with undergraduate degrees to keep up with productivity is due to a change in labour market institutions and norms that reduced the bargaining power of most US workers.

They argue “only a re-orientation of government policy can restore the general prosperity of the postwar boom”.

The paper follows the presentation last week of joint Pew/Brookings Institution research showing that men in their 30s earned on average 12 per cent less in 2004 than their fathers did in 1974 after adjusting for inflation.

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rising inequality may still be caused by “skill-biased” technical change – but of a kind that disproportionately benefits the very skilled, rather than the merely educated.

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the failure of workers even with undergraduate degrees to keep up with productivity is due to a change in labour market institutions and norms that reduced the bargaining power of most US workers.

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the failure of workers even with undergraduate degrees to keep up with productivity is due to a change in labour market institutions and norms that reduced the bargaining power of most US workers.

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zappaisgod said:

That sentence (fragment?) doesn't even make sense. If it said worker's wages failed to keep up with productivity gains

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zappaisgod said:Worker bargaining power has never been greater. Collective worker bargaining power may be in decline but individual workers have never been stronger.

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Tell that to people who lost their jobs due to automation and outsourcing.

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FrenchSocialist said:

Worker's wages have failed to keep up with productivity gains.

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Economist said:

FrenchSocialist said:

Worker's wages have failed to keep up with productivity gains.

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I've seen this argument again and again here, and I've yet to understand it.

I've always used this hypothetical to explain my perplexion:

Imagine I'm a mechanic and I change car tires at a garage. I'm normally able to change the tires on 4 cars a day. Then one day my boss comes along and gives me a pneumatic wrench. This new tool allows me to quickly change tires and I can now change the tires on 4 cars every day.

My productivity has increased by 100%, but I'm still paid the same because my basic skillset is unchanged.

Do I really deserve a 100% increase to my salary because my boss has purchased a new tool for me to use?

Unless college educations have somehow improved such that all productivity gains in America are due to college education improving and NOT because of technological innovation, then it would make sense for salaries to keep pace for college graduates.

If, instead, a college education is about as useful today as it was a decade ago, but technology has vastly improved, there is no real reason for college-grade salaries to keep pace with productivity.

Does anyone have numbers suggesting today's college education is better than a decade ago? Because it's fairly easy to show technological improvement, by contrast.

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Psychoactive1984 said:

Kinda makes me wish that i forego my education

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hummermania00 said:

It is simply untrue in some occupations that college is an advantage. Also by way of example, a person without a high school diploma, willing to work in some adverse conditions - and work hard - can easily pull in $125k as a miner. Base wages are probably only $50k, and production bonus makes up the balance.

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While I agree that what you are saying about skill-set shifts is no doubt true, I do think that this isn't entirely correct.

The education system tells you that you need a college diploma - not to gain an advantage but to gain access to the more lucrative fields. Try getting an entry-level job at an investment bank without one, or with a consulting firm.

Someone with a college diploma, who was adequately motivated, is no less capable of working as a miner than someone without. Meanwhile, someone without can't even get their foot in the door at most financial institutions. That is the benefit of a college diploma.

The real benefit of a college diploma is not actually the education conferred by the diploma, but the guarantee that a person who has gone to college has certain minimum capabilities.

The best example of this is to compare the salaries of people who have gone (but not completed) college with those who never went at all. The salaries of the college drop-outs have, and continue to consistantly exceed that of high-school graduates:



If the real benefit of college was the education itself, this wouldn't be the case.

Economist said:

hummermania00 said:

It is simply untrue in some occupations that college is an advantage. Also by way of example, a person without a high school diploma, willing to work in some adverse conditions - and work hard - can easily pull in $125k as a miner. Base wages are probably only $50k, and production bonus makes up the balance.

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While I agree that what you are saying about skill-set shifts is no doubt true, I do think that this isn't entirely correct.

The education system tells you that you need a college diploma - not to gain an advantage but to gain access to the more lucrative fields. Try getting an entry-level job at an investment bank without one, or with a consulting firm.

Someone with a college diploma, who was adequately motivated, is no less capable of working as a miner than someone without. Meanwhile, someone without can't even get their foot in the door at most financial institutions. That is the benefit of a college diploma.

The real benefit of a college diploma is not actually the education conferred by the diploma, but the guarantee that a person who has gone to college has certain minimum capabilities.

The best example of this is to compare the salaries of people who have gone (but not completed) college with those who never went at all. The salaries of the college drop-outs have, and continue to consistantly exceed that of high-school graduates:



If the real benefit of college was the education itself, this wouldn't be the case.

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When used in advertising or promotion of a product, service, or idea, anecdotal evidence is often called a testimonial and is banned in some jurisdictions. The term is also sometimes used in a legal context to describe certain kinds of testimony. Psychologists have found that people are more likely to remember notable examples than typical examples[1].

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FrenchSocialist said:

Do you have anything besides anecdotal evidence by which to justify your claims? The fact that you are trained as a psychologist makes me suspicious that you are being sneaky by using a notable yet atypical example:

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