A few weeks ago I heard a very interesting keynote by MIT economist David Autor at the annual conference of MIT’s Initiative on the Digital Economy. The talk was based on his recently published paper Work of the Past, Work of the Future.
Professor Autor started his talk by noting that over the last four decades, the US and other industrial economies have seen a remarkable rise in wage inequality by educational attainment, with the earnings of the most-educated increasing, and the earnings of the least-educated falling in real terms. Since the 1980s, the earnings of those with a four year college degree have risen by 40% to 60%, the earnings of those with a post-college education have risen 80% to 100%, and the earnings of those with a high school education or less have fallen among men and barely changed among women.
At the same time, the supply of educated workers in the US has vastly increased. From the 1960s to the present, the share of the labor force with college or post-college degrees rose from 12% to 39%, while the share of those with some college rose from 13% to 28%. But the share of those with a high school degree or less fell from 75 to 33%. Based on the law of supply-demand, one would expect that the wages of college-educated workers would have fallen in recent years because there are so many of them, while the wages of those with a high school education or less would have risen because they are a significantly smaller share of the labor force. But, as we well know, this has been far from the case.
Autor addressed this seeming paradox in his keynote by analyzing a number of potential explanations. Eroding union penetration, falling minimum wages, and the rise of China, India and other low labor-cost countries have certainly contributed to the wage erosion of non-college workers. But his main focus was the changing structure of work in the US and other advanced economies, as well as how these changes have unfolded across different geographic regions, from low density rural areas to high density cities.
Autor has written extensively about the polarization of job opportunities in US labor markets over the past few decades across three broad occupation groups:
- high skill, high wage jobs, - professionals, technicians, managers: opportunities have significantly expanded, with the earnings of the college educated workers needed to fill them steadily rising;
- mid skill, mid wage jobs, - production, office, administration, sales: these jobs have sharply declined, while their wage growth has also declined over the past four decades; and
- low skill, low wage jobs, - cleaning, security, gardeners, health aides, fast-food restaurants: these jobs have seen rising employment, while their wage growth, has been flat to negative.
Between 1970 and the present, high-skill employment rose from 30.2% of total hours worked to 46.2%; mid-skill employment declined from 38.4% to 23.3%; and low skill occupations were fairly flat, from 31.4% to 30.6%. Among those whose jobs changed, particularly mid-skill jobs which suffered the biggest declines, those with college degrees or some college were generally able to move to high-skill jobs, and thus with no college generally ended up in lower skill, low-wage jobs.
Autor then analyzed the connection between labor markets and geographic regions by examining four different kinds of regions with markedly different population densities: rural, outer suburbs or smaller towns, metropolitan areas and cities.
Knowledge-intensive industries have long been centered in cities and metropolitan areas, where they’ve had the most access to a college educated, high skill workforce. In the heady days of the dot-com bubble in the mid-late 1990s, some management experts predicted that the Internet would lead to the decline of cities, because it would enable people to work and shop from home, be in touch with their friends over e-mail and text messaging, and get access to news and entertainment online. Why would anyone choose to live in a crowded, expensive urban area? As it turned out, instead of declining, we’ve seen the rise of superstar cities and metro areas, which continue to generate the greatest levels of innovation and good jobs, and thus attract a disproportionate share of the world’s talent.
The picture has been quite different for non-college workers. In the years following WW2, cities offered plenty of well paying, mid-skill jobs to non-college adults, including blue-collar production and white-collar office and administrative jobs. “Because these workers labored in close collaboration with the high-skill, urban professional, managerial, and technical workers who oversaw factories and offices, middle-skill jobs for non-college workers were prevalent in cities and metropolitan areas but scarce in suburbs and rural labor markets.” This made it possible for growing numbers of their populations, - blue- and white-collar workers alike, - to achieve a middle class life-style and aspire to what we think of as The American Way of Life.
However, starting in the 1970s, blue-collar production jobs started to disappear in cities due to increased automation and international competition. Similarly, white-collar office and administrative non-college jobs were significantly reduced by the rise of PCs, office systems, the Internet and other IT advances. Over these same decades, low-skill, low-wage jobs increased in cities.
Autor’s analysis showed that the well understood polarization of employment by education attainment has been accompanied by, and is likely the result of a less widely recognized polarization of jobs across geographic regions. The urban expansion of high-education, high-skill occupations over the past several decades has been offset by the urban contraction of non-college mid-skill jobs. “While workers are vastly more educated and jobs are vastly more skill-intensive in today’s cities compared to five decades ago, non-college workers in these places perform substantially less skilled work than they did decades earlier.”
For the foreseeable future, superstar cities offer the best job opportunities, but not for less educated workers, a critical change from the time when cities were the place where mid-skill workers could climb the ladder to the middle class. New, well paid urban occupations will continue to favor high-skilled, highly educated workers. Not surprisingly, the US Census Bureau recently noted that workers without college degrees have been leaving big cities for other parts of the country.
“Labor markets in U.S. cities today are vastly more educated and skill-intensive than they were five decades ago,” wrote Autor in the paper’s concluding section. “Yet, urban non-college workers perform substantially less skilled work than decades earlier, and the once robust non-college urban wage premium has largely flat-lined. The evidence presented here offers a circumstantial case that the hollowing out of middle-skill, non-college blue-collar production and white-collar administrative support jobs, which were once abundant in dense urban labor markets, provides at least a partial explanation for these adverse trends in the composition and remuneration of non-college employment.”
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