Education, wages, and economic inequality

Paul Campos:

along a couple of interesting stories regarding what’s happening in the US economy to workers with different educational credentials.

This WSJ article looks at the long-term decline in the labor force participation rate among prime working-age men (the LFPR is the percentage of a group’s members who are either employed or looking for work). The LFPR among this group has been declining for more than half a century, and has now fallen to 83% among 25-54 men with a high school degree or less (it’s 94% among 25-54 men with a BA degree or more).

Meanwhile Georgetown’s Center on Education and the Workforce has put out a report estimating that 99.2% of the jobs created since the end of the Great Recession have gone to workers with at least some college education.

Now to the extent that estimate is accurate it would appear to mean that workers “need” at least some college credits to be competitive for new jobs. But “need” is a tricky concept in this context. Do workers need college credentials because the jobs that demand them require either enhanced human capital or skills training provided by college in order for the jobs to be done, or at least done adequately? Or are employers using higher ed as a sorting and signaling device because they can?

One clue is provided by wage rates. If employers are hiring the college-educated because these credentials indicate that employees are acquiring scarce assets, either in the form of enhanced human capital or practical skills, then the increased wages paid to them should reflect that scarcity. On the other hand, if credentials are simply being used as sorting devices to winnow a overly large labor pool, then we wouldn’t expect to see wage increases for the lucky winners of this lottery.