It's the Economy, Stupid

For those of you who like to believe that the job market is just fine, here's some food for thought. Apparently, the disparity in pay between the highly educated and the not-so-highly educated is narrowing.

Some choice quotes:

The evidence is in a new Fed study of family finances, the latest in a triennial series. It shows modest but clear signs of incomes converging rather than diverging. Between 2001 and 2004 (the most recent year for which data are available), incomes of the poorest 20 percent of families increased while incomes of the richest 20 percent fell. Basically, the poorest families' share of total incomes grew, and the richest families' share shrank. Incomes became just a little less unequal.

What could that trend reversal mean? The most obvious explanation seems highly counterintuitive: The skill premium, the extra value of higher education, must have declined after three decades of growing...the premium had indeed fallen sharply between 2000 and 2004. The real annual earnings of college graduates actually declined 5.2 percent, while those of high school graduates, strangely enough, rose 1.6 percent.

The other main possibility is that something unexpected and fundamental is changing in the way the U.S. economy rewards education. We don't yet have complete data, but anyone with his eyes open can see obvious possibilities. Just maybe the jobs most threatened by outsourcing are no longer those of factory workers with a high school education, as they have been for decades, but those of college-educated desk workers.

Perhaps so many lower-skilled jobs have now left the U.S.--or have been created elsewhere to begin with--that today's high school grads are left doing jobs that cannot be easily outsourced--driving trucks, stocking shelves, building houses, and the like. So their pay is holding up.

College graduates, by contrast, look more outsourceable by the day. New studies from the Kauffman Foundation and Duke University show companies massively shifting high-skilled work--research, development, engineering, even corporate finance--from the U.S. to low-cost countries like India and China. That trend sits like an anvil on the pay of many U.S. college grads.

Because our best-educated workers are earning less, and the incentives for higher education may thus be declining, the result could be a more uniform--and lower--standard of living. Be careful what you wish for.

And here is an article showing that roughly 25% of all electrical engineering jobs have been lost since 2000. That's not too surprising (at least in the Bay Area) but the consequences may be worrisome:

Declining employment can be as worrisome as increasing unemployment. The economy can still benefit from an unemployed engineer who has taken a non-engineering job. But when an engineer leaves the profession, those high-value skills may be lost for good.