The falling returns from higher education

Workers in low-paid jobs need a raise, no matter what their educational attainment

The better educated get a better deal in our society, but will helping more young people do better in school reduce income inequality and poverty in our society?

That is the assumption made repeatedly by academicians who study the topic, a literature selectively sampled today in a column by Thomas B. Edsall in the New York Times. He begins by noting the across-the-board growth in educational achievement that’s taken place over the last forty years, a period when African Americans and Hispanics made significant strides in closing the gap in high school and college completion rates.

Yet wage inequality has grown sharply over that period with a high school diploma worth barely more today than it was four decades ago; a college degree worth somewhat more; and advanced degrees worth a whole lot more. Edsall says that is “in large part because ever greater levels of skill — critical thinking, problem-solving, originality, strategizing​ — are needed in a knowledge-based society.”

He then segues into a discussion of which parenting styles are best suited to helping kids succeed in school. He concludes with a call for investing more in early childhood education and family income support to promote “perseverance, punctuality, self-restraint, politeness, thoroughness, postponement of gratification, grit — all of which are increasingly valuable in a service-based economy.”

I’m a great believer in higher education and want to see more invested in pre-K to help kids do well in school, but for none of the reasons Edsall offers. I fail to see how training high school graduates to be more compliant workers will lift their wages.

Nor is it a given that the modern service economy is creating more jobs requiring critical thinking skills. Many of the jobs that today require college degrees – think accountants, insurance and real estate brokers, department store buyers, journalists – are being deskilled, automated out of existence, or made economically obsolescent.

Moreover, cultural factors like racism and classism stand in the way of relying on higher education as a successful strategy for addressing income inequality. African Americans earn less than whites with similar educational attainment, whether it’s a high school diploma or a Ph.D. In the UK, a study of holders of prestigious jobs like accountants or lawyers found the professionals from working class backgrounds earned 17% less than the professionals from more privileged homes.

No power, no raises

Even if we were to magically eliminate covert and overt job discrimination, there will never be enough jobs in the high-end of the service economy to accommodate all the young workers graduating with college degrees. The real problem, in my view, is that workers in the bottom half of the income distribution have no economic power and no vehicle for demanding higher wages.

The current situation is very similar to the experience of industrial workers in the first third of the 20th century. They, too, had no economic power. It wasn’t until they gained some power by forming unions that the industrial working class ushered in what some economists call “the great compression,” the greatest era of income equality in U.S. history.

Today, the industrial working class is a shrinking group that isn’t going to save us from anything. Less than 6% of the private sector workforce is unionized. Wages in many manufacturing sectors have fallen to levels that are not much different than working at a fast-food joint.

Sadly, the low-paid service sector workforce remains stubbornly resistant to union organizing, although polls suggest that is starting to change. Fear of unemployment and virulent (and often illegal) management opposition convinces most low-wage workers to vote no when given the chance to unionize, as happened recently at an Amazon warehouse in Alabama. The current make-up of the Supreme Court guarantees there won’t be any changes in interpreting labor law (the 1936 Wagner Act gave workers the right to organize) for the forseeable future.

The search is on for alternative strategies for lifting wages for the bottom half of our increasingly well-educated working class. Some pundits like Ezra Klein of the Times are touting a guaranteed annual wage, which would address this labor market failure with taxpayer-financed redistribution.

Klein admits it is highly unlikely the current Congress will act on any such scheme. It won’t even include early childhood education in its infrastructure bill. “It is rising worker power, not continued poverty, that we treat as intolerable,” he wrote. “You can see it happening right now, driven by policies far smaller and with effects far more modest than a guaranteed income.”

Firms could do a lot on their own to address income maldistribution. It isn’t written in stone that CEO salaries need to be 274 times the median pay at their companies nor that year after year their highly-educated workers receive higher percentage annual raises than blue- and gray-collar workers.

I’m currently reading Brian Alexander’s The Hospital. I was shocked to learn that some clinicians in a struggling small-town hospital in northwest Ohio earned a half million dollars a year or more while support workers in the hospital struggled to get by on less than $15 an hour.

Some economists worry about the risk of inflation in giving higher wages to people in the service sector. I see the much bigger risk of growing social instability if we fail to address in the yawning wage gap between the relatively small group of highly educated professionals and the plurality of Americans who labor in poorly-paid, service sector jobs.