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Home Publications Blogs Beat the Press The Secret of Slow Wage Growth: College Myths in the NYT

The Secret of Slow Wage Growth: College Myths in the NYT

Saturday, 08 February 2014 09:46

The NYT noted that wages have been growing slowly in the recovery, which it argues also explains slow consumption growth. It then blamed weak wage growth on an uneducated workforce;

"The problem for economic growth in general, and wage growth in particular, is that only one-third of the American work force — 50.4 million out of 155 million — have a college degree or more. By contrast, there are approximately 73 million workers who have a high school diploma or some college, and 11 million workers who did not finish high school.

"With many less educated workers chasing a limited number of new jobs, employers have little reason to increase wages. 'It’s just an extremely competitive environment for workers, where people have little negotiating power,' Mr. Harris said." [Mr. Harris is identified as a Bank of America Merrill Lynch economist.]

This story doesn't fit the data. In the last year the average hourly wage of production and non-supervisory workers rose by 2.2 percent. This group, which accounts for just over 80 percent of the workforce, is overwhelmingly composed of people without college degrees. The average hourly wage for all workers, which includes supervisory workers who mostly do have college degrees, rose by just 1.9 percent in the last year. This means that wages for supervisory workers actually rose somewhat more slowly on average than did wages for non-supervisory workers, the exact opposite of what the article claims.

In fact there is no evidence that businesses are having a hard time finding college educated workers. While the piece notes that the unemployment rate for college educated workers is just over 3.0 percent, it was 2.0 percent before the recession in 2006-2007 and just 1.7 percent in 2000. In fact, the current unemployment rate among college grads is as high as at any point it hit following the 2001 recession. There is simply no evidence to support the claim that we are facing a shortage of college educated workers or that these workers are seeing a healthy pace of wage growth.

Comments (12)Add Comment
written by tom, February 08, 2014 9:19
from the NY Times just 6 months ago


There's another flaw in NYT's theory
written by Bill H, February 08, 2014 9:30
Employers don't pay based on education, they pay based on the value of the work performed and on the competetiveness of the labor market. Given equal levels of experience and ability, a truck driver with a college degree does not earn more than a truck driver who quit before graduating from high school.

Basically, wages will go up when unemployment goes down, when fewer people are applying for the same job.
written by NewMexiKen, February 08, 2014 10:27
50.4 + 73 + 11 = 134.4 million workers. Did other 20.6 out of 155 total not go to school at all or did author decide there would be no math?
written by Ellis, February 08, 2014 10:31
Most people I know haven't had a raise in years, sometimes more than a decade. And health and pension benefits are lower and cost more. Alongside that, there has been a fantastic growth of part-time, temporary, sub-contractors. And the minimum wage is constantly being eroded by inflation.

How can anyone talk about wages going up? I don't get it.
"under my thumb"
written by John Parks, February 08, 2014 10:37
"little negotiating power" is the crux.
What Mr. Harris did not say was
"and that is why we can hire tellers at less than a living wage and let the taxpayer subsidize them and their families with Food Stamps and ACA."

predatory capitalism at it's best..........
written by Last Mover, February 08, 2014 10:52
It then blamed weak wage growth on an uneducated workforce;

What? Many of the educated work force who do have jobs are underemployed in jobs like waiters and taxicab drivers, pulling down their wages even further.
Jobs, Wages and Training
written by Ron Alley, February 08, 2014 11:20
Hourly wages for production and non-supervisory workers rose for two significant reasons. Most corporate employers are reluctant to spend for the training of production and non-supervisory workers. The employed cadre of production and non-supervisory workers possess experience and essential task-specific skills. However, their ranks have been thinned by layoffs and increased use of computers and automation.

Newly hired workers can acquire the essential task-specific skills with a combination of classroom and on-the-job training. In most cases, the learning curve means that newly hired workers will take some time to reach the proficiency and productive efficiency of the employed workers. Therefore employers are willing to increase the pay of their cadre of production and non-supervisory workers rather than endure the expense of training and losses associated with the learning curve.

So, the result Dean points out is not surprising. The college graduates come with a degree. However, a degree does not necessarily prepare the graduate to perform a specific job. A college graduate must also absorb the corporate culture to be efficient in supervising or providing administrative support. As many production and non-supervisory workers have been let go, the ranks of supervisors have been thinned as well. Employers, faced with the decision of whether to let a college graduate go, will choose to reassign the graduate if possible. Doing so avoids the expense and disruption of a new college graduate who is learning to work effectively with a group of coworkers while meeting the needs of other groups in the organization. Employers find that they do not need to offer financial incentives to college graduates who must choose between reassignment or being let go.

The effect has been enhanced by the slow recovery. The large reduction in the number of production and non-supervisory workers at the beginning of the Great Recession has meant that as orders increase, they must either be met by the existing workforce or by newly hired workers. Employers will naturally choose to defer new hiring and training of new workers as long as possible. College graduates are not likely to be hired to supervise and to provide administrative support for a larger workforce until the workforce actually has been increased.

The recovery is just too weak to support a business decision to invest the capacity to provide more goods and services.
written by Dryly 42, February 08, 2014 12:19
In the Clinton administration the unemployment got to 4% without inflation. Did the education of the workforce decline that rapidly during the Bush-Cheney and first term of the Obama administration?

Or, perhaps the answer is found in the lack of aggregate demand caused by the loss of 8.7 million jobs, repair of balance sheets, and, since 2009 the astounding 95% of the increase in income going to the top 1%.
But they know this is true!
written by Dave, February 08, 2014 1:22
This is indicative of mushy analysis by people trying to make sense out of macroeconomics using intuition and political talking points.

For some reason we have a war on public schools. The talking points would have us believe that they are terrible and are failing completely. They often site data showing our test scores vs. other country's test scores. This is a bad measure for almost any purpose.

But they need to make sense, they need to connect the dots to our bad economy, so they produce an amateurish analysis in an effort to make the political talking points more believable. They failed.
Well educated vs. intelligent
written by Dave, February 08, 2014 2:54
I suppose a lot of people think the higher end of the plot indicates an increasing need for people with higher education.

Does it?

Steve Jobs never graduated from college. Bill Gates has even less formal education than Steve Jobs. If they can run those companies, than their employees didn't necessarily need to be highly educated either.

These people were smart, but not well educated. There's a big difference. What we're seeing is a huge rise in the demand for smart people. There's a correlation with intelligence and education level, but it isn't as strong as many might think.

But what are we really talking about? Smart people can self educate to some extent, but certain areas of engineering lend themselves to self education much easier than others. In general, writing software, something Bill Gates got rich on, is much more about raw intelligence and less about education than most fields. Similarly, the digital computer design that the Woz did for Jobs (Woz did all the hard work!) can be self taught much easier than analog electronics. Analog design requires much more discipline and a better formal education.

When people hire into these jobs, they often demand a higher education, but they rarely make good use of it. It is a litmus test of intelligence, and not a very good one.

We're not seeing an economic split based upon work level, motivation or the need for a higher education level. No, this split is based upon the perception of raw intelligence, which isn't very accurate.

written by watermelonpunch, February 08, 2014 8:17
Having been to college is not going to give you any better negotiating power for getting a fair wage for cleaning toilets.
written by sherparick, February 08, 2014 8:44
It is amazing how memes get locked into the establishment media and political village. The fault of high unemployment and low wage growth is all the fault of the stupid workers! However, the record corporate profits are due to the brilliance of the .1% who are the Masters of the Universe. One thing Mr. Schwartz does not mention is that Public Sector workers, who predominately had college educations (being teachers and civil servants), is down by 1,000,000 jobs since the Obama administration began across Federal, State, and Local workers. By the way, the Republican Strategy Group published a plan in December 2010 stating that they wanted to reduce the number of public sector workers to put downward pressure on wages for those with college education. It apparently has worked, but they now don't want the credit.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.