Wage Inequality: Opening Salvo

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Saturday, 12 January 2013 15:54

Dylan Matthews gets the award for the first news item on the new paper on wage inequality (still in draft form) from my former boss Larry Mishel, colleague John Schmitt, and friend Heidi Shierholz. Mishel, Schmitt, and Shierholz (MSS) take issue with the job polarization explanation of wage inequality, put forward most prominently by M.I.T. professor David Autor. Autor's claim is that the pattern of inequality we have seen over the last three decades can be explained in large part by a loss of middle class jobs, with gains in employment for occupations at both the top and bottom end of the wage distribution.

The MSS paper shows that the shifts in occupational shares don't fit the pattern for trends in inequality very well over the last three decades. They also show that most of the rise in inequality, especially in the last two decades, has been within occupations and not between them. (There are many other issues, it is a 60-page paper.)

I will just note a couple of points in Matthews write-up. He cites Autor as saying that much of the inequality within occupations could be attributable to technical change. This is of course true, but his occupational analysis has nothing to say on this issue. His analysis is designed to show that inequality is driven by changing demand for different occupations. Insofar as inequality is attributable to differences in the demand for workers within an occupation, his occupational shift theory can provide no insight.

The other point is one of motives. Matthews quotes Autor:

"Larry and people in that group hate technical change as an explanation of anything. My opinion about why they hate it that much is that it’s not amenable to policy, ...All these other things you can say, Congress can change this or that. You can’t say Congress could reshape the trajectory of technological change."

While Mishel has made it fairly clear that he considers the technical change argument to be an excuse for not addressing the real causes of inequality, it is possible to turn the question of motives around. The view that inequality is simply the result of technical change and there isn't much we can do about it has plenty of rich and powerful adherents.

For example, the Hamiltion Project, which is largely funded by former Treasury Secretary and Citigroup honcho Robert Rubin, has published many papers that advanced this theme, including this one by David Autor. This doesn't mean that Autor in any way altered his research or his writings to curry the favor of the Robert Rubin crowd, only that substantial incentives do exist to produce research that absolves policy of any responsibility for the upward redistribution that we have seen over the last three decades.

For this reason it is probably best for discussions of inequality to focus on the evidence. In principle we should be able to determine where the weight of the evidence lies. We will probably never know the true motives of the various individuals involved in the debate.