Skill-biased technical change

Economist David Card talks about skill-biased technical change (among other things, link courtesy of Marginal Revolution).

The theory some have is that the reason for growing wage inequality is that the market is rewarding those with more skill. David Card says it's more complicated than that, and to that I have to say, "duh! of course it's more complicated than that." This David Card fellow seems brighter than your average economist.

One thing we pointed out, for example, is that women are lower skilled than men, if you take the fact that they have lower wages as evidence of their skill. The SBTC theory says that people with lower skills should have slower wage growth than people with higher skills. But over the 1980s, women did much better than men. It's also the case that over the 1990s, women's relative wages were fairly stable again. So there was a long period of stability of women's relative wages, then a period of convergence of women relative to men that ended in 1991-92, and then stability again. That's an important set of trends that SBTC doesn't address. SBTC might be consistent with it; it might not be, but the theory needs a lot of auxiliary hypotheses to work.

Obviously the change had to do with women choosing to acquire more valuable skills because society encouraged women in this direction during the 1970s and 1980s. However, many women still choose to acquire less valuable skills because they place less value on money. Furthermore, in fields dominated by women, the average salary is depressed because women place less value on earning money thereby depressing the collective bargaining power of all the workers in that field.

Another trend that didn't fit with the SBTC hypothesis concerns the relative wages of people with different bachelor's degrees. There are a couple of different data sets that collect starting salaries for newly minted B.A.s. What these data show is quite remarkable. Everyone knows that the average wage of young college graduates went up over the 1980s. It wasn't the case, however, that the gains were most pronounced in engineering or science. They were actually greater for graduates in the humanities, which doesn't seem consistent with the idea that there is increasing demand for technically proficient, computer-savvy people.

Now there's something I never knew before! Maybe, because of a combination of H1-B visa technical workers and outsourcing of labor to foreign countries, wages for technical workers are being depressed. Humanities graduates are probably working in marketing related functions, and this lends evidence to my long held contention that the United States is moving towards a marketing economy.

This doesn't mean that the average engineering or computer science graduate doesn't still earn more than the average humanities graduate, just that the gap has been declining.

Comments

[Peter]

Could it also be that an increasing proportion of college students are studying engineering or other marketable subjects? Statistics probably are out there, I don't have time right now to research the question.

[The Engineer]

Well, at least lately (last 5 years), engineering student numbers have plunged. The media have terrified kids with stories of outsourcing. And, in reality, engineering salaries are fairly flat, so maybe the stories are true!

[mickslam]

Card essentially calls the entire concept bullshit in a backhanded way.

The examples he choose aren't just out of the blue or small data quirks, they are the first places you would see effects if the concept were true at all. They are the first places you would look to verify this concept.

Look who he compared:

Women to men
Blacks to Whites
differently skilled college grads
high skill working class positions to low skill ones
high school to college grads

If you don't find effect in these groups, there really aren't many more places to look for effects.

So what has caused inequality to rise? Its pretty clearly not skill-based.

I posted this at marginal revolution as well.

[The Engineer]

Well, HS would say that it all has to do with WHERE you went to college.

How about risk tolerance? It seems pretty obvious that risk taking (entrepreneurship, job hopping, career changing, day trading) is more rewarded than in the past. If you are risk averse, staying with the same company, not doing work on the side, not starting a business when you have the opportunity, not investing with an eye towards growth, you are stagnating.

[David Alexander]

Well, at least lately (last 5 years), engineering student numbers have plunged. The media have terrified kids with stories of outsourcing. And, in reality, engineering salaries are fairly flat, so maybe the stories are true!

In addition, the burst of he dot-com bubble has scared away many students from even touching computer science. Hell, I thought that my ability to toy around with Front Page 2000 was a sign of my high proficiency in computer science until I needed tutoring just to get through the introductory computer science course at Stevens. I knew plenty of people who had similar experiences and fled.

It also doesn't help that most stand-alone engineering schools are lacking in females and overloaded with boring Asian kids.

[The Engineer]

Stevens? How many colleges have you attended?

[David Alexander]

Three, Stevens Institute of Technology, Queens College, and Nassau Community College. Oddly, I feel the most comfortable at Nassau. Queens wasn't too bad, it was just really isolating. Stevens was a hellhole that deserves to rot.

[Anon]

"Stevens was a hellhole that deserves to rot."

What was so bad about it? I have never heard of that college, but then again I am from the West Coast.

[David Alexander]

What was so bad about it? I have never heard of that college, but then again I am from the West Coast.

Stevens is an overpriced private engineering school in Hoboken, New Jersey. The professors weren't interested in teaching, but only doing their research, and fighting the administration for raises. The curriculum is absurdly hard, and allegedly, MIT and CalTech tend to be softer on their students. In addition, the dorms are outdated and guarenteed housing is euphemism for shuttle bus to a hotel nowhere near campus.

It doesn't help that the students are socially undeveloped and prone to stealing from their roommates (and sell stolen items on eBay). Also, the girls, are so-so looking at best. Mind you, at Stevens, I probably could have had my way around with the girls, but I'm just wasn't interested in girls back then.

[The Superfluous Man]

"engineering student numbers have plunged."
Not true - from 2000 to 2004, the number of engineering graduates has grown about 10% (p.27 http://www.asee.org/publications/profiles/upload/2005ProfileEng.pdf and http://nces.ed.gov/programs/digest/d05/tables/dt05_249.asp ). A bit unrelated, but I find the variation in number of students in a given major interesting, though I'm hesitant to draw conclusions on the smaller ones. And I'd be a bit cautious about giving too much weight to annual fluctuations (although the greater the fluctuation in absolute numbers, eg, in the thousands, the more significant). For instance, nuclear engineering has nearly two and a half times as many grads as 6 years before (and oil about 50% more). Computer Science Bachelor's peaked at 9,156 in '04 and is down to 8,419 for 2005, but the number of Master's awarded in the field is flat for that period. Interestingly, women are most frequent in Master's, then Bachelor's, then Doctoral engineering program graduates. And I'd be a bit cautious about giving too much weight to annual fluctuations (although the greater the fluctuation in absolute numbers, eg, in the thousands, the more significant).

Lemme start by saying I really like this blog. I'm pretty much a huge econophile.

Anyway, it may be worth mentioning that David Card was 50% of the researchers involved in the Kruger-Card study, which basically concluded that a raise in the minimum wage wouldn't affect unemployment, and might even reduce it. This despite evidence compiled earlier indicating that changes in wage-rate did influence employment numbers.

I'm not sure if its fair to say woman are less skilled than men but they are less numerate, less technically minded, and not as physically strong so that tends to limit the amount of high paying jobs they are willing and able to do.

In terms of assessing fairness in pay rates you would need to assess male incomes in women dominated professions like language teaching, journalism and social work and see if their is any difference in pay rates between the sexes.

[Spungen]

male incomes in women dominated professions like language teaching, journalism and social work

Journalism, women-dominated? Absolutely not. Entry-level reporting jobs might be just about 50-50, but the percentage goes down quickly as you rise in beat prestige or management. This holds true regardless of the size of the paper.

Maybe you were thinking that based upon the percentages studying communications and J-programs at universities?

[Steve Sailer]

I suspect that what-you-know jobs will be increasingly outsourced and automated, so the real money increasingly is in who-you-know jobs -- just like the bad old days!

[Anon]

"...this lends evidence to my long held contention that the United States is moving towards a marketing economy."

What kind of jobs will flourish in a Marketing Economy? I can't imagine that everyone will be working in sales and marketing jobs.

[SFG]

Hm. Sailer may have a point. HS and the rest of us may have been biased by our proximity to the overclass in Manhattan--it doesn't seem like a great era for vice presidents of marketing in toilet paper factories either.

[nz conservative]

Spungen, you may have got me there.

If woman are taking up the majority of places in journalism courses why aren't they numerically dominant in journalism?

It may be different in the US, but in Australia and New Zealand about two thirds of journalism graduates are women.

Is this a time lag thing or is it because males are more numerous in areas like business reporting where broad journalistic training may not be necessary?

[SFG]

I guess what I mean is that elite sales jobs like I-banking are doing well but sales jobs for the hoi polloi, available to state college graduates, aren't doing much better than before. I was chatting with a pharm rep and said he must be happy because he does much better than the doctors! He said, not really--in sales you can have a really good year followed by a really lousy one.

What-you-know jobs like engineering and computer programming are being destroyed by outsourcing, though. So all you nerdy libertarian types should realize the free market no longer favors you!

Where I do see job growth is in jobs that have to be done in person. This includes 'caring' jobs like nursing and most forms of medicine but also things like maintenance and plumbing. We might see a resurgence in blue-collar jobs, and this might be a place for techies to move into.

[bbartlog]

What-you-know jobs like engineering and computer programming are being destroyed by outsourcing, though

Not really as far as I can tell. Wage growth has been stagnant and I can readily believe that engineering wages would be quite a bit higher without H1B visas and outsourcing, but there doesn't seem to major unemployment (at least in IT / comp sci engineering type jobs). Also as I understand it the relatively shallow pool of competent computer scientists in India is starting to be pretty fully exploited... not everyone there is an IIT grad or even minimally competent.
I guess the outfit where I used to do mechanical detailing for rolling mill equipment did go bust though. Maybe in noncomputer industries things are worse.

[The Engineer]

>>Not true - from 2000 to 2004, the number of engineering graduates has grown about 10%

My impression from trade magazines is that the number of grads in the '80s was huge, that they fell greatly in the '90s, and fell more in the last 5 years.

If they did in fact increase in the last 5 years, it is from a low base. Also, demographically, they should increase, as the large Boomer-offspring generation moves through the system. The large number of grads in the '80s was the boomers.

[bbartlog]

The large number of grads in the '80s was the boomers.

The boomers' kids you mean? The echo of the baby boom? Because the boomers themselves must have graduated in the 60s and 70s...

[The Engineer]

It's not just what you know, or who you know, it is oftentimes how you present it. Even in engineering, appearances matter a lot. Things like powerpoint presentations, e-mails, and other written docs are still extremely important. This is where the H1B guys fall down, and where Americans can compete and earn their salary premium.

[The Engineer]

>>Stevens is an overpriced private engineering school in Hoboken, New Jersey. The professors weren't interested in teaching

Sorry, that's no different than any engineering school. Seriously. No school is any different. And its not just engineering (although engineering is really bad in this regard).

>>The curriculum is absurdly hard,

Again, that's the curriculum at any engineering school.

Look, it's a difficult subject. You need to know the math. It's as simple as that. If you can't pass the 3 Calc courses and Diff Equs with near A averages, you are going to have difficulty throughout the entire program.

I recall doing EVERY odd problem in the Calc textbook, because they had answers in the back of the book. I wasn't a good math student in HS, but I was by my sophmore year of college. I just put the time in.

>>and allegedly, MIT and CalTech tend to be softer on their students.

I doubt it. More likely, they only admit people who got 800 on their math SATs. My wife is a math whiz, she didn't put anywhere near as much effort into Calc as I did. I bet the MIT guys are like her.

I only know one guy who went to Caltech. He hated it.

[superdestroyer]

Engineer,

You talked about how hard engineering degrees are but you have written about partying at college. Most Engineers I know hated their college experience and were in almost constant fear. Engineering schools is still a place that feels comfortable having people fail.

[The Engineer]

>>Because the boomers themselves must have graduated in the 60s and 70s...

The first boomers were born in '46. They started college in '64. Supposedly the Boom ended in '64 or so. They entered college in '82.

So they were still there in the '80s.

Also, it took some time for the "baby bust" to really kick in. I was born in '71, and it was the couple of grades after me where it really kicked in (closing schools and whatnot).

[The Engineer]

>>You talked about how hard engineering degrees are but you have written about partying at college.

The two are mutually exclusive?

Look, if you just spent all day in class, and spent 5 hours after dinner studying, what better thing can you do than go out and get loaded?

What you fail to understand is that the bars close at 4 in Buffalo. So the numbers add up, although sleep was in short supply.

>>Most Engineers I know hated their college experience and were in almost constant fear.

Because they weren't drinking enough.

No, seriously, there is a lot of fear there. It is not an easy degree.

But the funny thing is that, although there was fear while I was in college, I am fearless now. I did an amazing thing, getting that degree. It's like being in the Marines, I'm one of the few. I know that I can compete with anyone, intellectually. I can't say that I felt that way when I graduated high school. I was nothing special there.

>>Engineering schools is still a place that feels comfortable having people fail.

Absolutely true. There is a "weed out" mentality.

[loki on the run]

For political reasons we make it possible for some lower-skilled people (eg, women and minorities) to earn more money than other, higher skilled people (eg white and east asian and jewish males).

However, in startups, that tends not to be the case because EEO does not apply.

I am counselling my daughters to take advantage of that trend.