Extending the Race between Education and Technology

Ed’s Comment: “…You don’t need to say “suggests that talent is the limiting constraint.” Your goal is to report factual with minimal opinion. Did they say “diminishing returns?” because 75-38 = 37 i.e., education contributed as much to inequality in the 17 years after 2000 as the 20 years before. That doesn’t seem like diminishing returns. I never trust katz to recognize that a college educated 60thpercentile person is no more productive than a 60thpercentile non-college grad from yesteryear because college, unfortunately, doesn’t teach those students anything useful. There should be no wage increase from education. In the past I thought he misinterpreted that. …”

“….The race between education and technology provides a canonical framework that does an excellent job of explaining U.S. wage structure changes across the twentieth century. The framework involves secular increases in the demand for more-educated workers from skill-biased technological change, combined with variations in the supply of skills from changes in educational access. We expand the analysis backwards and forwards. The framework helps explain rising skill differentials in the nineteenth and twenty-first centuries, but needs to be augmented to illuminate the recent convexification of education returns and implied slowdown in the growth of the relative demand for college workers. Increased educational wage differentials explain 75 percent of the rise of U.S. wage inequality from 1980 to 2000 as compared to 38 percent for 2000 to 2017….. The core findings are of a substantial positive secular trend in the relative demand for college workers and a strong negative impact of increases in the relative supply of college workers on the college wage premium.A 10 percent increase in the relative supply of college equivalents typically reduces the college wage premium by around 6 percent. The implication is that𝜎𝜎)3 is approximately 1.62 (using the estimate in col. 2 of Table A1), similar to other estimates in the literature, typically in the 1 to 2.5 range. Figure A1 plots the actual college wage premium….But the model’s results (see Table A1) divulge a puzzling slowdown in the trend demand demand growth for college equivalents starting in the early 1990s. Rapid and disruptive technological change from computerization, robots, and artificial intelligence is not to be found—though the impact of these technologies may not be well-captured by this two factor setup. The large rise in the college wage premium since 1980 is driven more by slower relative supply growth rather than by an acceleration in skill-biased technological change, or some other demand-side factor. A further comparison of the two periods, 1979 to 2017 and 1939 to 1979, illustrates the point (see Table A2). The log college wage premium increased by 0.274 from 1979 to 2017 (from 0.4 to 0.674, or by 0.072 per decade). Compare that to the change from 1939 to 1979, when the premium declined by 0.088 (by 0.022 per decade). The rate of growth of the log relative supply of college equivalents was 0.31 per decade (or 3.1 percent per annum) from 1939 to 1979. But it decreased to 0.213 per decade (2.13 percent per annum) from 1979 to 2017. The slowdown in relative supply growth accounts for 62 percent (0.058) of the 0.094 per decade increase in the growth rate of the college wage premium post-1979 relative to 1939 to 1979, under the assumption that𝜎𝜎)3 = 1.62. The implied acceleration in the growth of log relative demand for college equivalents of 0.058 per decade explains 38 percent (0.036) of the surge in the college wage premium….But most of the recent rise in wage inequality has occurred within, rather than between, education groups. In fact, the largest part of increased wage variance in the twenty -first century comes from rising inequality among college graduates. There is almost no change in wage inequality for non-college workers since 2000. Such a pattern is consistent with the continuing, rapid rise of the 90-50 wage differential and soaring top-end inequality, combined with stability in the 50-10 wage differential in the 2000s….”

They suggests that supply has driven down college wage premium and note the recent changes in wage inequality are driven by changes in the higher educational attainment group as properly trained talent (implicitly) not education drives compensation “…, the largest part of increased wage variance in the twenty -first century comes from rising inequality among college graduates. There is almost no change in wage inequality for non-college workers since 2000. Such a pattern is consistent with the continuing, rapid rise of the 90-50 wage differential and soaring top-end inequality, combined with stability in the 50-10 wage differential in the 2000s…”

New Autor/Goldin/Katz (implicitly) suggests that talent is the limiting constraint. Paper finds increased educational wage differentials ability to explain wage inequality has changed post 2000 (through 2017) when compared with the previous two decades (1980-2000), “…Increased educational wage differentials explain 75 percent of the rise of U.S. wage inequality from 1980 to 2000 as compared to 38 percent for 2000 to 2017….” Diminishing returns in all things.