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The Monster that Ate My College Degree

Why It Takes a Doctorate To Beat Inflation

David Wessel

Wall Street Journal
October 19, 2006; Page A2 

 

The typical American worker with a four-year college degree earns a lot more money than a similar worker who didn't go beyond high school -- 45% more. Education does pay. But in today's economy, getting a bachelor's degree is no longer a guarantee of raises big enough to beat inflation.

Although the best-paid college grads are doing well, wages of college grads have fallen on average, after adjusting for inflation, in the past five years. The only group that enjoyed rising wages between 2000 (just before the onset of the last recession) and 2005 (the most-recent data available) were the small slice with graduate degrees.

wesselgraph.jpg
Wall Street Journal, Oct 29, 2006, A2

Think about that: Even though the economy and productivity have been growing smartly, lots of workers who played by the rules and went the distance to get a four-year college degree aren't getting ahead.

How come? Labor's slice of the apple is smaller and corporate profits' slice is larger, but that's probably temporary. The more lasting trend: Labor's share has been sliced increasingly unevenly. The very best-paid workers are getting the bulk of the raises.


Wage inequality has been widening for a couple of decades; the trend didn't coincide with the election of President Bush. At first, Americans in the middle were gaining on those at the bottom, and Americans at the top were gaining on those in the middle, and so on, all at about the same pace.

But in the past decade, the gap between the bottom and the middle hasn't widened much while wages at the top have pulled away. The wage gap between those with business, law, medical or other postgraduate degrees has widened a lot more than the gap between college and high-school graduates. Even excluding capital gains, tax-return data crunched by Emmanuel Saez of the University of California at Berkeley show that the top 1% in the U.S. got 16% of all income in 2004, compared with 9% in 1984.

Before nitpicking emails arrive: No single set of numbers gives a complete picture. The data in this chart cover only cash wages -- not health benefits or pensions. If they were included, most of those inflation-adjusted minuses would turn to pluses. But inequality wouldn't disappear. The best-paid 20% of workers on private payrolls are three times as likely to have health insurance as those in the bottom 20%, and this tally doesn't count stock options and the like -- and you know who gets the bulk of those.


The question isn't whether the gap between winners and losers in the labor market is widening; it's why. And it's no longer as simple as saying: The more education one gets, the more one earns. Something more complicated is driving up pay at the top.
 

Explanations come in three strains, all of which have some merit. One, it's more socially acceptable than it was a generation ago for the top-tier chief executive, hedge-fund manager or baseball players to make an enormous amount of money. Two, the world has changed in ways that make the No. 1 or No. 2 -- whether a trial lawyer or a rock star -- much more valuable than No. 19 and 20. As technology has helped create superstars, the gap between Oprah's paycheck and those of local talk-show hosts is larger than ever.

 

And, three, there's the influence on supply and demand of globalization and technology. At the high end, sharply rising wages suggest demand for the most-educated workers is growing faster than the supply. "The very top is doing very well," says Harvard University labor economist Lawrence Katz. "It's changes in demand, combined with the fact that it's very hard to replicate a lot of that talent... and we haven't expanded the ranks of those professions as fast as we could."


At the bottom, where the supply is influenced by the ranks of unskilled immigrants and laid-off workers falling out of the middle class, demand for hotel workers, nursing aides, security guards and the like may be helping to prop up wages even though the minimum wage hasn't kept up with inflation.


It is in the middle -- where many four-year college graduates work -- that imports, overseas outsourcing and technology seems to be reducing U.S. employer demand most significantly, and thus restraining wages.


That is the kind of shift in the tectonic plates of the economy that produces political earthquakes.

FHEAP Comment: Wessel describes very well the obvious, but misses the forest for the trees: even for sceptics he details the stratification dynamics  taking place within the college graduate aggregate and its impact on pay levels, but without calling it what it is. 

In other words, he is missing the tell-tale signs of an accelerating Credential Inflation spiral. It is the forces of Credential Inflation, depicted here graphically as a stratifying bifurcation at the upper pay levels / advanced degree levels, that better explains the broader context of the declines duly noted here. (Click here: Randall Collins on Credential Inflation; Ivar Berg and Randall Collins on credential inflation and its effects).  
Also, review of Credential inflation's impact on Educational Attainment

Update: Confirmation of these trends comes from a story in the Wall Street Journal (9/24/2007, A1 and A11) on the difficulties that growing numbers of recent law school graduates are having finding jobs.


Particularly interesting is “A survey of about 650 Chicago lawyers published in the 2005 book “Urban Lawyers” [which] found that between 1975 and 1995 the inflation-adjusted average income of the top 25% of earners, generally big-law firm lawyers, grew by 25% -- while income from the other 75% actually dropped.” (WSJ 9/24/07 A11)


True to type, this local stratification of the ranks of Chicago lawyers is a good example of credentialism; and it is also an interesting example of occupational stratification-bifurcation, that is, “something happening at the top,” where conditions of extreme competition and hierarchicalization predominate.

 

MORE Update:
David Wessel, WSJ Online posted this: Oct 11, 2007  6:48 am
RE: The US Job Market

"It is also true that there seems to be a competition of credentials in the market today, i.e. an eagerness to get degrees and certificates to signal to employers that you're well-trained and an appetite on employers' part to hire people with those credentials on the theory they are more likely to be good and productive workers than those without credentials. I do sometimes wonder if that's a kind of mindless arms race."