For most Americans wages are not rising fast enough. That’s been blamed for holding back economic growth, and that’s patently false.
According to the liberal narrative, businesses are too tight fisted and exploiting ordinary workers and women. Simply mandating higher pay—for example, by raising the minimum wage and adopting a national variant of California’s Fair Pay Act—will miraculously increase family incomes, spending and growth.
For those strategies to succeed, either worker productivity would have to miraculously increase with wages, or we would get a lot of inflation and very little progress advancing the wellbeing of the typical family.
The more fundamental problem is American workers increasingly don’t have the skills to work in the new digital economy.
The former include professional, managerial and technical workers including those requiring a college degree like engineers and investment banking, and those in technical fields requiring a year or two of post-high school training in manufacturing, health care and the like.
The latter group includes folks like waiters in upscale restaurants, sales personnel and seamstresses in high end clothing stores and hairdressers.
As the information economy has grown and Americans can increasingly sell what they know throughout the world, the demand for and incomes of the first group have grown rapidly. Those folks live well by visiting expensive restaurants and resorts, wearing designer clothes and accessories, and pampering themselves with expensive personal services.
The workers taking it on the chin and seeing employment disappear or grow slowly have been those in between—those doing repetitive assembly work at factories and the army of bookkeepers, filing clerks, bank tellers and the like. Those occupations do not require a high level of knowledge or sophisticated training but rather merely the weakness of mind to do boring repetitive work.
Whereas a high school graduate on academic, non-vocational track could once earn a decent living, ever more sophisticated machines and software and competition from cheap labor in Asia have hammered down those occupations and the wages they pay.
Donald Trump and Bernie Sanders are correct to target poorly conceived and badly enforced trade agreements. Undervalued currencies, subsidies and barriers to U.S. exports in Asia encourage more outsourcing—for example, those making autoparts, staffing call centers and performing routine basic legal research. However, the other fundamental problem is that too many young Americans do not get a decent education.
Fewer than half of all high school graduates possess the reading and quantitative skills needed to succeed at technical training programs or in college, and about 40 percent of all college graduates lack the critical thinking and reasoning skills to do managerial, professional or technical work.
Of the college graduates that can think, too many major in social sciences and humanities that provide little background to succeed in medicine, finance and the vast array of opportunities created by the digital economy.
Those folks—whether they went to college or not—are not prepared for much more than serving coffee at Starbucks.
The calculus of falling wages is simple—the majority of young people can do no more than perform repetitive tasks and thanks to smarter machines and outsourcing those jobs are shrinking or growing too slowly.
High schools don’t offer a lot of technical training opportunities and thanks to political pressures to raise graduation rates, many are passing out diplomas to students who have not earned them. Similarly, university rankings systems place a premium on high graduation rates and passing out bogus degrees.
Fraud and wasted resources at America’s schools and universities are a big reason wages are sinking and growth is so slow.
Peter Morici served as Chief Economist at the U.S. International Trade Commission from 1993 to 1995. He is an economist and professor at the Smith School of Business, University of Maryland.