Education, Skill, and Wage Inequality

Abstract

EDUCATION, SKILL, AND WAGE INEQUALITY Sanford M. Jacobyand Pete Goldschmidt California is the nation's largest state and the world's seventh largest economy. Its dynamism and diversity make it a bellwether of social and economic trends in the United States and internationally. As in other parts of the advanced industrialized world, there has been an increase in wage inequality in California in recent years. A report on income distribution in California finds that inequality--as measured by male ,earnings or by household income--widened during the 1970s and more noticeably in the 1980s, with sharp increasesoccurring during the recessionsof the early 1970s and early 1980s (Reed, Haber, and Mameesh.1996). While this pattern closely tracked national trends, since 1987 inequality has risen more rapidly in California than the rest of the Jt1ation. The top California income decile grew more slowly than its national counterpart, while the bottom declined more rapidly. Possible Causes of InegualitY The growth of inequality in California and elsewherehas sparked a debate over its causes (Danziger and Gottschalk, 1996). One of the key issues is the relationship between the new information economy and changes in what we call the education/skill/technology (EST) nexus , Many economists think that increased inequality can be traced to the growing use of new technologies like computers and to related changes in work organization. Some workers are riding the wa,ve of the new information economy by virtue of their having the right skills to prosper in workplaces based on high technology and team'work. These are the people who former U.S. Secretary of Labor Robert Reich (1991) dubs symbolic analysts. If technology is boosting earnings in the upper deciles of the income distribution, why are workers in the bottom deciles falling further behind? Here~there is less consensus.Some think the answerhas little to do with the EST nexus but instead is due to the impact of trade, immigration, and defense cuts (which were of particular importance in California and similar states like Texas). Others invoke the EST nexus, arguing that there is a growing mismatch mismatch between workers and the workplace. There are, however, two very different conceptionsof what is meant by mismatch. Work Mismatch In one view, the mismatch is due to lower-wage U.S. workers being insufficiently prepared for changes occurring inside the workplace. (We call this a type 1 mismatch.) The result is low earnings on the one hand, and employer dissatisfaction with worker quality (or skill availability) on the other. Nationwide, twenty-four p~~rcent small of