Where Is the Land of Opportunity for the Less Educated Workers?

The context

The impact of globalization and technological on our life is debatable and it is one of the core points for policymakers. The job security and wage development (for more information on the effect of globalization on wage development and job security read our globalization report here) are among the issues that make us worry about globalization as an employee.

In the past years, it is believed that technology, by enhancing the demand for educated workers, increases the wage. Moreover, though many countries are undergoing employment growth, workers are more pessimistic and anxious due to globalization and rapid technological change.

In our last GED reads, we took a closer look at the importance of the economic stories that people tell. This time we turn to the new approach of looking at the impact of globalization and technology change on the job, wage, and inequality.

The paradox of wage inequality

Since the 1980’s there is a tremendous increase in the wage of college and post-college graduates, while the wage of high school or less declined significantly among men and is stagnant for women. On the other hand, the supply of college and post-college graduates increase and those of high school decrease significantly. Contrary to the canonical production model’s prediction, the wage of non-college workers decreases along with the increasing wage inequality between college and non-college graduates.

One of the enduring arguments in the canonical studies of the labor market is also the complementarity between college and non-college workers, which implies the increasing relative wage of college graduates should be accompanied by the increasing demand for non-college workers. In other words, the increase in technological advancement increases the demand for skill, due to the complementarity nature.

However, over the course of the past few decades, the non-college workers are not the one benefited from the increasing supply and productivity of the college graduate as the growing wage inequality is accompanied by the falling real wage of the non-college workers which has been observed in many developed countries like US, Germany, and others.

Occupational polarization

There is a spectacular increase in the inequality of earnings by educational groups. One of the most striking evidence in the recent studies of the labor market is the presence of labor market polarization, which is widely documented for industrialized countries like the US, EU, and Germany.

Grouping the occupations into three main categories; manual and service occupation (low-skill low-paying), Routine (middle-skill middle-paying) and Abstract occupations (high-skill high-wage paying), the D. Autor shows the rising growth of the manual and service, and abstract occupations at the expense of the routine (middle-skill middle-wage paying) occupations.

The main explanations for this trend of employment and wage are increasing automation of the workplace tasks and computerization (for more information see our first GED reads) and globalization (which includes increasing trade penetration from developing and emerging countries, offshoring, and urbanization).

Then where do the middle-skill workers move to?

 Given the occupational polarization, the main question could be where do the middle-skill occupation workers end-up. According to the article, the direction of the movement is different for both college and non-college workers.  A high proportion of the middle-skill middle-wage paying occupation working non-college workers moved down to the low-skill low-wage paying jobs, while the majority of college graduates moves in the opposite direction to high-skill high-wage paying occupations.

Moreover, in cities, where there is a large dense population, the opportunities for the less educated workers are very low and they might further move to the suburban or rural areas which are mainly low densely populated and demands low-skill low-wage workers due to the aging population.

Where is the land of opportunity for the less educated? 

According to D. Autor, the skill escalator that non-college workers once ascended as they entered urban labor markets has lost elevation. And the slowing inflow of non-college workers into urban labor markets may reflect less a failure of arbitrage than a fall in the economic allure that these labor markets once held for less-skilled workers. In fact, this is positive for economic development as the slowing migration of non-college workers into high-wage cities should ultimately boost low-skill wages in high-skill labor markets.

Moreover, the demographic change (disproportionate aging in the rural and suburban area) may generate new employment opportunities certain labor-intensive, low skill occupations, like personal care in low-density locations. The non-collage workers were used to be the middle-skill workers in the cities, but now the urban wage premium for these group of workers disappears rapidly. Even though, it is not clear if they are getting the opportunity, the young- adults move to opportunities and stay there.

Thus, what are the jobs of the future?

The works of the past-present are polarizing and not promising for the less educated, especially in the densely populated urban areas. So, what are the work of the future and where they are? Using the occupational list by the DOT, D. Autor categorize newly created and growing occupations into three main categories. These are:

• Frontier jobs: these are a high-tech occupation like program analysts, intelligence analysts, technicians, wind turbine and others. These jobs are mainly requiring high skill, pays higher and performed by men.  
• Wealth works: These jobs have no technological components, but only due to income increases. This category includes jobs like marriage counseling, exercise psychologist, sommelier, Barista, fingernail former, and other personal services jobs. These groups of occupations are mainly performed by low and middle-skilled and pay moderately. Moreover, they are mainly for women workers.
• Last-mile jobs (Ghost works): jobs like a bicycle messenger, underground utility cable locator, and other jobs that do not require any face to face contact for the work to be done. The last-mile jobs require low skill and pay low wages.

Unlike the last mile work, which is mainly not in urban areas (these works are done remote), the frontier jobs and wealth works are prevalent and increasing with population density.

To wrap up: it is a great time to be young and educated but there no clear land of opportunity for non- college adults.

• Autor, David H. Work of the Past, Work of the Future AEA Papers and Proceedings 109 1-32 2019 10.1257/pandp.20191110 http://www.aeaweb.org/articles?id=10.1257/pandp.20191110
• https://www.aeaweb.org/webcasts/2019/aea-ely-lecture-work-of-the-past-work-of-the-future