Product Description
This book provides a careful historical analysis of the co-evolution of educational attainment and the wage structure in the United States through the twentieth century. The authors propose that the twentieth century was not only the American Century but also the Human Capital Century. That is, the American educational system is what made America the richest nation in the world. Its educational system had always been less elite than that of most European nations. By 1900 the U.S. had begun to educate its masses at the secondary level, not just in the primary schools that had remarkable success in the nineteenth century. The book argues that technological change, education, and inequality have been involved in a kind of race. During the first eight decades of the twentieth century, the increase of educated workers was higher than the demand for them. This had the effect of boosting income for most people and lowering inequality. However, the reverse has been true since about 1980. This educational slow-down was accompanied by rising inequality. The authors discuss the complex reasons for this, and what might be done to ameliorate it.
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 Many unresolved issues
I found this book fascinating and would recommend it although I found it frustratingly flawed, and therefore, without the authors' further comments, will eventually have to reduce my 4 star rating. The book's core thesis is that the rate of technological change in the 20th century has been constant, while the supply of skilled workers has been uneven, leading to expanding and contracting wage differentials between skilled and unskilled workers over the course of the century. The variation in supply and correlation to changes in relative wages seems large enough to be convincing. But while I find the case persuasive, I couldn't help but feel it was, in part, reserve engineered to reach its conclusion. It seemed to me that three critical issues remained either unwittingly or intentionally overlooked.
In part, large part perhaps, I would guess, the "skill" of a worker transcends their education. So a high school drop out today, when most everyone graduates from high school, represents a much less skilled worker than a drop out at the turn of the century, when very few graduated. To suggest the ratio of wages between high school graduates and drop outs today can be compared to the past without some adjustment, or even mention of an adjustment, that take this into consideration, seems lacking. The same is true of college graduates, where the meaning of the term has been averaged down. The analysis seems to suggest that a college or high school graduate is equivalent no matter what (changing) percentile of the population it encompasses or, more complicated mathematically, that the relative curve across percentiles is such that any point is logarithmically proportional to any other. While perhaps this is a second order issue on the margin, over the large shifts that have occurred in the education of various percentiles of workers over the course of the 20th century, leaving it unmentioned is disappointing.
While the mathematical logic of relative wages vs. relative supply (of skilled vs. unskilled workers) seems reasonable on the surface, it's not clear why expansion in the supply or demand of one would affect the ratio between them proportionally. It would seem, for example that the US has absorbed a large numbers of unskilled immigrants, it has offshored an unprecedented volume of "unskilled" goods, and it has accelerated productivity improvements and yet the unskilled wage has remained flat. That suggests that the marginal product of unskilled labor is largely flat over large shifts in volume. To argue that the expansion or contraction of supply drives (relative) wages up or down requires a downward sloping marginal product of labor, unskilled labor in this example. I don't see why that would necessarily be the case to the degree necessary to explain the data. Quite the contrary, it seems unlikely based on the prevailing flat wages. In that case, an expansion of unskilled workers would have no effect on the wages of unskilled or skilled workers and their subsequent ratio, whereas, in this example, the expansion of skilled workers could have such an effect. To assume they are wholly substitutable seems to be a stretch.
Similarly, the book overlooks both productivity issues and hours worked in analyzing the supply of labor. We know the most productive workers are now working longer hours than the rest of the working population. And it's hard to believe that the information age hasn't, to a very large extent, affected the productivity of the most productive workers. This would suggest that their supply has expanded far more than their headcount. If that's true, then if supply has expanded and wages have expanded, exogenous technological breakthroughs are likely driving up wages and not merely reduced relative headcount as the book argues.
Piecing these together, it seems easy to imagine significant changes in the relative productivity and resulting supply of skilled vs. unskilled labor, along with differing marginal product of labor, highly circumstantial substitutability, and varying rates of exogenous technological changes all significantly affecting these ratios in ways not considered by this analysis. Perhaps the authors' argument is better stated this way: if one assumes that the rate of technological change is constant, and that relative productivity changes between skilled and unskilled are similar (although the book argues that in the past that was not the case), and that substitutability is generally high, then relative headcount should drive relative wages; because it appears to be highly correlated, these assumptions are likely to be true. That's a pretty big leap of faith. And, if the authors are correct that it is merely a matter of relative supply, it's not at all clear to me why diminished relative supply of skilled workers has led to an increase in the percentage of overall income paid to skilled workers, as has been the case. Apparently there was previously far more of them than was optimal! I find that hard to believe and apparently so too the authors. And the recent 10 to 15 year growth in output per US worker relative to Europe and Japan, despite unfavorable demographic shifts in the US workforce (toward less educated Hispanic immigrants), seems greatly at odds with the book's analysis.
Lastly, the book is very weak on recommendations and in many cases what recommendations it does offer, a steeper income tax for example, hardly stem from the 300 pages of analysis that comes before. In another example, it suggests that testing is bad because it may increase drop out rates. But, I sit on the board of a charter school that today has outstanding test scores where previous testing and low scores put enormous pressure on the school to make positive changes, changes that were made because of the demand for higher scores. Again, there is little in the analysis to warrant their suggestion that more forgiving testing would be a net positive. I find the simplistic solutions largely unsupported by their analysis to be disappointing.
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