The American job market has changed dramatically over the past fifty years as the cost of transportation and communication has decreased and the capacities of other nations have grown. This transformation has been accompanied by a rise in overall wages, but growing inequality. This inequality has been attributed to everything from tax changes, destruction of unions, Reagan’s slashing of social programs, the proliferation of single-parents households, immigrants, and rent-seeking by the rich at the expense of the poor.
While these factors may play a secondary role, Robert Reich properly attributes the gap to a change in the returns on human capital. In the mid-latter half of the 20th century, the wage premium that a college degree commanded was much smaller than it is today. According to Reich’s aforementioned book, a high school graduate earned ~$32,000 (1987 dollars) in 1973, and $28,000 in 1987. Meanwhile, a college graduate earned 80% more than his high school counterpart in 1980, and nearly doubled that by 1990.
Inequality is growing because the market for labor is changing. The assembly-line worker was paid X because his input was worth X, given the fact that these large corporations needed a great deal of simple human input – and it needed to be American – to produce and distribute their product at a high volume. Human labor wasn’t a commodity because the supply of labor was limited by geographic location.
Technological developments have both directly (replacing men with machines) and indirectly (lowering the cost of doing business across oceans) rendered the high-school graduate a commodity. If all you can do (with your current training) is effectively follow orders, you will compete with both billions of other human beings and machines (either that currently exist or could be developed cheaply relative to your salary.)
I don’t want to pigeon-hole this phenomenon as strictly a “high-school graduate” thing. It’s not about education, per se, it’s about the reproducibility of the work. From textiles to tech support to pathology, if the work is simply applying an existing solution to a straightforward problem, the value of the work is plummeting. This decrease in value is generally leading to a decrease in wages, though the workers are doing their best to secure wages that are higher than the value of their work.
Reich divides the labor market into three types of jobs:
- Routine productive services (e.g., data entry): Low pay, can be outsourced, primarily value is hours put in to work
- Interpersonal services (e.g., cleaning lady, acting coach): Similar to routine services but pay ranges widely, can’t be outsourced, pay reflects both hours and assessment of quality of work
- Symbolic analytic services (problem “solvers, identifiers, brokers,” e.g., consultants): Can be outsourced, Value-based payment (rather than time)
The last group, symbolic analysts, is the “creative class” about which Richard Florida writes, though not all symbolic analysts are professionals, and not all professionals are symbolic analysts (this cannot be overstated). A secretary can be a symbolic analyst, and a manager can be a professional, but not a symbolic analyst. The old categorizations of types of work are no longer applicable.
Reich labels this group symbolic analysts because they simplify reality into abstract symbols, which they then can manipulate, and translate back into reality. The return on this skillset has exploded because its value to enhancing productivity (however that is defined) is unparalleled. In the 20th century, mastery of knowledge, accumulated through experience or study carried a high value, as the supply of people with such knowledge was limited. Now, that supply is much less limited.
Knowledge isn’t a commodity, but it’s value is falling as it becomes less scarce. Meanwhile, the value of understanding how to use knowledge to increase outputs has increased as the potential payoff becomes bigger.
Knowing is cheap. Understanding is expensive. The premium is placed on brokering solutions by identifying and/or solving problems.
Reich estimates that symbolic analysts made up 8% of jobs in 1950, and 20% in 1990. After the dot-com revolution, I can only imagine that number has grown.
This shift in labor value has been jarring for many Americans, who are ill-prepared to compete for wages based on value-added by their labor, rather than simply time spent at work. Those Americans are seeing their wages stagnate, jobs disappear (mechanized/digitalized/out-sourced). The days of factories full of high-paying manufacturing jobs are gone forever. The question is how to respond to this change in economic dynamics. In a future post I will look at what Reich proposes, and where I think he goes astray.