Angst for the Educated

For labor day, a post about the labor market. Here's a story in the Economist about changing job prospects for graduates and professionals like lawyers:

The gale of creative destruction that has shaken so many blue-collar workers over the past few decades is beginning to shake the cognitive elite as well. ..

The supply of university graduates is increasing rapidly. The Chronicle of Higher Education calculates that between 1990 and 2007 the number of students going to university increased by 22% in North America, 74% in Europe, 144% in Latin America and 203% in Asia. ..The best and the brightest of the rich world must increasingly compete with the best and the brightest from poorer countries who are willing to work harder for less money.

Changing technology also means demand for routine mid- level skills is being "hollowed out":

At the same time, the demand for educated labour is being reconfigured by technology, in much the same way that the demand for agricultural labour was reconfigured in the 19th century and that for factory labour in the 20th.

This is becoming quite a common observation. Of course, the agricultural revolution led to more and better jobs elsewhere. Economist and uberblogger Brad DeLong makes this point in a post from earlier this year:

I don't see a problem with the number of jobs: I don't see any reason that technological unemployment should be any more in our future than it has been in our past.

What is of interest is the effect of all of this on the wage distribution. Here, however, I think the key thing to look at is not demand but supply: the supply of workers. White collar, blue collar, skilled, unskilled, whatever--the high salary occupations in the future will be those that manage to construct and maintain barriers to entry to entrench incumbents.

He sees social barriers to entry and winner-take all competition in other sectors ("there is only one Oprah Winfrey.")

Agreed. Barriers to entry are a fundamental part of analyzing any market, as matter of basic industrial economics. It is a struggle to get people to understand this sometimes, though. I try to explain some of Michael Porter's ideas, likeCompetitive Strategy: Techniques for Analyzing Industries and Competitors to people at work who do not know much economics.

But DeLong is mistaken when he says there is no reason to think there will be any more technological unemployment in the future than the past. The kind of demand matters.

The point I've been consistently making is we have to think of the changing nature of needs and preferences as well, which is where mainstream economics has been weak. Yes, people moved off the farm, and off the factory, and we have vast abundance of food and manufactured goods. But the next things people want up the chain of needs may be different in character. In fact, I believe they are. This is not a reason for pessimism. Instead, it is a call to look more carefully about what people actually want.

And that brings us to one final post on Seligman's book.