Must-Read: Hershbein et al.: What Increasing Education Will and Will Not Do for Earnings and Earnings Inequality: A Response to the WCEG’s Steinbaum and Schmitt
Must-Read: What Increasing Education Will and Will Not Do for Earnings and Earnings Inequality: A Response to the WCEG’s Steinbaum and Schmitt: “The insight that relative wages adjust to the supply and demand of workers with different levels of education…:
…is at the heart of dozens of academic papers exploring trends in wages… [and] a leading explanation for why the ‘college wage premium’… increased so dramatically during the 1980s and 1990s. This research explains how labor markets have worked historically, and there is no reason to conclude they will not continue to work this way again. It is true, as Steinbaum and Schmidt point out, that a tight labor market is much better for workers and their wages than a slack labor market, and that recessions can cause lasting harm to workers’ economic prospects….We share their concern about a weak overall economy… and indeed, one of us (Summers) made this point in the remarks that started this public dialogue. But… we did not confine our analysis to the special conditions of the worst labor market in several generations. The Great Recession has passed, and investing in education is necessarily a long-term strategy, and by no means an exclusive one. Yes, we also need a stronger macroeconomy for workers—and our economy as a whole—to reap fully the benefits from improved educational opportunities and a more skilled workforce.