Demand for lower skilled workers is still down sharply, and that's tied to educational attainment, Jeffrey Sachs writes
More education, expanding the earned-income tax credit and raising living standards can help, he writes
Editor’s Note: Jeffrey Sachs is a university professor and director of the Center for Sustainable Development at Columbia University. The opinions expressed in this commentary are his.
For those with a college degree or above, life is good. Jobs are plentiful, incomes are rising, inflation is low, health is broadly improving, and the impacts of the new information technologies – from smartphones to e-commerce to ubiquitous information – are generally beneficent.
For those without a college degree, the situation is starkly different. Earnings are low and often lagging behind inflation. Health conditions of less-educated whites have been deteriorating, with rising mortality from suicides, opioid addiction, and other kinds of substance abuse. It may not even pay to work, if the meager take-home pay reduces access to public benefits.
At first glance, America’s job market is strong. The unemployment rate for July fell to 4.3%. The unemployment rate in June was just 4.4%, and non-farm payroll employment rose by 222,000. Yet while the American economy is creating jobs, it is not creating enough good jobs. Solutions will have to go far beyond raising the minimum wage.
We can get a sense of the problem by looking not at the unemployment rate but at total employment relative to the total adult population. That ratio in June stood at 60.1%, meaning close to three of every five adults is working, still down sharply from the peak rate of 64.6% in early 2000. Millions of individuals without jobs are not looking for work, and are therefore not counted as unemployed.
We can get a sense of who those individuals are by looking at educational attainment. Among individuals whose highest educational attainment is a high school diploma, the employment ratio is only 54.9%. For those with a bachelor’s degree or higher, the employment ratio is 72.1%. America’s jobs crisis hits lower-skilled workers, essentially those with less than a bachelor’s degree.
We have become, in effect, two societies, largely divided by educational attainment.
As has been discussed widely in recent political debates, the loss of employment and relative earnings for less-educated workers results from two related forces: automation and globalization. Machines have increasingly replaced less-skilled jobs in agriculture, mining, and manufacturing, while the remaining labor-intensive operations (such as the cutting and stitching of garments) moved overseas. The trend is, if anything, accelerating: McDonald’s has recently announced, for example, a further move to self-serve kiosks.
Donald Trump won the vote of working-class voters in part by promising to bring overseas jobs back to the US, especially manufacturing jobs. This is doomed to fail.
Most job losses have been due to automation, not outsourcing. Most offshored jobs are not returning. And when production does return, it will be capital intensive, meaning that hundreds of millions of dollars of new factory investments will produce hundreds of jobs, not thousands, in a US workforce of more than 150 million workers.
The job growth will continue to be in services, as it has been for a generation, with good jobs going to those with good skills, and low-paying and insecure jobs going to those without them. And with stunning advances in machine learning, artificial intelligence, and robotics, the prospects for further job losses to the robots will multiply.
What can be done
One popular response is to boost the minimum wage. Yet this is a policy tool to be used with caution. Simply declaring a job to be worth $15 an hour doesn’t make it so. A recent careful statistical analysis of Seattle’s new minimum wage law (rising in two steps to $11 and then $13 an hour) is sobering.
The study suggests that Seattle suffered a significant loss of jobs at the bottom end of the wage distribution as a result of the boost in minimum wage. This job-loss effect had been rejected in earlier studies of minimum wages, but the Seattle study makes a convincing case that earlier studies that claimed little or no job loss were probably marred by poor data.
Most Republicans assume that faster economic growth would be enough to boost earnings and employment among low-wage workers. This is naïve. Economic growth boosts the incomes of highly educated workers, not of the majority of young people who do not complete a bachelor’s degree. Economic growth is not enough. We need to do three things better.
First, we need to ensure that every child reaches his or her potential in quality education and job skills. Poor children fall behind early, and usually permanently, in America’s highly unequal society. The problem is not teachers’ unions (the favorite scapegoat of the rich and powerful).
The problem is poverty: growing up in households with very few books, often poorly educated and under-employed parents, neighborhood crime and poverty, and often highly unstable family arrangements. Public schools become the recipients of these social catastrophes, not the creators.
Second, we need to boost the incomes even of lower-skilled and less-educated workers. This is not so hard to do. The earned-income tax credit – the federal tax credit for low- and moderate-income people – should be expanded. Remember, the American economy is richer than ever, though more of the income is concentrated at the top.
By taxing those recent gains, and sharing them with lower-skilled workers, all parts of American society can taste the fruits of technological progress. While boosting the minimum wage will reduce work, boosting the EITC will increase it, partly by bringing less-educated people back into the labor market and enabling them to earn a decent wage.
Third, and more generally, we should distinguish between low market earnings and a decent overall living standard. In northern Europe, governments provide child care, pre-K, public schools, college tuition, and free health care for all, financed out of general tax revenues. In that way, less-skilled workers with lower take-home pay can still have a good living standard.
It’s similarly time for America, richer than ever in our history, to ensure decent living standards for all Americans, including those with less education, lower skills, and lower earnings.
This commentary was updated from an earlier version to include the July employment figures.