Richard Florida writing about the Creative Class is a lot sexier than your average economist writing about Skill Biased Technical Change. Sex aside, these two ideas speak to the same important development. In what follows, I will argue that this development dictates a different kind of education. But I will also explain why education alone—even the right education—will not prevent destructive levels of American income inequality unless it is accompanied by conscious government intervention—for example, government provision of health insurance.
The Creative Class and Skill Biased Technical Change both describe a deep shift in the structure of employment. Until fairly recently, the U.S. labor market had many jobs that paid good money for people who could carefully follow instructions—what cognitive psychologists call “rules-based” tasks. With the advent of computerized work and offshoring, these rules-based tasks are fast disappearing. If a job can be fully expressed in rules—withdrawing money from a bank account or issuing an airline boarding pass—it can and will be programmed for a computer. If most of a job can be expressed in rules, the rules can be explained to someone in the Philippines who will do the job for much lower wages and so the job will move offshore.
Many moderately skilled jobs are subject to this two-pronged attack. Call center work that moves offshore is heavily scripted—“rule-like”—while other call center work is lost to speech recognition software. Manufacturing assembly line work is lost to both offshore producers and to robots. The preparation of basic tax returns is lost to offshore accountants and software like TurboTax and TaxCut.
The result is that too many moderately skilled people are chasing too few moderately skilled jobs with a resulting downward pressure on wages. Richard Florida quotes the CEO of Best Buy as wanting an “inclusive, innovative work environment.” I can’t speak to the work environment but where I live Best Buy seems to be starting people at about $8.00 an hour.
Viewed from this rules-based perspective, creativity is knowing what to do when the rules run out or there are no rules in the first place. It is what a good auto mechanic does after his computerized test equipment says the car’s transmission is fine but the transmission continues to shift at the wrong engine speed. It is what a good supermarket manager does when she chooses words and body language to convince her staff to treat customers as important people rather than annoying nuisances. We often think of creativity in grander terms—Einstein, Sarnoff and the other people Florida mentions. But for our economic future, this broad-based, if less brilliant, creativity is at least as important. As of 2005, the United Kingdom had produced 67 Nobel Prize winners while Japan had produced only a dozen, but I know on which economy I would put my bets. [1]
If I am right in this judgment, an educational system that stresses creativity is at least as important as an attractive environment for the high IQ types. Consider, for example, one part of education that everyone stands up for—how to teach problem-solving skills.
In the workplace, solving a problem usually involves two steps. First, parse a messy set of facts to determine what technique applies. Second, execute the technique. In the classroom, “problem solving” is often defined as the second (rules-based) step and the first step is ignored. I firmly believe that an algebra student needs to know how to solve a system of two equations and two unknowns. But once the student is in a real job, she won’t be paid to solve the equations by hand—a computer will solve the equations. Rather, she will be paid to recognize when a two equation system is a good way to answer some complex question. Teaching this kind of recognition looks more like project work or a business school case than it looks like assigning the first five problems at the end of the chapter on simultaneous equations where choosing a solution technique isn’t much of an issue.
So we need to introduce more real problem-solving into education. But as I suggested in the beginning of this essay, even the best education will not solve the basic distributional problem now facing the country. Any economist will tell you that rising labor productivity is the key to rising living standards. As we now can see, however, that statement only holds in the aggregate: the distribution of the rising living standards is always up for grabs.
Between 1989 and 2004, labor productivity rose by a total 42 percent. Over the same years, the median income of male college graduates rose from $51,000 to $53,800 in 2000 and then fell back to $51,000. By contrast, analysis by Thomas Piketty and Emmanuel Saez show that over these years, the dollar figure defining the 95th percentile of wage and salary income reported on federal income tax returns rose from $107,000 to $125,000 while the 99th percentile of wage income rose from $194,000 to $251,000 (all figures are in 2004 dollars ). [2] In other words, most of the recent gains in productivity are accruing to the very top of the distribution.
It was not always thus. In the 1950s and 1960s, median family income tracked rising labor productivity very closely. In the quarter-century after World War II, median family income nearly doubled in real terms. Many more people could afford a house, car, etc. and these income gains, more than falling inequality, were the basis for growth of the American middle class. If most productivity gains now go to the very top of the income distribution, mass upward mobility—a central part of American life—will evaporate quickly.
Richard Florida suggests that today’s rising inequality reflects the free market at work. He is likely right, and had an unfettered free market been at work in the 1950s and 1960s, the average family would have not seen its income rise as much as it did. But in those days the free market was constrained by a set of institutions and norms—unions, a strong minimum wage, a post-World War II attitude in the business community that steady wage gains helped to keep Communism at bay, and so on. Over time, those institutions and norms have eroded, and a strong productivity-earnings connection has eroded along with it for most workers.
Thus the Creative Class and Skill Biased Technical change require a new kind of education. But they also require a new institutional structure to distribute productivity gains in a reasonably equitable way. Markets, like every other institution, rest on the consent of the participants. If enough people come to see the U.S. job market as stacked against them, all of the nation’s institutions will be at risk.
Notes
[1] As reported on: http://www.answers.com/topic/nobel-laureates-by-country.
[2] The reported productivity numbers have been deflated by the Personal Consumption Expenditure Index, rather than the normal GDP deflator, so that productivity and wages are being deflated on the same basis.
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Frank Levy is Rose Professor of Urban Economics in MIT’s Department of Urban Studies and Planning. Along with Richard J. Murnane, he is the author of The New Division of Labor: How Computers are Creating the Next Job Market. Levy’s recent papers on computerized work and the non-offshoring of radiology can be downloaded at web.mit.edu/flevy/www.