Wednesday, February 8, 2012

Krugman and American High School Wage Rates

Krugman laments the decline of real wages for High School Grads in US over past 4 decades. This, as per him, is then linked to their low marriage rates. This in turn leads to higher proportion of out of wedlock children which then leads to not so great upbringing and opportunities for those kids and hence a vicious circle of inequality (Charles Murrays book says something to that effect). All here:

Makes sense. But here is the problem: Krugman seems to be lamenting and pretty sad about the decline of real wage for high school degree holders and in other posts seem to blame policy and puts all this in a rising inequality in American context. Why blame policy or feel perplexed and sad about this. Isn't this trend inevitable ? Two reasons

1) An economy where technological advances, mechanization and IT/Software is making the entire system much more knowledge intensive and has been giving many routine functions to machines for many decades, isn't that inevitable that unskilled/low skilled see a systematic wage decline ?

2) With resurgence of Globalization and rise of workforce in India and China where a much higher educated fellow is happy to do the job at a much lower wage (Manf for China and some services in India), isn't that going to bring the equilibrium wage down ?

Combine the two and you can explain the structural decline. When the world moves, things change. A B.A in India used to be a Class I Govt officer in 70s. What now ? Don't lament over it Dr Krugman. Its not Govt's fault. Its inevitability.