Friday, August 26, 2011

Michael Spence writes

The overall picture is clear: employment opportunities and incomes are high, and rising, for the highly educated people at the upper end of the tradable sector of the U.S. economy, but they are diminishing at the lower end. And there is every reason to believe that these trends will continue. As emerging economies continue to move up the value-added chain -- and they must in order to keep growing -- the tradable sectors of advanced economies will require less labor and the more labor-intensive tasks will shift to emerging economies.

Highly educated U.S. workers are already gravitating toward the high-value-added parts of the U.S. economy, particularly in the tradable sector. As labor economists have noted, the return on education is rising. The highly educated, and only them, are enjoying more job opportunities and higher incomes. Competition for highly educated workers in the tradable sector spills over to the nontradable sector, raising incomes in the high-value-added part of that sector as well. But with fewer jobs in the lower-value-added part of the tradable sector, competition for similar jobs in the nontradable sector is increasing. This, in turn, further depresses income growth in the lower-value-added part of the nontradable sector.

Thus, the evolving structure of the global economy has diverse effects on different groups of people in the United States. Opportunities are expanding for the highly educated throughout the economy: they are expanding in the tradable sector because the global economy is growing and in the nontradable sector because that job market must remain competitive with the tradable sector. But opportunities are shrinking for the less well educated.

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