Thursday, March 16, 2006

Income Gap Might Shrink: White Collar, OECD Coping Strategies

What if, at the same time: 1) the real wage gap had clearly and for the first time in 30 years started to diminish in the country where megatrends originate; and 2) offshoring had come to the point where those who lose out the most are not only in the service sector, but wham-bam in the middle of the knowledge economy we're supposed to creating our future wealth from? No, the former is not a cuddly bedtime story read by Uncle Kennedy. And the latter isn't a scary one read by Uncle Edwards or Uncle Buchanan, sauced up with romantic sprinkles of local produce, gallic style. Geoffrey Colvin's superbly interesting article "The Poor Get Richer: Blue-collar workers are making salary gains -- but don't cheer yet" is from Fortune Magazine, courtesy of
I have good news and bad news. The good news is that income inequality in the U.S. -- after 30-plus years of steadily increasing -- may be decreasing. The bad news is why that trend is reversing. It looks like another lesson in how profoundly a globalizing economy is upending what we thought we knew. Rising income inequality has settled comfortably into America's big economic picture as a reliable--and much lamented--megatrend. Starting around the late 1960s, U.S. incomes started to become more disparate. The trend was remarkably steady. Recessions might slow it down or briefly reverse it, but mostly it just marched on.

While such a large tendency has many causes, the chief explanation centered on education and skills. The late 1960s were arguably high summer of the era in which a man with 12 years of schooling could work in a unionized factory or trade and earn a solid middle-class or even upper-middle-class income. Then began the age of the info-based economy in which higher education really started to pay. The "skill premium" began growing dramatically. The college graduate's income started beating the high school graduate's income by a wider margin every year--and income inequality began to swell. That explanation makes sense, and the data support it. But now it appears just possible--based on the latest research available--that the whole chain of causation is falling apart. (...)

What could that trend reversal mean? The most obvious explanation seems highly counterintuitive: The skill premium, the extra value of higher education, must have declined after three decades of growing. (...) The (...) possibility is that something unexpected and fundamental is changing in the way the U.S. economy rewards education. We don't yet have complete data, but anyone with his eyes open can see obvious possibilities. Just maybe the jobs most threatened by outsourcing are no longer those of factory workers with a high school education, as they have been for decades, but those of college-educated desk workers. Perhaps so many lower-skilled jobs have now left the U.S.--or have been created elsewhere to begin with--that today's high school grads are left doing jobs that cannot be easily outsourced--driving trucks, stocking shelves, building houses, and the like. So their pay is holding up.

College graduates, by contrast, look more outsourceable by the day. New studies from the Kauffman Foundation and Duke University show companies massively shifting high-skilled work--research, development, engineering, even corporate finance--from the U.S. to low-cost countries like India and China. That trend sits like an anvil on the pay of many U.S. college grads. We need more evidence before concluding that we're at a major turning point in the value of education to American workers. But it certainly feels like one, based on what we can observe.

More than just a micro-level white-collar nightmare, this change, if true, represents a strategic challenge to the basic strategy of survival for most of the OECD countries, and especially the richest.

Of course, most of t
he Europeans believe to have some sort of ace up their sleeves: entertainment & experience economy, tourism, conferences; design, music, bottled creativity. There are more Aqua's in the pipeline, according to their minister's plans. These plans are a) filled with references to Ricard Florida, and b) all paid for by pretty straight out of business school-looking high-end whitecollar guys and gals working "regular" private sector stuff.

In terms of off-shoring-as-strategic-threat, it seems to me the crucial distinction would be on two dimensions.

, there are the culturally dependent jobs, all the really creative ones, where you either serve an audience, directly or indirectly, including commercials, newspapers, even to some extent music; but also just literally culturally dependent ones like anything related to law (national law systems being the epitomy of cultural code incarnate). Finally, and more boringly and importantly, these comprise anything that requires local know-how in terms of negotiation, relation management, empathy, etc. The latter are then either those elements of the service sector that cannot physically be moved like truck drivers, receptionists, nurses, teachers, social workers, priests, etc. Their common trait is not so much a very high degree of professional specialization, but rather their "inscribedness" into a given cultural setting, which constitutes a basic language that they use all the time. (This implicit requirement is also a reason why integration of "ethnic immigrants" into higher level jobs is very, very difficult, especially in cultures with a lot of implicit cultural stuff going on -- see this post on integration as a culturally bound phenomenon).

The second element is the job's degree of abstraction. In principle, "white collar" implies the shift from blue collar manufacturing to white collar service jobs. Yet the distinction between manufacturing and service has been too crude for a long time: the classic example is the question of whether serving and flipping burgers is a service or a manufacturing job. White collar jobs are many things. As illustrated by the influence of Richard Florida much differentiation exist within the concept. In this sense, the "new white collar" should also imply a higher level of abstraction. From doing to thinking about doing: from reproducing symbols to manipulating symbols.

When these kinds of jobs are at their highest level -- consultancies (political, management, strategic), research and development, lawmaking, financial services, policy development/civil service, etc -- they are part of a very competitive international environment. Here, restraining the best will only make them leave the faster. But let their international "thing" come to them, to your country, and they will flourish.

Finding a combination of the two -- culturally embedded and abstract -- would then make the best national strategy: bringing the best of globalization inside, while creating wealth and retaining high-end jobs thanks to the only thing that cannot be had anywhere else: the local mindset. On the flipside, that combination already exists in organizational terms with high cost in most of the senior civil service -- where the absence of competition tends to make for a bland, incestuous organizational culture. The private sector is where its at.

Even if Colvin's numbers do hold up trends still take 10-15 years to migrate across the Atlantic, so there'll be plenty of time to read Richard Florida and hope for the best.


CV said...

Hey Draco (hob)

I have been following your writing for some time and I think you are very much worth the while; just letting you know!

I will probably comment on some of your work more elaborately later, but it takes some time to churn through your posts ;).

Draconian Observations said...


Thanks! You're very welcome - whether long or short comments.