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Race between Education and Technology [Hardcover]

Claudia Goldin , Lawrence Katz


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20 Jun 2008
This book provides a careful historical analysis of the co-evolution of educational attainment and the wage structure in the United States through the twentieth century. The authors propose that the twentieth century was not only the American Century but also the Human Capital Century. That is, the American educational system is what made America the richest nation in the world. Its educational system had always been less elite than that of most European nations. By 1900 the U.S. had begun to educate its masses at the secondary level, not just in the primary schools that had remarkable success in the nineteenth century.The book argues that technological change, education, and inequality have been involved in a kind of race. During the first eight decades of the twentieth century, the increase of educated workers was higher than the demand for them. This had the effect of boosting income for most people and lowering inequality. However, the reverse has been true since about 1980. This educational slow-down was accompanied by rising inequality. The authors discuss the complex reasons for this, and what might be done to ameliorate it.

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They offer a powerful explanation for what has driven changes in income inequality and point to solutions for addressing it
-- Financial Times, 25 August 2008

About the Author

Claudia Goldin and Lawrence Katz are Professors of Economics at Harvard University.

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Amazon.com: 3.4 out of 5 stars  12 reviews
58 of 69 people found the following review helpful
4.0 out of 5 stars Many unresolved issues 10 Nov 2008
By EWC - Published on Amazon.com
Format:Hardcover
I found this book fascinating and would recommend it although I found it frustratingly flawed, and therefore, without the authors' further comments, will eventually have to reduce my 4 star rating. The book's core thesis is that the rate of technological change in the 20th century has been constant, while the supply of skilled workers has been uneven, leading to expanding and contracting wage differentials between skilled and unskilled workers over the course of the century. The variation in supply and correlation to changes in relative wages seems large enough to be convincing. But while I find the case persuasive, I couldn't help but feel it was, in part, reserve engineered to reach its conclusion. It seemed to me that three critical issues remained either unwittingly or intentionally overlooked.

In part, large part perhaps, I would guess, the "skill" of a worker transcends their education. So a high school drop out today, when most everyone graduates from high school, represents a much less skilled worker than a drop out at the turn of the century, when very few graduated. To suggest the ratio of wages between high school graduates and drop outs today can be compared to the past without some adjustment, or even mention of an adjustment, that take this into consideration, seems lacking. The same is true of college graduates, where the meaning of the term has been averaged down. The analysis seems to suggest that a college or high school graduate is equivalent no matter what (changing) percentile of the population it encompasses or, more complicated mathematically, that the relative curve across percentiles is such that any point is logarithmically proportional to any other. While perhaps this is a second order issue on the margin, over the large shifts that have occurred in the education of various percentiles of workers over the course of the 20th century, leaving it unmentioned is disappointing.

While the mathematical logic of relative wages vs. relative supply (of skilled vs. unskilled workers) seems reasonable on the surface, it's not clear why expansion in the supply or demand of one would affect the ratio between them proportionally. It would seem, for example that the US has absorbed a large numbers of unskilled immigrants, it has offshored an unprecedented volume of "unskilled" goods, and it has accelerated productivity improvements and yet the unskilled wage has remained flat. That suggests that the marginal product of unskilled labor is largely flat over large shifts in volume. To argue that the expansion or contraction of supply drives (relative) wages up or down requires a downward sloping marginal product of labor, unskilled labor in this example. I don't see why that would necessarily be the case to the degree necessary to explain the data. Quite the contrary, it seems unlikely based on the prevailing flat wages. In that case, an expansion of unskilled workers would have no effect on the wages of unskilled or skilled workers and their subsequent ratio, whereas, in this example, the expansion of skilled workers could have such an effect. To assume they are wholly substitutable seems to be a stretch.

Similarly, the book overlooks both productivity issues and hours worked in analyzing the supply of labor. We know the most productive workers are now working longer hours than the rest of the working population. And it's hard to believe that the information age hasn't, to a very large extent, affected the productivity of the most productive workers. This would suggest that their supply has expanded far more than their headcount. If that's true, then if supply has expanded and wages have expanded, exogenous technological breakthroughs are likely driving up wages and not merely reduced relative headcount as the book argues.

Piecing these together, it seems easy to imagine significant changes in the relative productivity and resulting supply of skilled vs. unskilled labor, along with differing marginal product of labor, highly circumstantial substitutability, and varying rates of exogenous technological changes all significantly affecting these ratios in ways not considered by this analysis. Perhaps the authors' argument is better stated this way: if one assumes that the rate of technological change is constant, and that relative productivity changes between skilled and unskilled are similar (although the book argues that in the past that was not the case), and that substitutability is generally high, then relative headcount should drive relative wages; because it appears to be highly correlated, these assumptions are likely to be true. That's a pretty big leap of faith. And, if the authors are correct that it is merely a matter of relative supply, it's not at all clear to me why diminished relative supply of skilled workers has led to an increase in the percentage of overall income paid to skilled workers, as has been the case. Apparently there was previously far more of them than was optimal! I find that hard to believe and apparently so too the authors. And the recent 10 to 15 year growth in output per US worker relative to Europe and Japan, despite unfavorable demographic shifts in the US workforce (toward less educated Hispanic immigrants), seems greatly at odds with the book's analysis.

Lastly, the book is very weak on recommendations and in many cases what recommendations it does offer, a steeper income tax for example, hardly stem from the 300 pages of analysis that comes before. In another example, it suggests that testing is bad because it may increase drop out rates. But, I sit on the board of a charter school that today has outstanding test scores where previous testing and low scores put enormous pressure on the school to make positive changes, changes that were made because of the demand for higher scores. Again, there is little in the analysis to warrant their suggestion that more forgiving testing would be a net positive. I find the simplistic solutions largely unsupported by their analysis to be disappointing.
27 of 30 people found the following review helpful
4.0 out of 5 stars Vitally Important Scholarship, Despite Flaws 14 Mar 2009
By Michael Bishop - Published on Amazon.com
Format:Hardcover
Three stars? This book is undervalued by the current amazon reviews. In my opinion, a majority of books about education are downright bad. Of those that are good, many are not uniquely good - you can find the same information in other popular books on education. This book is good and unique.

This book is excellent on the links between education, productivity, and income inequality over the last century. It makes the case that increasing human capital through education is a very important goal - the claim is not original but the way they argue it is.

The policy recommendations are less well backed up.

Google for an excellent commentary written by Arnold Kling & John Merrifield, entitled "Goldin and Katz and Educational Policy Failures in Historical Perspective."
88 of 120 people found the following review helpful
1.0 out of 5 stars Epitomizes everything that is wrong with social science 20 Feb 2010
By Devin Finbarr - Published on Amazon.com
Format:Hardcover
This book epitomizes everything that is wrong with social science. The modus operandi is to pull together a series of charts showing correlations, assume that the correlation is due to causation, and ignore any discussion of alternative explanations of the trends.

Goldin-Katz spend the bulk of the book hammering away on two points that everyone already knows: years of schooling on a national level correlates with industrialization, and years of schooling on a personal level correlates with income. Goldin-Katz spend precious few pages actually dealing with the causation issue, and never address any of the best arguments against their thesis. Nor is there any attempt to actually talk to people working in technology in order to understand more deeply why the correlation exists.

Let's examine in detail some of the flaws.

a) Goldin-Katz's base hypothesis is that years of schooling should continuously rise over time, as technology increases. But the very definition of technology is that you get more output for a given amount of input. Thus we should not expect a proportional increase in education to take advantage of new technology. Indeed, this is what we see on the ground. As a programmer in 2009, I no longer need to learn a huge amount of information that my father needed to know. For my job, I do not need to assembly language, register hacks, memory allocation, pointer arithmetic, etc.

b) Goldin-Katz's hypothesis is at odds with the experience of all the recent college graduates I know. No one believes that education teaches job skills. A quick check of the top 10 most popular college majors shows that these majors have little to do with technology. Clearly if there is an income bonus from college education, it cannot be from teaching technology, because colleges do not actually teach technology.

c) Goldin-Katz's hypothesis is at odds with the life experience of most engineers I know. If you ask the typical, engineer, "How many years would it take, starting from the beginning of high school, and working efficiently, to reach an amount of knowledge where you could be a productively employed?" the answer is usually something like 1 to 3 years. If you look at the actual skills to do high tech jobs, you simply notice that very few require 8 years of full time schooling. You'll also notice that engineers universally deride schooling, and that they learn most of their skills by avoiding school work (this is especially true in high school). For more details Google the essay "Why nerds are unpopular" by Paul Graham.

d) The standard government economic growth statistics have so many methodological problems that's it's impossible to draw any conclusions from them (for more details, Google "Economics needs a divorce" ). It's unclear both a) that growth has actually been declining and b) that the decline has to do with lack of technological innovation ( it might have a lot more to do with the increasing portion of the GDP taken up by bureaucratic sectors that are impervious to technological change - like the education sector itself!). Chinese, Japanese, and Korean mercantilism have also played a great role in the decline of America's technological-industrial base. Never do Goldin-Katz address either of these points.

e) I do agree that 19th Century America derived great benefits from its strong primary schools and high literacy rates. But I believe this is primarily a threshold effect. After students have the tools to find books and self-educate, further formal schooling has diminishing returns. So I might agree that 19th century America derived an advantage from averaging something like 5 years of schooling rather than the 0-2 years of schooling that was common in other countries. But it does not follow that modern America would derive an advantage from raising the average years of schooling from 13 to 15. In fact, 13 is almost certainly above the point where opportunity costs exceed returns to schooling.

Goldin-Katz never address any of the competing explanations for the correlation between industrialization and education or income and schooling:

a) Richer countries can afford more years of schooling. The experience of my peers and I in college is that college is primarily a luxury good.

b) Academics have greatly increased their influence on politics in the past century, first with the Wilson administration then with FDR's brain trust. Prior to 1900 academics had neither involvement with politics nor control over policies. Today, virtually all major policy advisers are academics. Not coincidentally, there has been a concurrent increase in government money spent on schooling and on total years of schooling. Thus part of the rise in education over the last century was likely simply two unrelated but concurrent events - the continuing industrial revolution, and the increasing political power of the academic class.

c) On an individual level, selection effects plays a major role in creating the link between college and income. Completing college requires a threshold level of intelligence and diligence. Colleges select for people with high earning potential, because such people are more likely to make money, and donate it back to the school. I was talking to my friend who does hiring for Bain Consulting: "Bain likes to recruit econ majors from top schools, but because they learn anything valuable in the major, but because it means the person is smart and care about business." I hire programmers at a startup, and I care little about the degree, and a lot more about how smart the person is and what they have done. This does correlate with college and major, but the actual knowledge gained in the college major is a tiny portion of what is needed to be a successful engineer.

The selection/signaling effect is even more important considering the that the 1971 Griggs Supreme Court case made it illegal for employers to use IQ tests for hiring purposes. As a result, companies have to rely more on educational attainment as a proxy for IQ.

d) Finally, and perhaps most importantly, Goldin-Katz completely ignore the impact of credentialing laws. There are now legal degree laws for professions such as: lawyers, architects, doctors, teachers, civil servants, military officers, nurses, and education administrators. These professions receive relatively high salaries because they have either direct government subsidies, or they have monopoly rights to perform certain tasks (prescribe medicine, defend the accused in court, etc). Yet there is no evidence that requiring a degree is a credential is a greater indicator of ability than simply using a test or requiring apprenticeship. Most architects of the 19th century learned via apprenticeship, yet the quality of the buildings was much higher back then than today.

Searches of the book for "signaling", "credentials", "credentialing", "Spence" return zero hits. To write a book about the school about the education wage premium and not discuss these issues is completely egregious. In a just world this failure alone would be enough to ruin the reputation of Goldin and Katz as being serious scholars and to impugn the reputations of the academics who offered such fawning reviews.

Goldin-Katz's book is fundamentally about policy. It is about how to manage a countries economy to maximize technological growth. You would think that the first thing that anyone would do when writing such a book, is to talk to dozens of people in high technology. You would talk to engineers, entrepreneurs, workers at high tech firms, current college students, recent college graduates. Yet Goldin Katz do none of this. They sit in their ivory tower, plot some regressions and engage in chart-ism of the worst sort. Their statistics add nothing to the stock of knowledge that already exists about the correlations between education and income. And they ignore addressing all the possible arguments against their case. This book is only interesting the way that a car wreck is interesting.
7 of 9 people found the following review helpful
5.0 out of 5 stars Important and Convincing 6 Sep 2009
By R. Albin - Published on Amazon.com
Format:Hardcover
This well written book is based on a careful analysis of the effects of educational policy on economic growth and economic inequality in the USA over the last century. The authors have undertaken the very demanding task of reconstructing a large amount of data related to eduational performance and economic performance. In some respects this is a fairly dense book with a lot of data presented, usually in the form of tables and simple charts, though the authors use some multivariate regression methods and some modeling as well. The authors necessarily use some simplifying assumptions and methods, for example, using the benefits of higher education - the college wage premium - as an index of inequality. Given the limitations of the data and the complexity of the topic, these approaches seem reasonable and the end result is a convincing analysis.

Goldin and Katz make a series of important points. One is that a well educated work force is an important driver of economic improvement. In this context, the show that the USA, from the mid-19th century to around 1970, was a world leader in mass education. They show 3 major waves of mass educational advancement; near universal primary education in the 19th century, a huge increase secondary education ("the high school movement") in the first half of the 20th century, and the enormous expansion of higher education in the post-WWII era. The authors argue very well that this distinctively American series of educational expansions were a major contributor to robust American economic growth. Simultaneously, the success of serial mass education and production of increasing numbers of well educated workers resulted in a relative reduction in inequality with social benefits beyond merely economic benefits. In the last generation, mass education has stagnated and the relative decrease in production of highly educated workers is a major driver of the increasing inequality of American life.

One of the authors' major points is captured by the title of the book. Given the constantly changing and improving technologies of modern economies, increasing numbers of well educated workers are needed merely to maintain a constant position, let alone to produce increasing welfare. Remarkably, Goldin and Katz argue very well that vigorous increases in education produce not only aggregate economic benefits but also reduced inequality. Investments in mass education produce winners across the board, an amazing effect.

Goldin and Katz see the USA as having gone off the tracks in last generation - roughly the period of conservative predominance of American politics. They point out as well several other nations, notably a number of European countries, have now closed the gap or surpassed the USA in mass education. This is true for indicators of the amount of mass education and quality of mass education. This will reduce American competitiveness in a global economy. The declining rate of educational attainment is a long term drag on economic attainment and causing economic inequality. Their prescription is to take steps to improve mass education. While detailed policy prescriptions are not the focus of this book, their recommendations are sensible. They advocate increased investment in early childhood education, particularly for poorer people, increased investment in K-12 education to improve graduation rates and college preparation, and making college education more accessible. All of this will cost considerable money, but appears to be justified well by this analysis.
4 of 5 people found the following review helpful
4.0 out of 5 stars One of the most important books in the human capital vein 27 Nov 2010
By Sherman Dorn - Published on Amazon.com
Format:Kindle Edition|Verified Purchase
I strongly recommend this book, not because I agree with all of it, but because it is the most sophisticated, historically informed argument in the human capital tradition. Goldin and Katz marshall important evidence (including material historians have not touched before ) to argue not only that education is critical to the nation's future in general but to the reduction of inequality.

While there are important limitations to the argument Goldin and Katz make, notably the relatively limited contribution of attainment to GDP growth in their analysis and the fact that the past contributions of education are not necessarily predictive, the book is essential reading to those who care about the relationship between schooling and the economy.

(Side note: the Kindle edition is incompetently formatted. Many of the tables are not viewable in their entirety in the iPad Kindle app. But that is the fault of the publisher, not the authors.)
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