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Wednesday, December 23, 2020

A MEDITATION ON SOME COMMENTS

In responding to some interesting comments to my last post, I should like to take the opportunity to explore once again the subject that has troubled me for a long time and on which I have, I believe, commented a number of times on this blog. At the end of a suggestive comment, David G writes:  “A third change: unlike 70 years ago, college now provides the necessary entry ticket into most good-paying jobs—I guess you could call that an "improvement"? That may be more of an explanation for tuition increases, though I don't think it explains the explosion in college tuition over the past 10–20 years.”

 

As I have several times observed, in 1950 when I first went to college only 5% of adults in America had college degrees, which meant that most of the positions in the economy that now require a college degree were filled by people who did not have one. Today by way of contrast one third of adults 26 years old and older have college degrees. I do not think one can explain the change by some sort of dramatic upgrading of the skills and training required by jobs these days. These days to get into a management training position in a big corporation you need a Bachelor’s degree and possibly also an MBA. Whatever it is you learn on the way to earning those degrees, I seriously doubt that much of it is required to do well as a management trainee.

 

Because of the steeply pyramidal structure of the modern capitalist job world, with good salaries and good fringe benefits available in only a minority of job openings, there is, inevitably, severe competition for those relatively scarce good jobs. The result is credential creep and the privileging of those whose credentials are acquired at a small number of “good” schools. 51 years ago, in my little book The Ideal of the University I proposed random admission to colleges and universities as a way both of eliminating the pressure on elementary and high school students to get into the “good” schools (which is to say schools that provide what David G calls the necessary entry ticket into most good paying jobs) and of eliminating most if not all of the advantage to be gained from securing one’s credential at an elite school. I suspect the value of the credential from the elite school in contemporary society, in combination with the variety of other things commenters mentioned, explains a good deal of the soaring tuition price.

 

But that still leaves open the question why the job world has the steeply pyramidal compensation structure that we see today. And this is a question whose answer has been puzzling me for many years. Indeed, in the essay The Future of Socialism which I wrote and never published some years ago, I observed that Marx’s failure to anticipate this pyramidal structure was one of his three big failures.

 

One obvious answer to the question is, I believe, clearly wrong, namely that the higher pay of the good jobs is required to compensate workers for the cost of acquiring the specialized skills demanded by those jobs. There are two reasons why I think this is wrong. The first is that societies around the world have long since socialized the basic literacy and numeracy skills required for modern jobs through the institution of free elementary and secondary public education and there is no reason at all for not doing the same with regard to any additional skills needed by jobs that now place one in the middle or upper middle-class. The second problem with this explanation is that the lifetime compensation for the good jobs so far exceeds the cost of tertiary education that that cost cannot reasonably explain how much that lifetime compensation exceeds the lifetime compensation of jobs not requiring a tertiary degree.

 

I am not interested in arguing about whether people who bother to get the tertiary degree deserve the higher wages. What puzzles me is that employers who are everywhere and always eager to drive down the wages of their employees should collectively agree to reproduce a pyramidal wage structure that essentially has the effect of transferring a portion of the surplus to the higher paid workers, something that capital in general is not known for.

 

More and more these days capital is driving down labor costs by undermining labor unions, and by substituting contract employees and temporary employees for regular full-time employees. As I think I have observed before in these pages, the modern gig economy, as it has come to be called, is a recent perfection of this repressive tendency.

 

Since employers have no hesitation about driving down the wages of their lower paid employees, what on earth keeps them from driving down the wages of their higher paid employees? I simply do not understand. How might an employer do this? Well, one answer is to lower the wages of the higher paid employees while simultaneously throwing the positions open to jobseekers who do not have tertiary degrees. Since I am absolutely convinced that what college students gain from a college education is, for the most part, not at all required for the successful performance of the jobs they eventually get, the employers would lose nothing in productivity and gain something in a smaller wages bill.

 

But the pyramid of worker compensation seemingly gets steeper, not less steep, as the years go by. I confess that I just do not understand it.

 

Needless to say, my 51-year-old proposal for random admissions to colleges and universities is not about to be adopted but if it were, I am persuaded that the good effects would be enormous. Would employers continue to favor graduates of the Ivy League if they knew that the graduates of those elite institutions were as students no better than the graduates of UMass or Ball State or North Carolina Central University?

 

It is an interesting question.

9 comments:

s. wallerstein said...

Why don't employers drive down the wages of higher paid employees as they do those of lower paid employees?

Class solidarity. They identify with and like their higher paid employees, managers, corporate lawyers, accountants and feel nothing except contempt for their lower paid employees. The higher paid employees are "people like us", people they could run into in their golf club or who might live in the same neighborhood as they do. It's class apartheid.

MS said...

In response to your question, I have an hypothesis that is entirely speculative. The higher salaries of the upper management officers are a form of prestige validation. The President, CEO who earn the highest exorbitant salaries can justify their salaries by the fact that the lower tier upper management employees also have high salaries, but not as high as the first tier. The disparity in incomes between the second tier management employees and the lower tiers make those positions attractive and encourages competition. The more the lower tiers aspire and seek the higher tiers for their financial benefits, the more the highest tier believe they have earned and are entitled to the exorbitant salaries the Board of Directors awards them. In addition, they are looking out for their own children who may also go into business – not necessarily the same business as their parents – but to the extent the trend is replicated throughout the business community, the more likely their children will also receive the higher remuneration that upper echelon management receives. It has nothing to do, as you say, with the higher salaries being awarded for better management skills.

David G said...

One minor point: I wasn't thinking of "good" or "elite" universities, specifically. I was thinking of the general expansion of the bachelor's degree (from any university) as a pre-requisite for a huge number of decent (not super-high-prestige) jobs. That has (I suspect) contributed to a general increase in the cost of college, anywhere, not just at elite schools—see e.g. this chart:
https://nces.ed.gov/fastfacts/display.asp?id=76


Regarding the steeply pyramidal structure of the modern capitalist job world: I vaguely recall some similar ideas coming out of the discussion of Piketty's big book several years back. (I, ehm, didn't read the book, and it was several years ago that I read the reviews, even, so please take this with several grains of salt.) As I recall, he (…or maybe some reviewers?…) made hay out of the fact that in modern corporations, stockholding owners are more or less absentee. Senior managers wield a great deal of power and influence, and use that influence to direct larger and larger portions of profit into their own pockets. (Sometimes in the form of larger and larger ownership shares of the company—but still not large enough to significantly dilute the value of the remaining shareholders.) As I recall it, Piketty (…or some people discussing him?…) noted that the accumulation of wealth he was describing was happening specifically among this class of super-compensated managers, despite their nominal status as employees.

RobertD said...

A less intellectual comment than the preceding ones, I am afraid, but I think your voice machine has inserted another little something into the post, in the middle of the second sentence of paragraph 3, after 'credentials ac', until 'quired'.

Also, I like very much the idea of randomising admission to colleges.

Robert Paul Wolff said...

RobertD, I love it!! My wife's son called while I was dictating and I forgot to turn the mike off, so it inserted part of what I said on the phone!! Garbage in garbage out, as the old techie saying has it. :) I edited it out.

Charles Pigden said...

'That still leaves open the question why the job world has the steeply pyramidal compensation structure that we see today'

Read Frank and Cook 'The Winner-Take-All Society"

Not all Winner-Take-All economies are economies of money. Sometimes they are economies of esteem as in Academia.

marcel proust said...

But the pyramid of worker compensation seemingly gets steeper, not less steep, as the years go by. I confess that I just do not understand it.

Economists would explain the existence of the pyramid by waving at principal-agent issues in Berle and Means corporations, i.e., firms in which ownership and management are distinct. Its increasing steepness is a different issue, explained perhaps by waving at Piketty's Capital in the Twenty-First Century; that is, the separation began coincidentally at a time when the distributions of wealth and income were relatively flat, and since that time, they have been returning to their more typical form. Michael Jensen had a large hand in popularizing approaches to executive compensation for addressing the agency issue that have led to the increasing steepness.

Anonymous said...

(Not sure if my first attempt to post went through but in case not:) I would have to think part of the explanation is that credentials, even if they don’t prove ability, do prove a certain knack and willingness for “playing the game”. This suggests at the very least that someone with credentials is much more likely to be a long-term, commitment employee, with the exact kind of motivational structure that makes its possible to incentivize them towards very clear and determinate goals of the company. The high wages are made up for not by ability but by the fact that one can be molded and shaped so successfully (this is why, too, companies will for example withhold and distribute bonuses or work out insurance in such a way that you cannot leave the company except at a huge cost to yourself. They want to hold onto the employees who have already been shaped and molded to their ends.)

LFC said...

Anonymous @1 a.m. is, I think, very much to the point here.