Feeling the wage stagnation pinch? Go get some education, you slackard, you!

By Lee Russ

Thursday, February 15, 2007 at 04:59 PM

Concerned about the growing divide between the rich and poor, between the well-paid and poorly-paid? Well, Fed chief Ben Bernanke has the solution: go get yourself a better education, you fool!

Speaking to the Omaha, Nebraska Chamber of Commerce, Bernanke said  (emphasis added):

The gap between the 90th and 10th percentiles of the wage distribution rose particularly rapidly through most of the 1980s; since then, it has continued to trend up, albeit at a slower pace and with occasional reversals....I read the available evidence as favoring the view that the influence of globalization on inequality has been moderate and almost surely less important than the effects of skill-based technological change...As a result, erecting trade barriers to trade and investment would not be helpful, he said.

Now isn't that really cute? The gap rose "particularly rapidly" through the 1980s. So I guess we can spell the origin of "the gap" R E A G A N. Like so many other despicable traits of 21st century America.

Bernanke tiptoed around the issue of CEO compensation, simply acknowledging that some people feel the phenomenon is linked to the increased burden on CEOs from the ever-increasing complexity of corporations, while others think it's simply the consequence of CEOs essentially being able to set their own compensation packages.

More Bernanke, on the evidence which indicates that something more than technological change and know-how might be at work:

Although skill-biased technical change appears to be an important cause of the rise in earnings inequality, it does not...explain...why the wages of workers in the middle of the distribution have grown more slowly in recent years than those of workers at the lower end of the distribution, even though, of the two groups, workers in the middle of the distribution are typically the better educated.

Another challenge for the hypothesis of skill-biased technical change, at least in its basic formulation, is to explain the especially large wage gains seen at the top of the distribution. A possible link between technological change and the substantial increases in the wages of the best-paid workers is that some advances, such as those that have swept the communications industry, may have contributed to the rise of so-called "superstars" -- a small number of the most-gifted individuals in each field who are now better able to apply their talents in what has increasingly become a global marketplace . For example, two decades ago, the highest-paid player for the Boston Red Sox baseball team (and in the American League), Jim Rice, earned (in inflation-adjusted terms) just over $3 million. In 2004, the highest-paid player on the Red Sox (and in all of major- league baseball) was Manny Ramirez, who received $22.5 million for the season. The number of fans who can fit into Fenway Park has not increased much since Jim Rice's day. But presumably the Red Sox owners believed that Ramirez's higher salary was justified by the increases in broadcast and merchandising revenues he might generate as a result of the confluence of new distribution channels (such as Internet-based broadcasts of games) and a larger and wealthier potential global audience.

Yes, the baseball analogy is....absurd, Big Ben, completely absurd.  Not to mention that the real reason for the increases in salary is that the good free agents make winning more likely, which does bring more fans to the games (as well as to television broadcasts of the games), and really adds to the owner's revenue through increased sales of concession items that have skyrocketed in cost over the last two decades.

And why have "wages of workers in the middle of the distribution have grown more slowly in recent years than those of workers at the lower end of the distribution?"  That's a real puzzler, isn't it?  Except that it's the jobs of people in the middle, not at the very bottom, that tend to get shipped overseas.  The wages of those at the bottom have long been suppressed by the oversupply of unskilled labor.  It's the oversupply of workers in the middle--due to expanding the labor pool to cheaper foreign countries--that is new.

But Big Ben has some thoughts on what we should do, too.  And that nasty "protectionism" stuff ain't high on the list:

Policy approaches that would not be helpful, in my view, are those that would inhibit the dynamism and flexibility of our labor and capital markets or erect barriers to international trade and investment. ...A better approach for policy is to allow growth-enhancing forces to work but to try to cushion the effects of any resulting dislocations. For example, policies to facilitate retraining and job search by displaced workers, if well designed, could assist the adjustment process. Policies that reduce the costs to workers of changing jobs -- for example, by improving the portability of health and pension benefits between employers -- would also help to maintain economic flexibility and reduce the costs that individuals and families bear as a result of economic change.

A reasonable person might ask "retrain as what, you simpering, coddled, overpaid fool?"  Apart from trades like plumbing and electrical work, exactly what jobs will not be performed by lower-paid workers overseas if American wages for those jobs don't remain at rock bottom?

So Big Ben, a man reputedly brilliant at the analysis of macroeconomics in the real world, seems to have done a remarkably poor job of analysis here.  But don't worry, the important thing is the message that Big Ben is trying to send to the public at large: inequality isn't caused by the big bad globalization trend you've been hearing about from naysayers like me--it's just a little asymmetry between education and skills that are in demand. We'll solve it. No need to trouble yourself over it.  Really.  Go on back to sleep, now, y'all hear?

A deep sleep. Count backward with me, from 100: 100...99...98...97...Reagan is a hero...96...95...globalaization is good...94...93...your eyes are getting....blind.