Sunday, August 1, 2010

Labor markets

Matthew Yglesias writing about how more education can reduce the wage gap between skilled and unskilled workers by increasing the supply of skilled workers and decreasing the supply of unskilled workers:

There are a lot of things going on here, but one point to keep in mind is that progress in educational attainment is generally beneficial not just beneficial to the people who get the extra education. Insofar as more Finnish people acquire skills and learn to be cell phone company executives or furniture designers or Finnair pilots that’s (a) more income to be spent on goods and services produced by lower-skilled people and (b) fewer lower-skilled people to compete for those jobs. Consequently, the Finnish people who don’t upgrade their skills also benefit from the fact that other Finnish people have been upgrading. Consequently, the great expansion in educational opportunities in the 1870-1970 era helped produce prosperity even for people like Connie Freeman’s dad who didn’t necessarily personally acquire a great deal of education.

This makes a certain amount of sense. But of course when it comes to the effects of immigration on wages Yglesias no longer believes in the negative effects of increased supply predicted by simple models (or perceived by those directly affected).

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