How automation and skill gaps fail to explain wage suppression or wage inequality[Are the Job Prospects of Recent College Graduates Improving?]

Wage gaps between “skilled” and “unskilled” earners in the United States are conventionally attributed to U.S. workers’ “skill deficits,” or lack of skills necessary to deal with technological change, particularly automation. This paper argues instead that skills deficit/automation claims have always been a weak explanation for post-1979 trends. Since the mid-1990s all indications are that there is no basis for considering automation to be a significant factor in wage suppression or the growth of wage inequality. Rather, inequality growth has been an outgrowth of developments in the labor market rather than product markets. The key dynamic undercutting the typical worker’s wage growth has been the strengthening of employers’ power relative to their white-collar and blue-collar workers. The cause has not been monopoly firms exercising their power in product markets by charging higher prices to consumers. Monopolization has indeed contributed to wage suppression, but even this factor has largely run through the labor market, as monopoly firms squeezed supplier chain firms which in turn undercut their own workers’ wages while seeing a profit squeeze as well. The paper concludes that what is needed is a better balancing of power in the labor market rather than a perfecting of competition.