Failed Theory Posed by Wall Street Dems Puts Hillary Clinton in a Bind

 

(AP Photo/Lynsey Addario)

Hillary Rodham Clinton speaks with former U.S. Treasury Secretary Robert Rubin at Columbia University Wednesday, Sept. 27, 2000, in New York.

There was a time where it was plausible to argue that more education and innovation were the primary solutions to our economic problems. But that time has passed. You cannot tell that, however, to the Wall Street Democrats and their Hamilton Project at the Brookings Institution.

They’re not ready to change just yet, even though most of the Democratic Party has. This shift was signaled by a recent report by the Center for American Progress (CAP) Commission on Inclusive Prosperity, which is co-chaired by Lawrence H. Summers, who served as Treasury secretary in the Clinton administration, and as chairman of the Council of Economic Advisers in President Barack Obama's first term. The report calls for full employment (a "high pressure economy," as Summers calls it), a more welcoming environment for collective bargaining, higher labor standards (overtime, minimum wage, earned sick and paid family leave), changes in corporate governance, and large scale public investment to address middle-class wage stagnation.

This puts Hillary Clinton in a bind, you might say. The Hamilton Project  is the brainchild of her longtime adviser, Robert Rubin, who preceded Summers as President Bill Clinton's Treasury secretary, while CAP is closely associated with two other Hillary confidants, John Podesta and Neera Tanden.

The new framing paper released by the Hamilton Project details how "advancing computer power and automation technology" creates a challenge for "how to educate more people for the jobs of the future, how to foster creation of high-paying jobs, and how to support those who struggle economically during the transition." This is pretty much the same analysis we heard from the Clinton administration 20 years ago, when the discussion was of a “transition to the new information economy." Let them eat education.

The education-only solution wasn’t appropriate when it was first put forward, and it is not even remotely plausible now given developments since the mid-1990s—and especially since 2000. Wages for the college-educated have been stagnant for the dozen years since 2000 (when the wage boom of the late 1990s receded). That stagnation has affected the bottom 70 percent of all college graduates both in the last recovery and throughout the Great Recession and the recovery from 2009 through 2014. Moreover, the college wage advantage has grown very little since the mid-1990s: This means that the continuously growing wage gap between high-wage and middle-wage workers since then has had very little to do with education wage gaps.

As documented by the New York Federal Reserve Board, we have seen accelerating underemployment of young college graduates. Recent cohorts of college graduates have been taking jobs at lower wages and with fewer benefits ever since 2000. Besides that, the observation that there are multitudes of college graduates working as free interns should tell us that there is no widespread shortage of college graduates. So the idea of education as cure-all is absurd.

Even more telling is the acknowledged reversal of the broadly disseminated findings of an earlier paper, written by MIT professor David Autor, and released jointly by the Hamilton Project and the Center for American Progress in 2010: Supposedly, according to Autor's The Polarization of Job Opportunities in the U.S. Labor Market, it was technological change that was polarizing the job market and leading to wage inequality, necessitating major changes in the quantity and quality of education. Developed in the mid-2000s, the term "job polarization" provided a new framework for arguments that technological change had shifted in the 1990s so that it eroded middle wage jobs but led to an expansion of high-wage jobs relying on non-routine cognitive skills and to an expansion of low-wage jobs that could not be automated.

Over the last few years, however, several researchers, including Autor, have documented that occupational job polarization has not been present in the 2000s. These papers find that that high-wage, high-skill jobs that require a college education have not expanded their share of total employment since 1999-2000. The only job categories that have expanded are in occupations paying in the bottom third of the wage scale.

I am proud to say that my research with my then-colleague Heidi Shierholz, and with economist John Schmitt of the Center for Economic and Policy Research, was the first to document these trends (final paper here). In a National Bureau of Economic Research paper, Paul Beaudry, David A. Green, and Benjamin M. Sand traced occupational employment patterns and concluded that the relative demand for college graduates had fallen since 2000. Atlanta Federal Reserve Board economist Federico Mandelman has also confirmed (Chart 2, below) the failure of high wage occupations to grow from 2000 to 2010. Most importantly, Autor himself has concluded that job polarization has not occurred since 1999 and that the occupation employment trends highlighted by his previous analyses of job polarization do not necessarily explain wage trends. (See Autor's paper for the prestigious Jackson Hole Federal Reserve Board conference last August.)

Federal Reserve Bank of Atlanta/Center for Human Capital Studies

The Hamilton Project authors do acknowledge this recent research:

Scholars including Autor (2014) and Shierholz, Mishel, and Schmidt (2013) have observed that, in the 2000s, employment and wage polarization patterns have not continued to move together, with employment growth generally limited to the bottom end of the skill distribution and rapid wage growth generally occurring only at the top end of the distribution. This presents the undesirable possibility that a trend of employment growth in high-wage jobs is coming to an end.

But that courtesy acknowledgment does not change their story. The conclusions are the "same old, same old" urgency for more education and innovation.

The simple truth is that innovation may yield higher productivity and more growth—but the entire center-left field of economists (other than those leading the Hamilton Project) now acknowledges that this will not necessarily lead to robust wage growth for the vast majority. After all, since 1979, we’ve seen lots of productivity growth but very little wage growth. Even the Hamilton Project paper cites this fact, noting that "the median American male worker’s wage rose by just 3 percent from 1979 to 2014." 

Expanded educational opportunity can certainly help working-class and disadvantaged youth find upward mobility in the future but it is hard to see how it addresses stagnant wages affecting both college and non-college educated workers when high-skilled jobs are not expanding (or even if they expand as they did in the 1990s given that the college educated workforce is similarly expanding).

According to the Hamilton Project’s self-description:

A commitment to economic growth that is widely shared has been a fundamental tenet of The Hamilton Project since its inception. The Project has released numerous policy papers focused on the issues of access to higher education, effective training and skill development, and investments in our nation’s infrastructure and workforce.

I would add that they have also supported various tax credits for low-wage workers. This is a far better platform than that offered by the GOP Wall Street crowd, and for that I am thankful. Nevertheless, there is not much in this narrow agenda that provides any prospect that the vast majority will soon share in the economic growth they help to produce. Any real solution, after all, will need to challenge the current dominance of employers over wage growth.

Hopefully they will soon embrace many of the recommendations of CAP’s Inclusive Prosperity report. I would prefer they go farther and follow my advice, but first they need to go beyond mid-1990s Clintonism.

To have any credibility, Hillary Clintonism will need to do better than this.

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