Higher education no silver bullet in fight against inequality

A key challenge for Canadians is to increase the number of highly skilled, highly productive, well paid job sought by the many young people leaving our post-secondary educational institutions.

Rows of new graduates sitting during their commencement ceremony.
Photo by Joshua Hoehne on Unsplash.

Young people are constantly told that a post-secondary qualification is the key to getting a good job, and tens of thousands of students are graduating this year in search of a full-time job matching their qualifications.

For an individual, a good education certainly raises the odds of finding a good job. But it does not follow that further raising the educational level of the workforce as a whole will boost the overall quality of jobs or reduce growing income inequality.

Many economists subscribe to the idea of “skill biased technological change.” The theory is that new technologies and work processes displace lower skill jobs but increase the demand for highly skilled workers. This is a force for inequality since pay rises more for the skilled than for the less skilled.

As Kelley Foley and David Green point out in a recent paper for the Institute for Research on Public Policy (IRPP), increasing the overall level of education acts like a “silver bullet” within this perspective. Not only does a rising educational level complement new technologies to boost productivity, it increases the supply of skilled workers and thus limits pay differences between the more and less well-educated.

Canadians have taken to heart the prescription of raising educational levels. We now have the highest level of educational attainment in the world, measured by the proportion of the population with a post-secondary qualification. About one-in-four young men age 25 to 34 and one-in-three young women in the same age group have completed at least a bachelor degree.

While increased education is undoubtedly beneficial for individuals along many dimensions, it is not a silver bullet from the perspective of creating good jobs for all and promoting greater income equality.

As critics have long pointed out, technological change might help explain why pay differences have sometimes been growing between those with higher and lower educational qualifications, as they did in Canada in the 1980s and 1990s. But it does not explain why the incomes of the top 1% have grown so much faster than those of the well-educated.

Nor does technological change explain why wages and incomes have become much more unequal in some countries, such as Canada, than in other advanced industrial countries which are just as technologically advanced. Institutional factors such as the strength of trade unions, minimum wages, social norms and models of corporate governance make a differences.

In recent years, many economists have also begun to take a more nuanced and pessimistic view of the impact of technological change, and of the new information technologies in particular.

Evidence is accumulating that technical progress is eliminating many skilled, middle class jobs which can be readily automated, while enhancing the pay and bargaining power of only a relatively small group of highly educated professionals and managers. Rather than raising the overall quality of jobs, change is boosting the proportion of relatively low paid and low productivity jobs which cannot be automated.,

Rather than rising skill levels across the occupational spectrum, we see more losers than winners, and increased competition for low pay jobs from displaced middle class workers.

To put this in human terms, many students leaving the post-secondary educational system today will be unable to find jobs matching their qualifications, and will be forced to take positions for which they are over-qualified. This will further worsen the pay and conditions of those with less than a post-secondary education, as well as recent immigrants whose education and work experience tend to be under-valued by employers.

As the IRPP study shows, it is hard to tell one simple story of what is going on in the Canadian job market. But it seems that the pay premium for a university education has been falling since 2000, especially for men. This is partly because the resource boom increased the demand for blue collar workers, but the supply of university graduates has probably outstripped demand.

A key challenge for Canadians is to increase the number of highly skilled, highly productive, well paid job sought by the many young people leaving our post-secondary educational institutions.

Unfortunately, the “knowledge-based economy”, including sectors such as capital goods manufacturing and high end services, is small compared to other advanced industrial countries and has, by many measures, been shrinking.

Creating good jobs and limiting inequality will require much more than “supply side” policies to further boost educational levels.

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