Globalization’s ailments were supposed to have a ready cure. Education would prepare American workers to take advantage of the dynamic and well-paying careers of the future, even as many jobs that once supported families and communities headed overseas. American firms, employing this increasingly skilled workforce, would outcompete foreign rivals and expand into new markets.
When these things did not happen — when wages stagnated, cheap imports flooded domestic markets, and American exporters struggled to gain footholds abroad — many assumed the problem must be with education too. Employers lamented “skills gaps” that left them unable to find the talent they needed.
Colleges, already receiving more than $200 billion in public funding each year, demanded greater resources. Economists and pundits devised creative euphemisms to sound original as they repeated ad nauseum their prescription of education and training and, when those didn’t work, more of the same.
A Surplus of Worthless Degrees
The actual problem is one of misdiagnosis. America is not desperate for more college graduates; it is producing them far faster than it creates jobs that they might fill. In a new analysis of U.S. Bureau of Labor Statistics (BLS) data, published this week at American Compass, I show that the U.S. labor market’s evolution in recent decades has fallen woefully short of what would be needed to deliver broad-based prosperity for American households.
From 2000 to 2019, the number of college graduates in the labor force increased by more than 20 million. But over the same period, only 10 million new jobs appeared in occupations for which at least a college degree is the typical education needed for entry (“BA jobs”). Bachelor’s degree holders accounted for 97 percent of net workforce growth, but 41 percent of net job growth required a high school degree or less.
This imbalance might be tolerable if all segments of the labor market were thriving. But in fact, only those workers who do secure BA jobs have experienced significant gains. As of 2019, BA jobs still accounted for just 27 percent of the labor market, but they managed to capture 75 percent of the total 2000–19 increase in wages paid economy-wide.
Only BA jobs saw an upward shift in distribution across wage levels. Using the poverty threshold for a family of four as the benchmark, more than 90 percent of BA jobs paid more than twice the poverty line in both 2000 and 2019, but the share paying above four times that line ($103,000 in 2019) more than doubled, to 19 percent.
Non-BA jobs saw no such shift; 87 percent of jobs paid less than twice the poverty line in both periods, and the share paying more than four times the line held steady at 0 percent. Overall, average wages rose four times faster in BA jobs than other jobs, even as those other jobs were increasingly filled by BA holders.
Rather than divergent economic outcomes for Americans who have and have not received bachelor’s degrees, we have a bifurcation between those who obtain the limited set of high-quality jobs requiring higher education and those who do not. In this context, promoting “more education” as a solution to our problems is not merely beside the point, it is directly counterproductive. The attitude throws good tuition after bad at college and universities cranking out graduates with nowhere to go — according to the New York Federal Reserve, 40 percent of new college graduates land in jobs that don’t require a degree.
When Free Trade Couldn’t Deliver
What went wrong? Economists misinterpreted their own theories of how globalization would affect the American labor market. Harvard University’s Greg Mankiw provides a quintessential illustration.
“Full employment,” he observed, “is possible with any pattern of trade. The main issue is not the number of jobs, but which jobs.” Unfortunately, Mankiw went on to say: “Americans should work in those industries in which we have an advantage compared with other nations, and we should import from abroad those goods that can be produced more cheaply there.”
This conventional wisdom misunderstands the nature of comparative advantage and global trade balances. The formula is an excellent one for producing cheap stuff, but nowhere does it suggest that those industries in which America can produce things most cheaply will be those offering good jobs that allow American workers to support their families and communities.
Moreover, a pattern of trade that permits large financial imbalances and thus trade deficits may also see American workers depart industries that produce anything other countries might want, landing instead in a low-wage, low-productivity domestic service sector.
While America, trusting the economic wisdom that free trade would invariably yield better jobs, did nothing to ensure that outcome, other countries did not sit on their hands. China, especially, made massive public investments in developing its own capacity, robbed us blind of our intellectual property, and denied our producers access to its own market.
So while our good jobs became theirs, the other, better jobs never emerged. Their workers made hundreds of billions of dollars of goods to sell here, we made little to sell there. And no, we’re not talking about T-shirts and plastic toys. Stunningly, since China joined the World Trade Organization, America has gone from a robust trade surplus in Advanced Technology Products to an enormous trade deficit.
America’s labor market now presents two problems: First, it is not producing the promised increase in high-quality jobs to absorb the nation’s investment in higher education. Second, it is not producing meaningful gains for the majority of Americans who do not and will not earn bachelor’s degrees regardless. Solutions focused on creating more college graduates will solve neither of these problems.
Instead, we need economic reforms that yield a different pattern of economic growth and thus different labor-market demand. We should support international trade only insofar as it is balanced. Real investment in the domestic economy should get preference over speculation and offshoring.
Then, rather than plow more trillions of dollars into subsidizing a higher education system that serves only a select few, we should focus on creating programs that connect young adults to productive careers. It’s policies like these, not free trade and free college, that will benefit American workers broadly.
