During the past 30 years the market for workers with few skills has been weak pretty much everywhere. The reason is that economies, including developing economies, have increased their demand for knowledge workers at the expense of low skilled workers. The future is not likely to be any kinder to workers with little education and few other work skills.
Various forces have favored skilled workers during the past several decades; indeed, many of them began much earlier. Technological changes and automation, including the development of computers, the Internet, and electronic controls, have reduced the demand for certain types of skilled workers, such as secretaries and clerical workers. They have increased the demand for workers who command considerable knowledge, and who know how to access any additional knowledge necessary to perform various tasks. The growth in the stock of complex machinery has also raised the demand for workers who know how to effectively use such machinery.
These trends toward greater reliance on knowledge workers have been powerful not only in richer countries like the United States, but also in developing countries like China and India. In China, for example, enrollments in universities during the past twenty years have boomed because the demand for educated workers and other skilled workers has sharply risen due to technological transfers from Japan, the US, Germany, and other countries, foreign direct investments, and the growth of exports.
When increased demand for more educated and other skilled workers is matched by increased supply of these workers, the net gain from becoming educated and skilled does not increase. Put differently, under those conditions, the earnings of less skilled workers would not fall relative to skilled workers. This is more or less what happened on balance in the United States during the first 80 years of the twentieth century. But during the past 30 years, supply has not kept up with demand, so that the real earnings of low skilled workers have fallen relative to those of skilled workers. Perhaps even low skilled earnings have fallen in real terms.
This fall in the relative, and perhaps also absolute, earnings of high school dropouts and other workers with limited skills has been associated in the US and some other developed countries with a large decline in the labor force participation of males with less than a college education. Some have interpreted this decline in participation as evidence that there are not enough jobs any longer for workers who do not have considerable marketable skills.
Yet both theory and evidence contradict this overly pessimistic view of employment opportunities. Theory states that the number and kinds of available jobs depend not only on demands from producers and consumers, but also on the cost of different worker types. When the cost of less skilled labor is low enough, more workers are used to help with gardens, clean homes, help consumers find the goods they want in retail establishments, and in countless other ways. Essentially, the number of jobs that can be created is virtually limitless, and it is mainly constrained by the cost of the labor.
Of course, obstacles like the minimum wage and “fair” wage laws. Like the Davis-Bacon Act in construction, may prevent wages from falling to levels that allow workers with lesser skills to find work. More importantly, some persons with limited education and other skills may choose not to work or to work only sporadically even when they can find jobs. The reason is that they can collect enough benefits from food stamps, unemployment compensation, subsidized housing, Medicaid, “disability” pay, and other welfare payments to enable them to do almost as well financially, and perhaps even better, than they could if they worked and had to forgo most of these benefits. Note the low unemployment rates of unskilled illegal immigrants, who do not qualify for most of these welfare benefits. Their earnings also tend to be above minimum wage levels.
In the longer run, the solution to the economic plight of high school dropouts and other low skilled persons is, as I have argued in previous blog posts, to ease the obstacles to boys and girls from poorer backgrounds that prevent them from finishing high school and getting additional training after high school, such as learning to drive trucks or work with computers. In the shorter run, it would be desirable to replace the welfare benefits that discourages many low skilled individuals from working with an expanded earned income tax credit that does the opposite and encourages them to work.