List the four explanations offered by social scientists for the growing inequality of wages.

Question

What will be an ideal response?

Answer 1

1. Economic Restructuring. By definition, employment in a postindustrial society shifts away from manufacturing and related sectors and into the service-producing sectors of the economy such as restaurants and lodging, retail, health care, and finance (see Figure 3.1). The expanding sectors typically provide new opportunities for well-educated managers, professionals, and technicians, but fewer decent-paying jobs for workers with limited skills. In the health-care sector, for example, there are ample rewards for doctors, nurses, hospital administrators, and database managers, but meager pay and benefits for the unskilled armies of hospital janitors, food service workers, or home health aids.
2. Globalization. In the Age of Shared Prosperity, foreign trade weighed little in the American economy. In 1960, for example, only 4% of the cars purchased in the United States were imported (Reich, 2007, p. 43). But from 1960 to the end of the century, total imports and exports climbed from 10% to 24% of GDP (Wright, 2007, p. 322). Not just goods, but also services are globalized. The United States “exports” financial services and “imports” call center services. This book may be copyedited by someone in India. Globalization, which benefits the economy as a whole, nonetheless creates economic winners and losers. Imports of relatively cheap consumer goods produced by low-wage workers in developing countries constrict opportunities for the least skilled American workers. At the same time, increased demand from abroad for high-value American products, from computer software to jetliners and sophisticated services in areas such as media and finance, creates high-paying jobs for American workers with advanced skills and education. Even high-tech products created and sold by American firms may be produced abroad. For example, Apple iPods and iPhones are designed, administered, and promoted from the company’s headquarters in Cupertino, California, but assembled in China from components made in various Asian countries. Those who benefit most from the success of these devices are Apple’s professionals, executives, and stockholders.
3. Technological Change. New technologies and modern communications also tend to displace unskilled workers while creating new jobs and rising wages for workers with relevant skills and education. Advanced digital technologies, robotics, and most recently 3-D printing have transformed manufacturing. A plant that might have employed thousands in the past can achieve the same output with hundreds of workers today. Likewise in the office, computer applications have displaced many of the middleskilled workers who once would have performed routine clerical tasks, like basic bookkeeping. Among the winners are those with sophisticated skills who are best positioned to take advantage of these same technologies, including systems analysts, actuaries, engineers, financial analysts, logistics specialists, and marketing managers.
4. Education. Increasing rewards to education are implicit in the previous three points. An advanced economy observes economist David Autor, “requires a literate, numerate, and technically and scientifically trained workforce to develop ideas, manage complex organizations, deliver health care services, provide financing and insurance, administer government services and operate critical infrastructure.” In 1982, college graduates earned 50% more than high school graduates. By 2005, they earned twice as much. These low-skilled workers benefit from cheap imports, but declining real wages at the bottom of the labor market tell us that their purchasing power has declined. Over that period, the rising market value of education accounted for 65% of the increase in wage inequality, after other individual characteristics were controlled for (Goldin and Katz, 2007, p. 145). The advantage enjoyed by the educated is enhanced by the forces of supply and demand. Since 1980, the increasing demand for highly educated workers has outstripped the slowing growth of the educated labor supply.