Bryan Caplan  

Measuring Skill

Watch the Horizon... Obscure Demand Function Factoi...

How can you tell whether a worker is "low-skilled" or "high-skilled"? Most economists' knee-jerk reaction is to see how many years of education the worker has. But a far better measure is simply labor income. If you've got a Ph.D. but you earn $10,000/year, you're probably a low-skilled worker, whatever your diploma says. And if you've got an 8th-grade education but you pull in 500k/year, you're probably a high-skilled worker, even if you don't know how to diagram sentences.

This is an important insight, because a basic fact about public opinion is that education has a lot more predictive power than income. Highly-educated people with low earnings basically agree with highly-educated people with high earnings; less-educated people with low earnings basically agree with less-educated people with high earnings. The straightforward interpretation is that belief differences are primarily about understanding and/or socialization, not self-interest.

Application: Mayda and Rodrik's well-known working paper presents a rational self-interest explanation of the fact that the less-educated are more protectionist than the more-educated. Low-skilled labor - which M&R equate with less-educated labor - is very abundant on the world market. Therefore, low-skilled workers benefit less, and in fact may lose, from greater openness. No wonder they're more protectionist, right?

Not so fast. Jens Hainmueller and Michael Hiscox have an excellent critique of M&R which points out that people do not change their minds about trade policy when they retire. Even after they exit the labor force - and cease to be in competition with the world's low-skilled billions - less-educated workers remain about as protectionist as they were before. (H&H also test and dismiss the theory that retirees are trying to protect the interests of their families). H&H conclude that the effect of education on beliefs about trade probably reflects the fact that the well-educated know more about trade and/or are socialized to be more tolerant of foreigners.

If you buy my story about measuring skill, of course, this is the hypothesis that Mayda and Rodrik should have started with. If you want to show that the conflicting interests of high- and low-skilled workers drive disagreements about trade, then you should show that income, not education, is in the driver's seat. Of course, it would be amazing if they were able to show this, because on issue after issue - including economic issues - public opinion researchers have found exactly the opposite.

P.S. For a lot more details, check about the Social Science Statistics blog here, here, and especially here.

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COMMENTS (11 to date)
Bob Knaus writes:

Hmmm.... I wonder which pigeonhole I fit into. I have a high-school education only by dint of a mail order course. I walked away from a 6-figure income as a management consultant, because I didn't want to work so hard. By all accounts, I'm a skilled worker, even though I qualify for the Earned Income Credit. I still do some contract work in my old field, because I enjoy the mental challenge. I guess I'm a statistical outlier :-)

Seriously... my personal experience with aquaintences on both ends of the skill scale lets me make a generalization: most people who blame foreigners for their problems are covering for their own personal failings. Not just my blue collar friends. My most liberal-educated friends can say the most illiberal-dumb things when it comes to foriegn competition, if something else is going wrong in their lives.

I'm not sure how you'd test this in a social science setting. Maybe chart people's attitudes over time against life-changing events like divorce, death, losing a job, etc.? But how would that separate protectionist bias from general pessimism?

Or, maybe they really are one and the same.

Dan Hill writes:

Rational thinking about most economic policy issues is about dealing with the problem of the seen and unseen as described by Bastiat. I would expect the ability to do that to be correlated with abstract reasoning for which education is a (better than nothing) proxy...

Ann R. writes:

For the sake of every college student out there I certainly hope that for the most part, a skilled laborer gets paid more than an unskilled laborer. Otherwise, why are we incurring such a large opportunity cost during our prime working years? Economists believe that skilled laborers should be paid more only because economically it is not logical to get an education only to be paid less than a high school drop out.

Dewey Munson writes:

How many skills does an economy need?

All of them!

If this need were recognised and rewarded rather than demeaning some in favor of others, educational efficiency would improve by focusing on individual traits rather than by trying to make everyone a CEO or an economist.

Bill Stepp writes:

Tariffs are not the only form of protectionism.
"IP" is another; in fact its probably the most underappreciated assault on liberty, property, and prosperity.
What are the figures for this?

I'm a little confused on this debate. It seems an obvious conclusion that "skill" is directly tied to productivity and productivity is tied to labor income (wages). Experience, not education, creates skill.

Though, Bryan, I have a request: Any chance you could write a short article on the possible effects or recent US Protectionism with regard to China and the UAE? This seems quite dangerous.

Lord writes:

Therefore, low-skilled workers benefit less, and in fact may lose, from greater openness.

This would only be true if those jobs are exposed to trade. In highly paid manufacturing they are, but almost no other. An asian can't do your cleaning, cooking, or gardening. They can't act a security guard or salesperson. They can't repair you car or fix your plumbing. The forefront of globalization is in high-skilled computer based desk jobs, not low-skilled work, which is why the returns to education are falling.

It should be no surprise most people don't like change. This is not so much having something to blame, but a desire for stability. Advancement requires change, but much change does not lead to personal advancement. Also the fact that people maintain their beliefs through retirement should be no surprise. Their families, friends, and neighbors would often still be in the workforce and it is natural to feel some solidarity with similar minded people.

Steve Sailer writes:

A poorly paid worker with a Ph.D. probably has strong English language skills and poor technical skills -- e.g., a writer. So, he's not worrying about manufacturing and engineering jobs moving to East Asia because he would never hold those jobs. However, he might be worried about outsourcing English language jobs to English-speaking India.

That's why you read more about the small phenonmenon of outsourcing white collar jobs to India than the massive phenomenon of losing manufacturing to China.

asg writes:

There's something vaguely circular about estimating skilled status (which is really a crude set of labels for productivity) by using labor income.

quadrupole writes:

One other point of consideration... there are some jobs which due to non-skill market distortions are overpaid. Think jobs with strong unions, lisencing protections, etc. These jobs have their labor wages held at above market rates artificially.

Those are the jobs that are most at risk from globalization.

How do you cope with artificially elevated wages in your labor income equals skills model?

Ed Kohler writes:

This makes sense to me. Anything that only a limited number of people can do, and other people find valuable, ends up being a highly skilled job. For example, there are only so many top athletes, actors, or newscasters. People's opinion may vary about the skill involved in some of those positions, but clearly the value doesn't have to tie directly to years of formal education.

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