WITH A PRESIDENTIAL debate held every few hours, it's hard not to hear about some of the pressing issues facing the United States. Two recurring favorites are income inequality (for the Democrats) and immigration (for the Republicans). They both fit neatly into John Edwards' oversimplified rendering of "Two Americas" with the downtrodden poor and the gluttonous rich. Meanwhile Tom Tancredo would like to build a giant wall to separate the United States and Mexico. Yet nobody seems to have bothered to ask the basic question of why are the poor -- both natives and immigrants -- poor?
Nobel laureate Robert Solow has spent the last several years trying to answer that question. For those who aren't familiar with his work, Solow is to economics what William Faulkner is to English. He is the father of modern, neoclassical growth theory. University Economics Prof. Ken Elzinga and his co-author William Breit have a running joke that Solow is the only person they would trust to single-handedly run the entire U.S. economy. And he called me "a man of taste and discrimination" two weeks ago after learning that I am an Economics major. I blushed.
He was visiting the University to give a talk titled "Low Wage Workers in High Wage Countries." Why, in countries as rich as the United States, Great Britain, France, Germany and Denmark, are there people making a pittance for their hours of hard work? And, perhaps even more importantly, what causes certain low-wage workers to raise their incomes while others find themselves stuck in menial, dead-end jobs? To answer these highly relevant questions, Solow looked across those countries at five of what must be some of the worst jobs to have: hotel bed makers, nurses' assistants (i.e. bed pan cleaners), supermarket shelf-stackers, call center operators and simple machine tenders in food processing plants.
There is a widely held belief among economists that labor productivity, which mostly comes from human capital, determines wages. But, true to form, Solow breaks the mold. He argues low wages result not because of the people, but as a result of the work itself. For instance, making a bed takes the same amount of time no matter how educated or talented you are. Because jobs like the five Solow picked are necessary, the labor market sorts those with the fewest skills into them. This tends to be the young, uneducated and immigrants (which are not necessarily mutually exclusive).
But that low-wage work is done by certain people at a specific point in time is not a terribly interesting finding. It's much more important to find out whether these same people take the "high road," as Solow termed it, or the "low road." In the former, firms treat employees as assets who accumulate training and experience (i.e. human capital) and eventually earn higher wages. In the latter, firms treat employees as expendable, don't train them well and accept high turnover rates. Since both models can be profitable, Solow found wide variation across industries. But he found clear, country-specific trends.
In Denmark, 100 percent of low wage workers in 1986 had found well-paying jobs by 1991. The same was true during the same period for 96 percent of low wage workers in France, 80 percent in Germany, but just 60 percent in the United States and United Kingdom. How could there be such large differences? These are all rich, fairly similar countries. The only differences are in history and regulatory structure, but even those are not extreme. The key, Solow argued, was education and training.
Denmark, France and Germany all have very good vocational training schools. They partner with local businesses to ensure they are providing students with exactly the skills these firms require. Therefore, most of the menial, low-wage work is done by students who will later secure well paying employment with their high-value skills such as carpentry and plumbing. In the United States and the United Kingdom, by contrast, vocational schools are badly neglected. Solow recounted an anecdote in which U.S. manufacturing plants donated outdated equipment to local vocational schools and then complained when the graduates weren't trained to use modern equipment. Though Solow admitted that the U.S. economy is much more service-based than Denmark's, he also argued there is no reason vocational schools couldn't teach service skills while providing a ready supply of low-wage labor in the meantime.
The policies Solow recommended have important social implications, too. Low-wage work is inherently demoralizing -- changing bed pans or stacking shelves can't be good for the soul. No surprise, then, that absenteeism and alcoholism run high among such workers.But vocational schools give low-wage workers a light at the end of the tunnel. Slog through and there's a good job waiting at the end. And it's that kind of hope that keeps societies together.
Josh Levy's column appears Mondays in The Cavalier Daily. He can be reached at jlevy@cavalierdaily.com.
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