Précis
Returns to education: controlling
for high school
How scarce is labor?
Child labor
Unions have small impact on
managers' pay
Returns to education: controlling for high school
There is an earnings premium for college graduates, but it may not be as high as the raw figures have so often indicated. According to Joseph G. Altonji, an economics professor writing in the Federal Reserve Bank of Chicago journal, Economic Perspectives, controlling for the personal characteristics of graduates substantially reduces the rate of return, but controlling for the characteristics of the worker’s secondary education has only a modest additional effect.
Each year of postsecondary academic education, according to Altonji’s basic analysis of the National Longitudinal Survey of the High School Class of 1972, raised wages by about 8 percent. This was reduced to about 6.5 percent when family background, ability, aptitude, and region are controlled. Adding controls for a set of characteristics of the high school and the student’s course work only reduced this rate of return by an additional tenth of a percentage point.
How much should one worry about labor shortages? In recent months, unemployment rates have been lower than they have been in a quarter century. Sara L. Johnson, chief regional economist for Standard and Poor’s DRI, calls labor shortages one of the "clouds on the horizon" for an economy that is recording rising incomes, low unemployment, mild inflation, strong business investment, and progress in all regions of the United States. More than half of the respondents to a recent survey conducted by the National Association for Business Economics reported difficulties hiring skilled labor.
When viewed in a global perspective, however, it may continue to be easier to find skilled labor in the United States and other industrial nations than in their trading partners in the big emerging markets. In a presentation prepared for McGraw-Hill’s 1998 Symposium on Information Solutions, Nariman Behravish, DRI’s chief international economist, rated the risk of skilled labor shortages as extremely unlikely in Japan, Germany, and the United States over a 1-year time horizon. Even over a 5-year horizon, he found the risks to be less than 1 in 10 for these countries. In contrast, the nations with the highest risks of running short of skilled labor in the longer term were Saudi Arabia, South Africa, Thailand, Indonesia, Egypt, and Malaysia. (See the May 1997 and May 1996 issues of the Review for reports on Saudi Arabia and South Africa.)
Statistical surveys are often poor instruments for measuring other than the specific data for which they were designed. Admitting so, but pushing on, Douglas Kruse and Douglas Mahony laboriously estimated illegal employment among persons under 18 years of age for a recent National Bureau of Economic Research (NBER) working paper, Illegal Child Labor in the United States: Prevalence and Characteristics.
They estimated that in an average year between January 1995 and September 1997 about 290,000 youths were employed illegally sometime during the year and worked about 113 million hours in such employment. By comparison, the total number of working age persons with some work experience in 1996 was 141.4 million. Thus, minors in illegal work account for about 0.2 percent of those with work experience. The hours they work make up roughly 0.05 percent of all hours worked.
Unions have small impact on managers' pay
Unions limit management’s discretion over the wages of workers covered by the collective bargaining agreement. In general, unions raise the wages of their members and compress wage distributions for covered workers within establishments and industries. John DiNardo, Kevin Hallock, and Jorn-Steffen Pischke, in their NBER working paper Unions and Managerial Pay, explore the possible impact of unions on pay of the firm’s managers and executives. They find that there is a weak negative link between unionization rates and CEO (chief executive officer) pay. That is, for every 10 percentage point increase in the unionization rate, CEO pay is about 2 percent lower. (One anomaly: firms with low unionization rates may pay their chief executives more than those without a union at all.)
While the impact of unions on management pay was relatively small, the authors found consistent evidence that fewer managers were employed where unionization was higher. “Thus,” conclude DiNardo, Hallock, and Pischke, “unions may redistribute rents toward workers not by lowering the pay of workers but by reducing their numbers and therefore their wage bill.”
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