March 1999, Vol. 122, No. 3
turmoil, local impact
College education and unequal wages
Précis from past issues
Global turmoil, local impactThe full effect in the United States of recent economic turmoil in Asia and Latin America is not yet clear. One thing that speakers at the National Association for Business Economics annual policy conference agreed on, however, was that those impacts would be unequally distributed among the disparate regions of the Nation. Sara L. Johnson, Chief Regional Economist of Standard & Poors DRI, identified Arizona, Texas, Louisiana, Michigan, and Florida as being most dependent on exports to Latin America. She noted that more than three-fifths of Floridas merchandise exports were to South America and Mexico.
Ross C. DeVol, Director of Regional Studies for the Milken Institute, added an interesting analytical twist in looking at the impact of Asia among the States. He first identified Washington, Oregon, California, and Arizona as being among the 10 States in which exports were the highest share of gross State product. He then looked at the relatively high share of those exports that were destined for Asian market to place those four States among the top five in terms of dependence on Asian demand.
Workforce 2020A special issue of the Chicago Fed Letter summarizes many of the presentations from a conference cosponsored by the Bank to address the possible implications of tight labor markets over the mid-to-long term. Howard N Fullerton, Jr. laid out the BLS projected job growth and employment scenario through 2006: Job growth has and will continue to slow somewhat, but at the same time, labor force growth will also decelerate so that the total number of jobs will still grow significantly more than the number of additional workers.
William A. Testa of the Federal Reserve Bank of Chicago discussed the implications of such projections for the Midwestern district the Bank serves. A decade ago, most analysts would not have worried much about tight labor markets in what was sometimes called the "Rust Belt." However, the recovery, restructuring, and reconcentration of the automotive industry have led the Midwestern economy to a lower-than-average unemployment rate and policy concerns about labor-constrained growth rather than underemployment.
Michael J. Greenwood, University of Colorado at Boulder, examined interregional shifts in population. Just more than 90 percent of net population growth accrued to the South and West census regions in the 1970s and just under 90 percent in the 1980s. In the first half of the 1990s, however, the South and West accounted for just 80 percent of incremental residents. "Moreover," according to the Letter, "the situation in the Midwest changed dramatically. Incremental population was 2.7 times higher than it had been during the entire decade of the 1980s."
Other papers covered topics as varied as immigration, contingent work, entrepreneurship, workforce diversity, and labor market intelligence systems. Academic researchers attending the conference also raised concerns about cuts in the amount of regional information available. This is considered especially problematic in instances where the success or failure of economic change may emerge more quickly locally or regionally than at the national level.
College education and unequal wagesIt has become common knowledge that the returns to education have increased and that there has resulted a wider inequality of income and wages across educational attainment categories. It is also true that inequality has increased within the college-educated category. Caroline M. Hoxby and Bridget Terry decompose the sources of rising inequality among adults with at least some college education into three components in a recent working paper circulated by the National Bureau of Economic Research. In all, their decomposition explains about 70 percent of the increase in inequality among bachelors degree holders and somewhat less of the increase among persons completing fewer than 4 years of college.
The first component, which measures the increase in inequality that can be attributed to the increasingly diverse socioeconomic backgrounds of persons attending college, they call the "extensive margin." The extensive margin, according to Hoxby and Terry, can account for about one-quarter of the increase in inequality that can be explained within their framework.
The second component of the decomposition isolates an increasing return to aptitude (defined as the combination of ability and achievement that leads one to do well in college entrance examinations). This factor accounts for about one-third of the explained rise in income inequality among the college educated.
The third, and most subtle, component the authors call the "intensive margin." This margin reflects an increasing tendency for persons of similar aptitude to attend the same colleges thus raising aptitude differentials across colleges and the interaction of those across-college differentials with an increasing tendency of per-student expenditures to be positively correlated with student body aptitude. In other words, the students with the highest measured aptitude are increasingly attending the colleges that spend the most per student. Hoxby and Terry estimate that this factor accounts for about five-twelfths of the explained increase in wage inequality. They also conclude that if the intensive margin had not been taken into account, the role of increasing returns to aptitude would have been greatly overstated.
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