The Wage Premium For Skilled Jobs Is Growing

WHY IS THIS IMPORTANT? The early stages of the New Economy have seen income growth increasingly tied to education and occupation. Increasing the educational and skill levels of American workers will foster reduced wage inequality and faster economic growth. But it will take more to significantly increase wages for the bottom half of the workforce. New technologies and work reorganization can help make many lower-skilled, labor-intensive service sector jobs (which now account for a quarter of all jobs³¹) more productive, allowing them to pay higher real wages.

THE TREND: A key factor in the increasing earnings gap has been the increased wage premium paid to higher education and skills. Since the 1970s, only those with a college degree have seen their wages go up, while those with less than a college degree, particularly those with only a high school degree or less, have seen their real wages fall. Education also increasingly determines unemployment. In the 1970s, a high school dropout was 3.5 times more likely to be unemployed than a college graduate. In the 1980s and 1990s, that ratio has increased to 4.5.

But in the New Economy it is not just education that determines economic circumstances, it's also occupation. Occupations that require higher skills now pay a higher premium. For example, among college-educated workers, only those with managerial and professional ("elite") jobs saw wage gains in the last decade. Similarly, compensation paid to more-skilled precision production workers grew 2.3 times as fast as compensation to lower-skilled laborers. In the last 20 years, compensation for managerial and professional work increased, while incomes of moderate-skill jobs remained stable and incomes of less-skilled jobs declined. Overall, compensation in elite jobs grew 2.5 times faster than in blue collar occupations and 4.3 times faster than service occupations between 1987 and 1996.³²

THE DATA:

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