By Arnold Kling
Based on current trends in population, education, and labor demand, the report projects that by 2020 the global economy could face the following hurdles:
- 38 million to 40 million fewer workers with tertiary education (college or postgraduate degrees) than employers will need, or 13 percent of the demand for such workers
- 45 million too few workers with secondary education in developing economies, or 15 percent of the demand for such workers
- 90 million to 95 million more low-skill workers (those without college training in advanced economies or without even secondary education in developing economies) than employers will need, or 11 percent oversupply of such workers
In freshman economics, you learn that supply and demand curves cross. If there are “too few” of something, the price goes up. If there is an “oversupply” of something else, the price goes down.
The McKinsey report is an example of priceless economics. (Sadly, there are many other examples, including Keynesian macro as taught in freshman economics.) The quote above is written as if no adjustment in relative wages will ever take place.
If the market system works, the factors that McKinsey is describing should produce lower wages for low-skilled workers and a higher premium for high-skilled workers. To the extent that supplies and demands by skill category are inelastic, these effects will be strong. However, if those elasticities are higher (as one might expect over decades), the effects will not be so strong.
Central planning and prices are substitutes. Since it assumes that prices fail to clear labor markets (even in the long run), the McKinsey report is filled with ideas for central planning.
Instead, one might ask, what factors inhibit adjustment in labor markets? For example, how does “low-skill,” which should imply a low wage, become ZMP, which means that the cost of hiring the worker is higher than the marginal product of that worker? What are governments doing to keep the cost of hiring so high (think of minimum-wage laws, the linking of health insurance to employment, etc.)?
To what extent does “high-skill” mean “protected by a credentials cartel?” Something like one-third of all jobs in the United States now require a license. Government plays such a large role in providing education and regulating health care that those New Commanding Heights industries are blocked from changing the mix of labor in response to market forces.
Another question is how these inhibitions to adjustment play out globally. It is one thing to see factors at work in one country. From a global perspective, there is the additional consideration that some of the adjustment is impeded by formal and informal barriers to immigration.
Finally, I want to suggest one more possibility. Perhaps the seemingly low “supply of high-skill” (aka highly-credentialed) workers is a reflection of low demand for the lifestyle of high-skilled workers. Maybe at the margin many people would prefer more leisure to higher cash incomes.