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Today’s Wall Street Journal reports [2] the findings of a new study issued by the Chicago Fed. The study’s [3] conclusion is that job growth in sectors paying wages greater than the national average, compared to job growth in sectors paying wages lower than this average, is consistent with the patterns of past business cycles. In short, the evidence is against the proposition that high-paying jobs are being replaced by low-paying jobs.
One important feature of this study is its clear explanation of the pitfalls inherent in looking at average wages per sector. But I want here to highlight a more fundamental issue.
Almost all popular discussions of jobs and job creation – including discussions even in the WSJ – proceed as if jobs are created independently of the specific talents of the workers available to fill these jobs.
Jobs are not created in the abstract; they are not free-standing categories with different monetary numbers assigned to them. A job is not like a little booth into which a person walks in order to collect his or her pay. A job is no lottery ticket, with some people randomly drawing lucky (high-paying) tickets and others condemned by chance to draw less-lucky tickets.
The specific characteristics and wages of jobs created in a market economy depend on many different features of the economy, the regulatory environment, and the specific, particular circumstances reigning at any given time. One particular circumstance of special importance is the talents and character of the work force.
If firms perceive that the workers who are currently most readily available to be hired (say, because these workers are unemployed) possess only minimal skills, the jobs that will be created will be jobs for low-skilled workers. The wages offered to these workers will be correspondingly lower than are the wages paid to workers with greater skills. Likewise, when available workers have higher skills, the expectation is that the specific jobs “created” will be ones that pay correspondingly higher wages.
Suppose, for example, that a miracle pill is invented that cures any and all ailments of the brain. Take the pill and you’re cured forever with no side effects. This pill will eliminate almost all need for neurosurgery, neurology, and psychiatry. Will the talented, motivated, and skilled workers who once worked as neurosurgeons, neurologists, and psychiatrists now be obliged to sell hamburgers at McDonalds or work as greeters at Wal-Mart?
Of course not. These people are very smart and quite motivated. Firms and entrepreneurs will create jobs for these people that correspond to these people’s talents – jobs at which these people create as much wealth as possible. It’s true that many, perhaps most, of the new jobs created for people whose specific training is in neurosurgery, neurology, and psychiatry will pay less than did the previous, “pre-pill” jobs performed by these people. But it would be a gross mistake – an anti-entrepreneurial blunder – not to try to create jobs at which these talented people produce as much valuable output as possible.
Jobs are not created independent of the specific talents of the pool of workers most available to fill newly created jobs.