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Friday, June 09, 2006

The 'Creative Economy' and the Future of the American Worker Continued...

Frank Levy of MIT has a nice response to Richard Florida's recent essay in Cato Unbound on the development of the "Creative Class" as the key to economic success in the future:

Education and Inequality in the Creative Age, by Frank Levy, Cato Unbound: Richard Florida writing about the Creative Class is a lot sexier than your average economist writing about Skill Biased Technical Change. Sex aside, these two ideas speak to the same important development. ... I will argue that this development dictates a different kind of education. But I will also explain why education alone—even the right education—will not prevent destructive levels of American income inequality unless it is accompanied by conscious government intervention—for example, government provision of health insurance. ...

Until fairly recently, the U.S. labor market had many jobs that paid good money for people who could carefully follow instructions—what cognitive psychologists call “rules-based” tasks. With the advent of computerized work and offshoring, these rules-based tasks are fast disappearing. If a job can be fully expressed in rules ... it can and will be programmed for a computer. If most of a job can be expressed in rules, the rules can be explained to someone in the Philippines who will do the job for much lower wages and so the job will move offshore.

Many moderately skilled jobs are subject to this two-pronged attack. ... The result is that too many moderately skilled people are chasing too few moderately skilled jobs with a resulting downward pressure on wages. Richard Florida quotes the CEO of Best Buy as wanting an “inclusive, innovative work environment.” I can’t speak to the work environment but where I live Best Buy seems to be starting people at about $8.00 an hour.

Viewed from this rules-based perspective, creativity is knowing what to do when the rules run out or there are no rules in the first place. It is what a good auto mechanic does after his computerized test equipment says the car’s transmission is fine but the transmission continues to shift at the wrong engine speed. ... We often think of creativity in grander terms—Einstein, Sarnoff... But for our economic future, this broad-based, if less brilliant, creativity is at least as important...

If I am right..., an educational system that stresses creativity is at least as important as an attractive environment for the high IQ types. Consider, for example, one part of education ... how to teach problem-solving skills. In the workplace, solving a problem usually involves two steps. First, parse a messy set of facts to determine what technique applies. Second, execute the technique.

In the classroom, “problem solving” is often defined as the second (rules-based) step and the first step is ignored. I firmly believe that an algebra student needs to know how to solve a system of two equations and two unknowns. But once the student is in a real job, ... a computer will solve the equations. Rather, she will be paid to recognize when a two equation system is a good way to answer some complex question. Teaching this kind of recognition looks more like project work or a business school case than ... the first five problems at the end of the chapter on simultaneous equations where choosing a solution technique isn’t much of an issue...

But ... even the best education will not solve the basic distributional problem... Any economist will tell you that rising labor productivity is the key to rising living standards. As we now can see, however, that statement only holds in the aggregate: the distribution of the rising living standards is always up for grabs.

Between 1989 and 2004, ... most of the recent gains in productivity are accruing to the very top of the distribution. It was not always thus. In the 1950s and 1960s, median family income tracked rising labor productivity very closely. ... If most productivity gains now go to the very top of the income distribution, mass upward mobility—a central part of American life—will evaporate quickly.

Richard Florida suggests that today’s rising inequality reflects the free market at work. He is likely right, and had an unfettered free market been at work in the 1950s and 1960s, the average family would have not seen its income rise as much as it did. But in those days the free market was constrained by a set of institutions and norms—unions, a strong minimum wage, a post-World War II attitude in the business community that steady wage gains helped to keep Communism at bay, and so on. Over time, those institutions and norms have eroded, and a strong productivity-earnings connection has eroded along with it for most workers.

Thus the Creative Class and Skill Biased Technical change require a new kind of education. But they also require a new institutional structure to distribute productivity gains in a reasonably equitable way. Markets, like every other institution, rest on the consent of the participants. If enough people come to see the U.S. job market as stacked against them, all of the nation’s institutions will be at risk.

Update: From comments:

"Richard Florida suggests that today’s rising inequality reflects the free market at work. He is likely right..."

Balderdash. The idea that it's all the working of the wonderous free market completely ignores the rather important point that there is a class of workers who basically set their own compensation levels...

On this point, see Graduates Versus Oligarchs.

    Posted by on Friday, June 9, 2006 at 12:50 PM in Economics, Income Distribution, International Trade, Policy, Politics | Permalink  TrackBack (2)  Comments (28)

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    » The 'Creative Economy' and the Future of the American Worker Continued... from EconWatch.com

    [Source: Economist's View] quoted: Education and Inequality in the Creative Age, by Frank Levy, Cato Unbound: Richard Florida writing about the Creative Class is a lot sexier than your average economist writing about Skill Biased Technical Change. Sex ... [Read More]

    Tracked on Saturday, June 10, 2006 at 10:03 PM

    » The key to Americas economic future? from The Glittering Eye

    Over the last week or so Mark Thoma of Economists View has posted twice on the “Creative Economy” and its role in Americas economic future, first here and then here. The remainder of this post is devoted to an expansion on a question... [Read More]

    Tracked on Sunday, June 11, 2006 at 07:53 AM


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