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What explains the growing gap in wages?
In a 1996 television interview that was partly shot in an elementary-school computer lab, Laura D'Andrea Tyson, who was then chair of Bill Clinton's Council of Economic Advisers, tried to explain rising inequality in America.
"In the early 1970s," Tyson said, "a college graduate earned something like 45 percent more than a high-school graduate. Today a college graduate earns 84 percent more than a high-school graduate. What's happened is the technology has increased the demands for higher skills."
Computers did it. Among both Democrats and Republicans, that is one of the most frequently cited explanations for the post-1975 spike in American wage inequality. As the story goes, information technology has transformed almost every job, increasing employers' thirst for workers with advanced skills and college credentials. In the lingo of economists, this is "skills-biased technological change."
But that story is at best a half-truth, according to a new book by two professors of economics at Harvard University. The authors, Claudia Goldin and Lawrence F. Katz, don't deny that American employers' demand for skills has been rising. But they say that that demand has been rising at a roughly constant rate for the last century. Contrary to popular belief, they argue, the personal computer and the Internet have not caused a sharp leap in employers' demand for skill.
So if demand doesn't explain the recent rise in inequality, what does? Look to the supply side of the equation, Goldin and Katz say: America simply isn't educating its citizens the way it used to.
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