Putting It Together: Labor Markets

In this module, we learned about labor markets, wages, and other factors affecting employment, such as discrimination. Teachers and nurses are paid less than professional athletes because the market values the former less than the latter. In other words, our actions say that we are willing to pay professional athletes more than teachers and nurses. This may be because athletes are employed through the private sector while most teachers and nurses are employed by the public sector where the lack of market forces makes it harder for workers to be paid what they’re worth. Either way, it’s a statement about social values.

Three photographs. The first shows a teacher leaning against a podium at the front of a classroom, the second shows a nurse with a patient in the hospital, and the third shows a professional basketball player.

Teacher by Sleepinyourhat, CC-BY-NC-SA. Faces of HCMC by Daniel Guy, CC-BY-NC-ND. Elton Brand by moneyjk89man, CC-BY.

Urban sanitation engineers (i.e. garbage truck workers) get paid a decent wage, not because of the skills required for the job, but rather because of the difficult working conditions in summer and winter. Less “desirable” jobs have to pay more to attract workers.

Unionized workers earn more than non-union workers because unions are able to take advantage of monopoly power in the labor market. Just as a monopoly in the output market can charge a higher price than would be charged if the market were competitive, so unions can charge a higher wage.

Increasing Value of a College Degree

At the beginning of the module, we discussed how the cost of college has increased dramatically in recent decades, causing many college students to take student loans to afford it. Despite this, the value of a college degree has never been higher. How can we explain this?

We can estimate the value of a bachelor’s degree as the difference in lifetime earnings between the average holder of a bachelor’s degree and the average high school graduate. This difference can be nearly $1 million. College graduates also have a significantly lower unemployment rate than those with lower educational attainments.

While a college degree holder’s wages have increased somewhat, the major reason for the increase in value of a bachelor’s degree has been the plummeting value of a high school diploma. In the twenty-first century, the majority of jobs require at least some post-secondary education. This includes manufacturing jobs that in the past would have afforded workers a middle class income with only a high school diploma. Those jobs are increasingly scarce. This phenomenon has also no doubt contributed to the increasing inequality of income that we observe in the U.S. today.