Are Americans passing up a chance at the best jobs?
The shale boom might be increasing drop-out rates in some parts of America
By S.K. | LONDON
“IT DOESN’T hurt to get more education”, argues Donald Trump, a Republican presidential candidate. But too few Americans are acting on Mr Trump’s insight. Wage inequality has spiralled since the 1980s. In theory, as the returns to education grow, people should invest in more of it. The growing ranks of the educated, in turn, should cause the premium that skilled workers can command to shrink.
While this might have happened in the past, economists argue that more recently the supply of skilled workers seems to have fallen behind demand. Americans are blithely ignoring market signals. But while this seems plausible in aggregate, there is surprisingly little supporting microeconomic evidence.
One reason is that it is fiendishly difficult to measure how responsive Americans are to such price signals. One test is whether people in states with more demanding, better–paid jobs invest more in their education. But those jobs might have gone to places with the best supply of skilled folk.
A new working paper* finds a way around this problem by looking at how young men have responded to the sudden and unexpected growth of jobs in the oil and gas industry in parts of America over the past decade. It was nature along with technological change (the widespread adoption of hydraulic fracturing, or fracking, a new method of extracting oil and gas from shale) that led to the proliferation of jobs, rather than the skills of local workers.
Of the 600,000 jobs the fracking industry expects to create by 2020, almost two-thirds will be unskilled. In areas where fracking has already boomed, it should have improved the earning power of those with low levels of education. In those areas the return to education would have fallen, and so drop-out rates should have risen. That is exactly what happened. The researchers found that, in areas near fracking sites, a 10% contraction in the wage gap between high-school graduates and dropouts was associated with an increase of 4.7% in the male drop-out rate.
Intriguingly, however, that is a smaller decline than earlier research had found after similar fluctuations in coal-mining jobs in the 1970s and 1980s, tied to the price of coal. Back then, a 10% drop in the wage gap coincided with an increase of 5.4-7.2% in the drop-out rate in coal-mining regions. That suggests Americans have become slightly less responsive to wage differentials over the past 30 years.
Whether this holds at the top end of the wage scale, for those adding rather than discarding qualifications, is unclear. But it is encouraging that American men seem to have become slightly more determined to complete high school than they were 30 years ago. If they conceive a similar desire to obtain a university degree, the wage gap at a national level may at last begin to shrink.
* "Who Needs a Fracking Education? The Educational Response to Low-Skill Biased Technological Change", by Elizabeth Cascio and Ayushi Narayan. NBER Working Paper No. 21359, July 2015.
