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Earnings trends in the knowledge-based economy
Employment trends, 1981-2001 Several studies have observed that despite many similarities between the American and Canadian economies, earnings trends in the U.S. and Canada over the past 20-25 years have been very different. In the United States, the university/non-university weekly earnings ratio increased from 1.3 in 1981 to almost 1.8 in 1999 for men. During the 1981-2000 period, the corresponding ratio remained almost unchanged at around 1.4 in Canada. Relative weekly earnings of female university graduates also increased in the United States (from 1.5 in 1981 to 1.74 in 1999) but they have fallen in Canada (from 1.65 to 1.5). The gap in earnings in favour of university graduates is referred to as an ‘education premium.’ In order to better understand trends in the education premium, the analysis summarized here1 examines two sets of earnings trends: trends in the size of the gap in earnings between university graduates and those with no more than a high school education; and trends in actual earnings.Employment trends, 1981-2001Between 1981 and 2001, total employment rose 49% in Canada. Growth was spread unevenly across industry sectors: employment in high-knowledge industries rose 84%, much more than the rates observed in medium- and low-knowledge industries (52% and 32%, respectively). Half of the employment growth in the high-knowledge sector took place during the second half of the 1990s. By 2001, high-knowledge industries accounted for roughly 10% of total employment, compared to 8% in 1981.Between 1981 and 1996, employment of university graduates grew at very similar rates in the high-, medium- and low-knowledge sectors. However, between 1996 and 2001, the number of jobs held by university graduates rose dramatically in the high-knowledge sector. As a result, employment of university graduates in the high-knowledge sector increased 245% between 1981 and 2001, a much faster increase than observed in other sectors. Meanwhile, the number of employed high school graduates rose only 31% in high-knowledge industries, compared to 75% and 92% in medium and low-knowledge industries, respectively. Trends in relative earnings and educational attainmentExpanding employment opportunities is one signal employers give to indicate rising demand for certain types of workers. Increasing relative earnings is another. What was the trend in the ize of the gap in earnings between university graduates relative to high school graduates between 1981 and 2001?Among young women (age 25-35), there was a relatively large increase in the median weekly earnings of university graduates compared to those with just high school. Among men, the median weekly earnings of male university graduates compared to high school graduates rose for both age groups; however, that growth was larger for younger men. These changes in relative earnings are reflected in the trend in the supply of university graduates. Between 1981 and 2001, the number of university graduates, both men and women, and of all ages, increased substantially. Changes among young women were particularly impressive. In 1981, there were more young women with high school diplomas than university graduates. This situation had reversed by 2001, when there were almost three times as many women who held university degrees as high school diplomas. Similar trends, though on a smaller scale, are observed among women aged 36-55.Changes in the relative supply of university graduates were not as dramatic among young men. While the proportion of the labour force with a high school diploma was almost unchanged in 2000 compared to 1980, at around 14%, the proportion of young male labour force participants with a university degree increased from 17% to 22%. Among men 36-55, the percentage of the labour force accounted for by both university graduates and high school graduates increased between 1980 and 2000 in similar proportions; the proportion of university graduates rose from 13% to 21%, while that of high school graduates increased from 9% to 14%. While changes in weekly hours worked by women and in the types of occupations they hold pose a challenge for the interpretation of the patterns found for women, it is important to emphasize that the increase in the education premium observed among young men occurred in conjunction with an increase in the supply of university graduates in this group. This suggests there was an increase in the relative demand for university graduates among new entrants to the labour market. Furthermore, the constancy of the university/high school earnings ratio observed among prime-aged men coincided with a constant relative supply of university graduates in this group.Trends in relative earnings by sectorTrends in labour demand and supply vary not only by gender and age, but across industries as well. For all workers except prime-aged men, the education premium for university graduates compared to high school graduates rose in low-, medium- and high-knowledge industries. In the case of female university graduates, the education premium rose at about the same rate in all three sectors. However, among young male university graduates, the increase in earnings relative to high school graduates was greater for those working in the high-knowledge sector than in the medium- or low-knowledge sectors.In contrast, prime-aged male university graduates experienced poor outcomes in their earnings relative to high school graduates over the 1980-2000 period. Those employed in low-knowledge industries experienced a substantial deterioration in their relative earnings and there is little evidence that their counterparts in medium- and high-knowledge industries improved their position relative to lower-educated workers. Trends in real earnings by sectorThe discussion thus far has focused on relative earnings – that is, on trends in the size of the gap in earnings between workers with a university degree compared to those whose highest level of education is high school graduation. What do these trends mean in terms of real or actual earnings?The analysis found that actual median weekly wages of young male university graduates either fell (in low-knowledge industries) or remained fairly constant. However, young males with only a high school education saw their actual median weekly earnings fall almost 20% in each of the low-, medium- and high-knowledge sectors. So, the increase in the size of the earnings gap between young male university and high school graduates came about not because university graduates earned more in real terms, but because the bottom dropped out of earnings for young male high school graduates. Young women fared much better in the labour market. Young female university graduates saw their actual median weekly wages rise at least 20% in all three sectors. Among young female high school graduates, actual median weekly wages remained either fairly constant (in medium- and low-knowledge industries or fell slightly (in high-knowledge industries).Overall, then, the actual weekly earnings of young men have either been falling substantially or stagnating while those of young women have been increasing substantially or dropping only slightly. Prime-aged women also enjoyed greater earnings growth than their male counterparts in all three sectors. The actual earnings of prime-aged male university graduates and high school graduates showed little change in the high-knowledge sector, while in the low-knowledge sector, actual earnings of both prime-aged male university and high school graduates decreased about 10%.ConclusionThe analysis summarized here compared trends in the relative earnings and actual earnings of university graduates and high school graduates over the 1980-2000 period. The main finding is that even though employment grew much faster in the high-knowledge sector, this growth was not accompanied by an increase in the real or relative earnings of university graduates overall in this sector compared to other sectors.But that general finding does not hold across sub-groups. In fact, trends in earnings differ markedly across age groups and between men and women. In each of the low-, medium- and high-knowledge sectors, female university graduates, young and older alike, experienced faster wage growth than their male counterparts. Meanwhile, the actual earnings of young male university graduates either stagnated or fell slightly while those of male high school graduates dropped sharply. The authors conclude that while specific labour shortages in narrowly defined sectors may exist, the wage patterns of highly educated workers reveals little evidence of a widespread imbalance between the demand and supply of highly skilled workers in Canada. At the same time, it is clear that trends over the past two decades have placed male high school graduates, in particular, at a distinct disadvantage in the labour market. And prime-aged male university graduates have not fared much better.We close by presenting an intriguing suggestion by the authors of the study: namely, the possibility that the increasing supply of women in the labour market has an impact on the wage growth of men. Since men and women in identical fields of study should be very close substitutes, it might be expected that growth in the labour supply of women in specific fields of study will have a negative impact on the trend in men’s wages in the same fields of study. They note that the extent to which this is true is certainly a question for further research. Notes
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