Association for Public Policy Analysis & Management

A key element in the inequality story is the erosion of middle class jobs as a result of the “hour glass” economy, with computerization eliminating middle-skill jobs while shifting low-skill workers into poorly paid, difficult to automate, service professions. Reporting on the UK, the Financial Times stated that “Jobs are being created at the top and bottom of the skills scale, while those in the middle tier – including office administrators and blue-collar process operators – are losing out.” High youth unemployment rates in the U.S. and especially in Europe exacerbate these trends by keeping many workers from gaining initial work experience. A common policy proposal for lowering earnings inequality is to expand educational attainment to increase the supply of college graduates, thereby lowering earnings differences by education and winning the race between education and technology (Carnevale and Rose 2012; Goldin and Katz 2008). Yet, countries that have poured money into higher education and boosted post-secondary enrollments have experienced mixed results in slowing or reducing inequality.

This paper examines whether robust apprenticeship systems, involving work-based and school-based components, can significantly reduce overall inequality in modern economies relative to school-based, skill preparation systems. Although the focus is on the U.S., the analysis deals with international experience. The paper undertakes two tasks.  The first is to examine patterns of earnings differentials among countries that vary in how they prepare workers for the labor market, especially with respect to the role of work-based learning and apprenticeship in particular. This section will draw on the work of the OECD on skill development systems. The second task is to examine the U.S. skill preparation system and analyze whether an increased emphasis on apprenticeship and other work-based learning approaches could reduce earnings inequality. Because the structure of jobs is not exogenous, the skill preparation can affect not only the distribution of skills but also the nature of the job distribution.

In analyzing the U.S. system, the paper considers the evidence on the costs and benefits of alternative methods of preparing people for careers, on the importance of earnings variability within occupations, and on the potential for upgrading workers and jobs in the lower part of the earnings distribution. It then estimates the potential impact on inequality of shifting resources from a largely school-based system to a dual approach with a major emphasis on work-based learning, production, and wages. A shift is likely to induce earnings gains during the training period and after the training period for a significant share of workers. Both gains will raise national output. The simulation will yield estimates for a range of inequality indicators. The paper will conclude by discussing the feasibility of shifting education and training resources toward work-based approaches.