Scranton, again

I have an NBER working paper to back me up on my Scranton post. The authors emphasize a “rising level of skill and skill premium,” and therefore higher relative wages for skilled workers.

That’s great, but what the purely economic argument misses is that this is not Pareto optimal. If one group benefits and another stagnates, the stagnating group will eventually be pushed to the fringes of society. Worse, the goods and services they depended on could become unavailable if their costs rise. There’s a better and more thorough explanation of this effect in Jencks, et al.

I would love to see a model that produces this effect endogenously.

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  1. Pingback: Scranton, again, again | Lots of Bad Ideas

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