Thursday, March 21, 2013

One Third Of Demand For Low Skilled, Non-College Educated Workers Is Due To Increased Demand And Wages For Skilled College Educated Workers: Lowering Income Taxes On The Rich Would Increase Demand And Wages For Low Skilled Workers

Posted by Milton Recht:

If the skilled, college educated workers had more disposable funds, such as through lower taxes, there would be more demand for low skilled, non-college educated workers. Greater demand for low skilled workers would increase their employment and wages and reduce income inequality.

From MIT Press, Review of Economics and Statistics, March 2013, Vol. 95, No. 1, Pages 74-86, "Spillovers from High-Skill Consumption to Low-Skill Labor Markets" by Francesca Mazzolari, Centro Studi Confindustria, Rome, and Giuseppe Ragusa, Luiss University, Rome:
The least-skilled workforce in the United States is disproportionally employed in the provision of time-intensive services that can be thought of as market substitutes for home production activities. At the same time, skilled workers, with their high opportunity cost of time, spend a larger fraction of their budget in these services. Given the skill asymmetry between consumers and providers in this market, product demand shifts—such as those arising when relative skilled wages increase—should boost relative labor demand for the least-skilled workforce. We estimate that this channel may explain one-third of the growth of employment of noncollege workers in low-skill services in the 1990s.

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