Thursday, July 17, 2008

WSJ on income stagnation for college graduates

All examples given where incomes rose (often dramatically) are in the financial sector, and typically require relatively high IQ. The lawyer profiled below specializes in cat bonds!

WSJ: For decades, the typical college graduate's wage rose well above inflation. But no longer. In the economic expansion that began in 2001 and now appears to be ending, the inflation-adjusted wages of the majority of U.S. workers didn't grow, even among those who went to college. The government's statistical snapshots show the typical weekly salary of a worker with a bachelor's degree, adjusted for inflation, didn't rise last year from 2006 and was 1.7% below the 2001 level.

...Economists chiefly cite globalization and technology, which have prompted employers to put the highest value on abstract skills possessed by a relatively small group, for this state of affairs. Harvard University economists Lawrence Katz and Claudia Goldin argue that in the 1990s, it became easier for firms to do overseas, or with computers at home, the work once done by "lower-end college graduates in middle management and certain professional positions." This depressed these workers' wages, but made college graduates whose work was more abstract and creative more productive, driving their salaries up.

Indeed, salaries have seen extraordinary growth among a small number of highly paid individuals in the financial sector -- such as fund management, investment banking and corporate law -- which, until the credit crisis hit a year ago, had benefited both from the buoyant financial environment and the globalization of finance, in which the U.S. remains a leader.

Richard Spitzer is one of those beneficiaries. He received his undergraduate degree in East Asian studies in 1995 from the College of William and Mary and graduated from Georgetown University's law school in 2001. The New York firm for which he works, now called Dewey & LeBoeuf, has a specialty in complex legal work for insurance companies. There, Mr. Spitzer has developed an expertise in "catastrophe bonds." An insurance company sells such bonds to investors and pays them interest, unless an earthquake, a hurricane or unexpected surge in deaths occurs.

Experts in these bonds are "probably a rarefied species -- there's only a few law firms that do them," says Mr. Spitzer, 35 years old. He typically spends two to four months on a single deal, ensuring that details like timing of payments or definition of the triggering event are precise enough to avoid disputes or default.

Mr. Spitzer's salary has doubled to $265,000 since joining in 2001, in line with salaries similar firms pay.

4 comments:

Random Stuff said...

A factor that wasn't mentioned is that the number of college graduates continues to increase. Scarcity increases something's value, so we should expect college graduates to make less now that there are more of them.

steve said...

The article is mainly talking just about the last 10 years or less, not the last few decades, and the number of college graduates hasn't changed much in that period.

Anonymous said...

'High IQ' in the financial section.
Good one. Can't stop laughing!

Anonymous said...

With the huge number of english lit and sociology majors is there any question why?

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