Another driver of the Great Compression was an increase in the number of college graduates that matched and occasionally exceeded rising demand for skilled labor, especially after passage of the G.I Bill in 1944 furnished free tuition to World War II veterans.
Goldin elaborated on this theme in The Race Between Education and Technology, which she published in 2010 with her husband, frequent collaborator, and fellow Harvard economist, Lawrence Katz. The book appeared at a time when a lot of policymakers were swooning over the economy’s presumed transformation by computers, but Goldin and Katz pointed out that computers were merely the latest in a series of technological advances that altered the industrial economy, and far from the most disruptive. That distinction belonged to the technological transformations wrought during the first three decades of the twentieth century: electrification, air travel, radio, motion pictures, synthetic plastics, transcontinental telephone service, various breakthroughs in agricultural science, and so on. These coincided with a little-remembered national movement outside major cities, starting around 1910, to make high school attendance mandatory, which in turn pushed up college attendance. The only thing different about computers, Goldin and Katz argued, was that by the time they came along the workforce had stopped boosting its education level to keep pace with technological advances. By the 1980s, the supply of college-educated workers was no longer keeping up with demand. That mismatch helped drive growth in income inequality.
Today we hear a lot of complaints that immigrants are taking jobs away from Americans. The general consensus among economists is that they are not, and that whatever effect immigration has on reducing wages (and thereby contributing to income inequality) is very small and limited to workers lacking a high school degree. That answer gets ignored by MAGA Republicans, which is exasperating. But it’s legitimate to wonder whether mass immigration in America has ever pushed down wages significantly. Goldin answered “yes” in a 1993 paper, “The Political Economy of Immigration Restriction in the United States, 1890 to 1921.” That period was the last during which immigration was as explosive a political issue as it is today. It was a time of nativist hysteria, when Congress was moved to impose severe immigration restrictions that would remain in place until 1965. Goldin deepened our understanding of that era by calculating that, at that time, a 1 percent increase in the foreign-born proportion of any given city’s population lowered wages for unskilled workers (a much larger proportion of the workforce than today) by 1 to 1.5 percent. For manufacturers of men’s clothing, a 1 percent increase in the foreign-born population could lower wages by as much as 3 percent. That hardly excuses the xenophobia and racism directed at Asians and Southern and Eastern Europeans, among other groups. But it does help clarify what was behind it.