How much does effort contribute to the measures of inequality that we gather when we look at the data?


That’s the central question explored in this episode. Host Russ Roberts welcomed Ed Leamer to discuss a recent paper in which he investigated the role of effort in measuring inequality and the transformation in manufacturing over the last several decades.

According to Leamer, creative destruction, globalization, and technology have combined to destroy the value of a high school diploma in an era in which we’ve experienced tremendous increases in both product and process innovation. He wonders whether we can rebuild our middle class using a more effective educational system that pushes people beyond the high school level. Roberts, this time the more optimistic of the parties to the conversation, is less concerned with growing absolute inequality and less with relative inequality. With whom do you agree?



1- Why is “raw natural talent” more important in manufacturing than ever before? What does Leamer mean when he says that workers “have an implicit rental cost that has to be recovered,” and how does this implicit cost affect the pace of work that’s incentivized? How does this differ between picking strawberries and working in a factory?


2- Roberts and Leamer spend some time discussing the metaphorical question: Is a computer a forklift or a microphone? What does this mean, and how does it illustrate Leamer’s findings regarding manufacturing work and income inequality?


3- Are we turning most of our labor markets from Detroit-style labor markets into Hollywood-style labor markets because of the computer? Explain.


4-  Why aren’t former manufacturing employees being RE-employed today as they have been in the past, according to Leamer? Why hasn’t the educational system been more responsive? What sort of changes to the educational system does Leamer think are needed to reverse this trend? To what extent do you think such changes are feasible and efficacious?


5- How much of the gap in income between high and low income earners is due not to the hourly wage, but to how many hours that people are working? How do hours worked over time compare between the highest and lowest income earners? How can income and substitution effects explain these differences?