Trade, Education, and the Shrinking Middle Class

Politicians tend to portray education as a universal panacea for rising income inequality and perceived competition with foreign exporters - a cure-all with which the industrialized world will be able to maintain a thriving middle class and ever-greater standards of living. At the same time, popular sentiment reflects a growing perception that even a solid education no longer guarantees a good job or membership in the middle class. 

In this paper, we explore a source of the disconnect between political rhetoric and public perception: the reality that workers' responses to globalization and technological change are not uniform. While many workers optimally respond to import competition or routinization by moving up the skill acquisition ladder, others self-select downward into lower skill occupations - the long run consequence of which may be polarization of educational attainment.

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