Professor Lawrence Katz of Harvard University is co-authored with Professor Claudia Goldin of Harvard University, a book defining mainstream theory of the modern labor market. Titled “Race of Education and Technology,” Goldin-Katz’s book tells how supply and demand determine the relative wages of skilled labor. Simply put, when science and technology arises first, skilled wages and salaries increase, and inequality increases. As education catches up, wage gaps decrease. This is an education paradox. You need to move on, but as you pursue it, the benefits fade away.
Goldin-Katz theory is widely used (if not always explicit) (if not always explicit) to justify economists’ wages, as mathematical theory and data analysis have strict scholarships. According to the New York Times on July 28, 2025, economists’ academic “basic” salaries now start at around $150,000 per year and $200,000 in consulting. For academics, the best numbers include summer pay, research funding, and other perks, nor the possibility of external work making up for the disadvantages of ESIR. According to theory, the new technology is to balance supply and demand, as relays are increasing demand for economists’ skills and supply of “top” doctoral economists must be in need of trouble.
But now, according to the headline, “The economist bull market is over.” This is clearly not because supply has occurred. Professor Katz reports that only seven new PhDs have graduated in the past year. He had not said whether this had been on the rise over the years. More generally, the issue specifies that the issue is not increasing supply but reducing demand, saying that “universities and nonprofits have expanded employment amid cuts in state budgets and federal funding.” Of his seven new doctoral degrees, Professor Katz made sure to place only three in tenure track positions.
The Times does not explain why the employment slump was a hit with “top” economists. It does not suggest a loss of confidence in the quality of EYR’s work or the viability of their theory. Certainly, in Professor Katz, there is no hint that insights that clashed with the labour market theory you suspected. The era simply calls him a “prominent labor economist.” If it’s an understatement, this.
Another prominent labor economist, Professor Betsy Stevenson of the University of Michigan, suggested that artificial intelligence could play a role. “The advent of AI has also impacted the market for advanced labor,” she wrote. This is interesting as it suggests a twist in Goldin-Katz theory. AI is a major advance in technology. If Goldin-Katz is applied, it should increase the relative demand for highly skilled labor, including top-sector doctoral economists, and accuses their employment of even higher wages. But while new technology is likely to increase the demand for highly skilled workers, technology has also reduced the demand for low-skilled capabilities, and has done so at least since the invention of the wheel. Therefore, if demand is declining, the job of an economist may no longer be classified as “advanced skills.”
This story presents a deeper challenge to the fundamental theory of the labor market advanced by Golden, Katz and his colleagues. Theory, like all neoclassical market theories, is the theory of price (and wages) adjustment. In this case, wages rose – to change the high level by academic standards – because demand exceeded supply. And now demand is declining. Shouldn’t wages and salaries be lowered too?
In short, why is this issue a part of unemployment and little grasp of the labour market model? Why do new PhDs not only require work, but also pay less (oven, badly)? You will be negotiated individually for wage rates – PhDs in economics are usually not part of the union. Is sub-incorrect in the standard theory of labor market adjustment?
Standard theory acknowledges that for a variety of unfortunate reasons, “institutions” are all terms, and that the power of unions, standard jobs, minimum wages, and habit wages and salaries is “sticky” and can create “friction” unemployment. However, this is a temporary phenomenon. The ultimate remedy remains in lowering actual wages. Perhaps a year or two later, Professor Katz’s unemployed students will be offered “in the market” and willing to accept more conventional salaries in anthropology and English literature. But certainly economists are among all people the biggest champion of a free and flexible market, and are they in the best position to test the benefits of quick adjustments to new intersections of supply and demand?
Of course, there are options for low wages and are acquired. A PhD can drive Uber just like everyone else. However, this is not specified by the Goldin-Katz theory. They are the theory of wage adjustment in each class of labor, so efficient markets guarantee full employment and no valuable “human capital” is wasted. However, OCD to OCD top economics departments to negotiate an ESIR salary offer is not the case. Also, Professor Katz’s students do not appear to occur to ensure the work they are craving, by soaking them despite their immersion in his theory and offering to do less. For example, Harvard still doesn’t have the effect of cutting the salary of professors that evidence of a decline in productivity, led by even half of their graduate students being expected to be enrolled.
I raise the Toha point of not entertaining Professor Katz and Professor Goldin, and even with prominent colleagues who approve their books. The economic sector is not uncommon. Practicality re-claims professional salaries, as suggested in the Goldin-Katz theory, rather than the usual employer. They all set wages, fill in jobs as needed, promote talent from within, and reduce employment if business conditions change (or budgets are reduced). The economics department, as explained by the Times, behaves normally. And Harvard also normally acts by not bothering Professor Katz with pay cuts. His employer may reasonably gamble for him to do better than next year.
Professor Katz and Goldin are not hindered. The bot was in Jackson Hole in August, and Katz presented the latest evidence on “skill-biased technological changes.” He was forced to admit that the data has not favored the hypothesis for the past 25 years. Contrary to prediction, the premium separating colleges from high schools is a key indicator in this work. It has hardly risen since 2000. Both do not appear to be supported by evidence worthy of talk, so Katz describes the journal as a “puzzle.”
Another possibility that was discussed more than 25 years ago outside the mainstream, including Thomas Ferguson and myself, is that the theory was ineffective from the start. We showed that wage structures are driven by macroeconomic and political events. This has a sufficient impact on sector and regional variations without mentioning vague measures of “technology” and “skills.” I further developed this discussion in books and papers. It is driven by the desire to consume to test the model of preconceptions. Mainstream wings, you have habitable things that are unacceptable to seeing only what you want to see.
The interesting thing – if you like, the moral of the story is that the real world is finally opposed to the providers of fantasy theory of the “labor market”. I was happy to believe that creating employment disability is conscious that they are saving unnecessary expenses for the wrong people. But it was fearful of expecting.
1. Thomas Ferguson and James K. Galbraith, “American Wage Structure, 1920-1947,” Research in Economic History, Vol. 19, 1999, 205-257. 2. James K. Galbraith and Maureen Burner, eds., Inequality and Industry Change: A Global View, New York: Cambridge University Press, 2001. Spanish Edition, DisigualDabed and Industrial Change: A Global Perspection, Akal, Current Economy, 2004. 3. James K. Galbraith, Unequal: The Crisis in American Pay, New York: The Free Press, 1998. Funding Book of the 20th Century. Paperback Edition, University of Chicago Press, 2000. 4. James K. Galbraith, Dangerous Philosopher: Labor Market Fiction, Policy Brief of the Jerome Levy Economics Institute of Bird College, 1997. Kansas City, August 21-25, 2025.
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