Monday, August 23, 2004


"In many economics faculty lounges, the mere suggestion that markets are something less than efficient is likely to elicit cool stares. But Kenneth J. Arrow, a 1972 Nobel laureate and professor emeritus at Stanford, recently turned a skeptical eye on the efficiency of one vast market -- the labor market -- and reached some intriguing conclusions about what distinguishes better paid workers from their lower-paid peers. It's not what you know, Professor Arrow, a prolific theorist suggests; it's who you know." So writes Daniel Gross in yesterday's NY Times, referring to the findings reported in "Limited Network Connections and the Distribution of Wages" by Arrow and Brozekowski.

Actually, many (perhaps most) economists are not averse to "market failure" findings. In fact, they like these every bit as much as liberal columnists do.

Yet, it's the straw man all over again. Who can take a labor market without an information market seriously? Information networks surely matter. Everyone knows this and business school (and other) students are reminded of it all the time.

Also, it is not good to be poor. Networking is much tougher. This is well known and Arrow and Borzekowski explain that networking differentials explain 15% of unexplained variations in wages.

The Gross column ends with the inevitable policy prescription: "To improve the lot and prospects of middle-income workers and the working poor, it may not be enough merely to focus on the traditional twin pillars of job training and education. Policy makers may also need to focus on upgrading the number and quality of workers' links to companies."

Will we ever hear from commentators on just how successful government job training has been? Will they ever tell us just how policy makers will facilitate networking?

Having botched job training and education, are they ready for a brand new task?