Reducing inequality: education to the rescue?

by lane on April 14, 2009

When social scientists first began noticing and studying the rise in earnings and income inequality in the United States, much of the focus was on technological change. The idea is that in the past generation technology—especially computerization—has advanced more rapidly than skills, so employers have bid up pay for those able to use and improve new technology and reduced pay for (or gotten rid of) employees less adept at doing so.

Though this remains perhaps the single most popular explanation, many are skeptical. In their book The Race between Education and Technology, Claudia Goldin and Lawrence Katz offer an especially compelling critique. They suggest that the pace of skill-biased technological advance actually hasn’t changed much over the past century. What distinguishes recent decades, they contend, is that growth of educational attainment has slowed. Here’s their key picture (the vertical axis shows the share with a college degree):


Among Americans born between 1875 and 1950, the share getting a college degree rose more or less continuously. According to Goldin and Katz, as they became a sizeable portion of the labor force (assume a lag of about 30 years), inequality held steady or declined despite technological progress. But among those born between 1950 and 1965, who became an important part of the labor force beginning around 1980, college completion was pretty much flat, falling for males and increasing just slightly for females. This, say Goldin and Katz, is the key to the rise in earnings inequality that began at that time.

I think there’s something to this story, but I’m not sure it takes us very far in understanding the rise in U.S. earnings inequality or that it points us toward a solution.

For one thing, comparative evidence doesn’t seem especially supportive of the Goldin-Katz hypothesis. The following chart shows changes in earnings inequality from 1979 to 2004 (the most recent year of available data) by changes in average years of schooling completed over the same period. There is a negative association, as Goldin and Katz would predict, but it’s mainly a function of the United States; if we remove the U.S. the relationship largely disappears.

Second, the Goldin-Katz story says pay for college graduates has jumped because their supply stopped growing around 1980. But the key features of the rise in U.S. income inequality are soaring incomes among the top 1% of households (especially the top 0.1%) and slow income growth in the bottom half of the distribution.  A slowdown in the supply of college graduates is unlikely to be the key to either of these two developments. It might seem implicated in the latter until we recall that college graduates have never accounted for more than a third of working-age Americans.

Finally, the above chart from Goldin and Katz indicates that college completion began rising again for cohorts born in 1980 and after. Does this mean earnings inequality will soon level off or perhaps even decrease? Absent other changes, I wouldn’t count on it.

Education is important for individuals and for society, and I certainly favor efforts to improve both its quality and its quantity. But it doesn’t seem to me likely to get us very far in reversing the rise in American income inequality.

{ 15 comments }

1

Witt 04.14.09 at 11:52 pm

technology—especially computerization—has advanced more rapidly than skills, so employers have bid up pay for those able to use and improve new technology

I must be missing a key part of the argument. How is “being able to use and improve new technology” not itself a skill?

I can understand the idea that what used to require 100 people on an assembly line now requires 20 good CNC operators, or whatever, but it doesn’t sound like that’s what you’re talking about.

What’s behind my question is an intiutive sense that this argument is insufficient if not useless in explaining inequality, but as a layperson with no background, I want to be sure I understand what I’m dismissing.

2

Witt 04.15.09 at 12:11 am

(Also, per this: college completion began rising again for cohorts born in 1980 and after, I am curious to know how researchers are handling the stratospheric growth in types of higher education subsumed under “college completion.” As a hiring manager, I know I look at degrees from the University of Phoenix or Strayer University with a very different set of expectations about the candidate’s capabilities than a local community college or four-year institution.)

3

Steve LaBonne 04.15.09 at 12:26 am

As a hiring manager, I know I look at degrees from the University of Phoenix or Strayer University with a very different set of expectations about the candidate’s capabilities than a local community college or four-year institution.

Witt, sounds like you have some very interesting observations to share there. Could I tempt you to expand on that a bit?

4

Righteous Bubba 04.15.09 at 12:49 am

Would Witt, perhaps, be hard on someone with an undergrad degree from Yale in history and an MBA from Harvard?

5

Omega Centauri 04.15.09 at 1:16 am

Looking at those college grad rate curves, a better characterization is that male rates have nearly stagnated, but female rates have shown an impressive increase.

I find this explanation for rising inequality unconvincing. I think saying that globablization has lead to a greater degree of wage convergence for lower skilled jobs, than for higher skilled jobs, is a better description of what has been happening. Why wage convergence has been stronger for lower skill level jobs, than for the higher skill level jobs is probably a more interesting question. My uneducated gut level expectation would be that transport costs for high skilled output would be very low, bits are cheaper to move than actual material. But this would imply that local inequality should be decreasing not increasing?

6

Witt 04.15.09 at 1:35 am

I don’t want to take the thread too far afield from the topic of the post, so let me try to connect this back.

1. More education is generally seen as a good thing, not just for individual enrichment but also more concretely for your advancement in the job market. In some fields this is primarily because more education is tightly linked to a specific skill set (getting an M.D. or being certified as a professional engineer carries widely accepted meaning), while in other fields additional education functions primarily as social signaling, a proxy for “Job status matters to me and I want to move up the ladder in a credential-focused industry.”

2. Economic and social research about jobseekers and workers has to simplify educational levels, or we wouldn’t be able to say anything interesting. In most of the research I’ve seen, that leads to a few simple categories, such as: Less than high school, H.S. diploma/GED, some college, bachelor’s degree, graduate-level education.

3. The explosive growth of for-profit and online colleges has diluted the amount of shared meaning that existed under the category of “bachelor’s degree.” Obviously that was already a broad umbrella, but my on-the-ground experience indicates that degree-from-online-university or the like is different from BOTH the Ivy League and the less recognized 4-year school in important ways.

4. Again, without derailing the thread, I have participated in and conducted hiring processes at three organizations (all <50 employees) in the past 15 years, for a variety of postions. College info on a resume is usually only valuable to me in a very broad-brush way; the phone screen and interview tell me much more.

Traditional four-year degrees are a proxy for a kind of middle-class socialization. The candidate I see who have other types of bachelor’s degrees are typically a) hyper-focused on career advancement, with a perception that advancement + salary increases = number of years served + amount of credentials earned, or b) credentialed on paper but sufficiently inexperienced in middle-class norms that I spend gargantuan amounts of time training them. At present I’m in an organization with 14 full-time staff. If you’re not literate enough to learn to produce a very straightforward business letter after two or three go-rounds, you’re not a good match for the skills we need.

(And not sure whether Righteous Bubba’s question was a joke or not, but yeah, in general I don’t hire people from Ivy League schools because their life experience and career expectations are a poor fit for the work I do. They very often self-select out during the interview process. I’ve hired two who were phenomenal exceptions, not least because they were world-class code-switchers.)

7

Witt 04.15.09 at 1:38 am

(I’m sorry; I will stop the serial commenting after this!)

Looking at those college grad rate curves, a better characterization is that male rates have nearly stagnated, but female rates have shown an impressive increase.

I’m very curious to know about the impact of incarceration on this. Being convicted of a felony generally makes you ineligible for the vast majority of student financial aid (grants, loans, OR scholarships). Given that men are disproportionately imprisoned, and that most college-goers have to get loans or grants to finance their studies, this seems like it could be a significant factor.

8

Righteous Bubba 04.15.09 at 1:51 am

And not sure whether Righteous Bubba’s question was a joke or not

I initially wrote a longer thing about talking to a Department of Education official – a Distance Education Training Council booster – who said that George W. Bush was his greatest argument for parity in American education. Seems like a crazy argument to me and a somewhat defeatist one, but it exists.

Thanks for your comments though. A good read.

9

Omega Centauri 04.15.09 at 3:01 am

Witt, not being a social scientist like many of the contributors here I don’t have access to the statistics, however I think it highly likely that the cohort of men who are incarcerated, and the cohert of men who are likely college candidates shares little intersection. In other words, I don’t many of the obvious college track males, are likely to be incarcerated.

10

Henri Vieuxtemps 04.15.09 at 6:07 am

Well, the system of education is working hard to instill obedience and conformity, so it is certainly to blame (in part). Otherwise, irrelevant.

11

Geoff 04.15.09 at 3:55 pm

I think Omega Centauri is right that globalization and inequality are closely linked. Growing international capital mobility and increasingly free trade mean that workers in manufacturing and outsource-able service jobs compete against cheaper Third World labor sources while people in management and in the financial sector reap the benefits from higher profits deriving from lower labor costs and higher sales. At the same time, the financialization of the economy has created huge earnings for people who already have the money to invest in financial speculation, as well as skyrocketing salaries for people working inside the sector. The last 30 years have witnessed the emergence of a global class of financial rentiers that has absolutely made a killing from neo-liberal globalization, and the parallel emergence of a global underclass who are living ever close to the edge and who are increasingly in debt. Although their standards of living are much different, there is an interesting parallel between the Indian farmers who are more and more in debt because of rising costs of input factors like water, feed, and fertilizer (due to neo-liberal reforms) and the American low-wage worker who needs to take out payday advance loans in order to maintain a reasonable standard of living. In both cases, there is an upward re-distribution of income from people at the bottom of the order, who are being squeezed by growing global competition, to people at the top of the order who are wealthy enough to lend money in the first place. The same thing is happening on a global scale, as international capital mobility has produced net capital flows from the poor south to the rich north, in contrast to expectations of mainstream economic models. Even when the rich screw up an create bubbles and get burned, like the chaebol overcapacity that emerged in South Korea in the years immediately following financial liberalization during the 1990s (which made it vulnerable to the contagion in 1997), it’s the workers who pay the biggest price. Basically, inequality is rising because the rules of the game are rigged in favor of the financial sector.

12

Mark T 04.15.09 at 6:15 pm

I suggest one hypothesis for why the effect observed by Goldin and Katz is diminished if the US is removed from the data: the higher preponderance of immigrants (a) in US post-secondary schools and (b) once they graduate, in the higher paying jobs vis a vis the other nations in the sample. In other words, far more of the best of the less-developed world’s students come to the US for college and graduate study than to the other nations, and then, having already proven their higher ability to achieve, continue to achieve at a high level in the US, both academically and in the business world thereafter, driving the numbers up.

13

omega Centauri 04.15.09 at 9:08 pm

I think another source of increasing inequality is the increasing preponderance of winner-take-all economic outcomes, as discussed by Talib and others. Talib’s example was of a music CD, why would a customer buy from the world’s second best artist for say $9, when he could get a recording of the very best for $10. Prior to modern technology, he would have had to settle for live music from the village musician. So we have a significant number of economic pursuits for which because of easy replication/distribution of the product, the customer can choose to get only from the world’s best source.

14

Steve Sailer 04.16.09 at 2:47 am

According to Nobel Laureate James Heckman’s recent study of longitudinal databases, the U.S. high school drop out rate bottomed out around 1970 at about 20% and subsequently rose to about 25% by 2000.

For all the details, see:

http://www.vdare.com/Sailer/080101_dropout.htm

15

John Pertz 04.16.09 at 2:57 am

Geoff:

Speak in a manner that is conducive to your political preferences much?

LOL

“I am absolutely convinced”?????? Why write that? Does that make your argument any more convincing?

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