May 31, 2003
INCOME INEQUALITY....David Adesnik pulls this quote out of a Business Week article:
the ages of 18 to 65, the average male college grad earns $2.5 million
over his lifetime, 90% more than his high school counterpart. That's up
from 40% more in 1979, the peak year for U.S. manufacturing.
goes to the heart of whether you think increasing income inequality is a
problem. I think it's quite true that as our economy has become
increasingly reliant on brainpower it has naturally rewarded smart
college graduates far more than any other group. There are two basic
reactions to this:
This is just the free market at work. People are paid
what they're worth, and smart people are worth a lot these days. That's
the way it goes.
This trend is likely to continue, and since not
everyone can go to college we will eventually end up with an enormous
class of ill-paid (or unemployed) workers who are going to be pretty
pissed off about things.
The free market does indeed reward certain classes of
people far more than others, and it's not just the risk-taking
entrepreneurs. The question is, do you think this trend toward
increasing inequality should be allowed to play itself out naturally?
Or do you think it's going to lead to some pretty serious problems?
UPDATE: Dan Drezner's take on income inequality is here.
He gets the "income mobility" argument right, I think, but is much too
sanguine about the health of the middle class. Sure, more kids are
going to college, but that's never going to be more than a minority of
the population. And while resentment toward the rich may indeed be
muted in America, will it stay that way if current trends continue? I
have my doubts.
Posted by Kevin Drum at May 31, 2003 12:15 PM
"This trend is likely to continue"
I am not convinced about this ... the economy (and particularly the
non-manufacturing sectors) need to grow at a certain rate in order to
absorb the college graduates. Further, these jobs are also at risk of
being exported overseas.
"since not everyone can go to college"
True, not everyone can go to a four-year college, but plenty of
people go to a community college to get an associate degree, or go to a
vocational school for post-secondary training.
I don't so much know that the argument that college grads will always
be in the minority is correct. 63% of high schoolers last year went
straight to college, a number that continues to increase every year. We
now have a population of 80% high school graduates - what reason is
there that 80% of people or more couldn't go to a Devry-style school or a
Though college grads earn more than those with lesser education, and
have for a while, a fact that you don't mention is that even those who
hold four-year degrees have seen their incomes fall relative the very
highest echelons (i.e. CEO's).
In other words, inequality is increasing not only between those with
degrees and those without, but *within* the group of degree holders. So,
possession of a four-year degree is no longer reliable insurance
against economic decline.
Is someone else making more than you evidence of an economic decline on your part?
Don't absolute terms (as opposed to relative) have to come into play somewhere?
Of course college graduation doesn't inevitably lead to a "good" job.
At this point in our history, college graduates have saturated the
parts of the labor force where post-secondary education might be
helpful --jobs that in the past were done more often than not (and just
as competently) by the likes of Carl Bernstein (who, like most people in
pre-1960s journalism, had no education past high school.) In the
future, if a larger percentage of kids graduate from college, it will
mostly mean that a higher percentage of truck drivers and Walmart
associates will have college degrees.
If you looked at the numbers, however, I'm sure you'd find that what's been growing these past couple of decades isn't so much
oops . . . isn't so much the number of college graduates as the
number of people who start college but don't finish. And some
sociologists see those people as an especially resentful group.
It's the 4-year degrees that are mostly at issue here. These are the
folks who make higher incomes, not the vocational school grads.
Right now about 35% of 18-24 year olds go to college (I'm not sure
how many finish). It's really not likely that this number can rise an
awful lot more.
So what would improve the position of unskilled workers? There doesn't seem to be a lot:
- technological change favoring unskilled work
- massive improvement in education
- public sector jobs
- restricted free trade
- restricted unskilled immigration
None seem particularly likely to happen.
Penalcolony: I dunno. According to the Dept. of Commerce it's 35%, not 60%:
That's enrollment. Many 21-to-24-year-olds have already graduated and
are no longer enrolled. And many from age 19 on have left college
Sorry, I should have said: that's enrollment at a given time
-- a snapshot. Otherwise, if you put your Commerce table next to my
Census table, you get the statistical illusion of a 90% graduation rate,
and that's quite an illusion. Many schools graduate far less than half
of those who start.
Let's not ignore the deeper issue Kevin's touching on here. There is
no such thing as a natural economic structure; it all results from the
system of laws and practices that make up a political economy, and that
system results from decisions people make.
The incentives in a viable, decent political economy ought to make it
possible for people to live within the law, do what's expected of them,
and live decently. This is where the decline of manufacturing, with its
huge value-added component, has been such a harmful thing.
Manufacturing largely underwrote this country's social transformation
during and after World War II.
Of course a system of political economy is limited in what it can
do-- it can't create resources by fiat, for example, and this is where
the communist systems fell down. But that's a far cry from saying that
it can't design or influence who gets how much in a society; in fact we
do it all the time and we're doing it right now. The market is not
nature. It is an abstraction of human behavior which shapes and is
shaped by government policies and social practices. Even George Will
said so at the height of the Enron scandals.
There's a third reaction:
We really need to improve our primary education system so that college admission is actually meritocratic:
The problem with the present system (from a justice point of view) is
the incredible barriers and benefits that different people have going to
college. Rich kids almost always get a 4 year degree, and really poor
kids almost never do. The differences in primary education are HUGE.
Particularly along racial and economic lines. Remember that the Texas
plan that ensures that the top 10% from every school in Texas get into a
Texas University had a major impact. Now, personally, I think its
obvious that the top 10% of every school should get into college. BUT
the education system is so warped that one can be the best student at a
school (taking full advantage of the opportunities available) and still
get an abysmal SAT score. We need to change that, and it will take a
major reform of education (increasing teacher powers for discipline) AND
it will take a lot of money (increasing teacher numbers).
Also, that 60% number has to include vocational school students.
Obviously, getting a Cosmetology degree is not going to increase one's
earning powers nearly as much as a B.S.
I'm suspicious about this "lack of resentment" thing. I'm not sure how it's measured.
When David Brooks says that middle class folks "aren't surrounded by
things they can't afford," he blithely ignores the most significant
social development of the century, namely, television. Many families
see a lot more television than they do other people in their community,
and television is chock-a-block with things they can't afford--not to
mention the illusion that they would be much happier if they did own these things.
I think at least some of this lack of resentment (if there is such a
thing) is attributable to the persistent belief people have that they,
too, could one day be rich. You don't want to be hassling the
winners--you want to be joining them.
I don't know what to think about income mobility in the U.S. The
Urban Institute Report that Drezner cites makes it sound good, but check
out Alan Kreuger's NYTimes article from Nov. 14 -- available on-line at
Krueger's web site at
Krueger writes that, in terms of intergenerational income mobility,
what's remarkable about the U.S. in comparison with other countries is
how *im*mobile we are: the extent to which the income of children tracks
that of their parents.
(Incidentally, I don't understand a key sentence of Krueger's piece.
He writes, "Only South Africa and Britian have as little mobility across
generations as the United States." But does he mean that of all the
countries in the whole world only those 2 do as badly as us, or that, as
I find more likely, that of the countries in some select group (like
those that made a certain study), only those 2 do as badly? But then,
what are the countries in the select group? I can't tell from the
Sometimes "average" is used to mean median, but most commonly it
means mean. I suspect that the article is referring to means, and I
would be interested to see the corresponding comparison of medians.
Krugman's widely reported "Bill Gates walks into a bar" example reminds
us of the shape of income distributions, and under such a shape I would
not even be surprised to see the change in medians have been negative
between '79 and today. Does anyone have pointers to the raw numbers?
Actually, when I said Drezner had the mobility thing right, I was
referring to the fact that (a) mobility hasn't changed over time and (b)
it's no better here than any other country. Social mobility is great,
but it's a red herring unless we're somehow getting better at it to make
up for the increasing income inequality.
I agree that intergenerational mobility is the more important
statistic anyway. It's not nearly as high as individual mobility,
although I've never been able to find really reliable figures about it.
Check out Paul Krugman's article at:
(click on 'American Economy' in the left-hand menu, then search for 'What the Public Doesn't Know Can't Hurt Us').
It turns out that this study is a bit flawed. Money quotes: (with a money quote inside, for extra money quotableness):
"This means, Armey asserts, that someone in the lowest quintile would
be more likely to move to the highest than stay in place. Put kindly,
it's a silly argument. For subjects of the study who moved from the
bottom to the top, the typical age in 1979 was only 22. "This isn't your
classic income mobility," Kevin Murphy of the University of Chicago
remarked at the time. "This is the guy who works in the college
bookstore and has a real job by the time he is in his early thirties.""
"In reality, moves from the bottom to the top quintile are extremely
rare; a typical estimate is that only about 3 percent of families who
are in the bottom 20 percent in one year will be in the top 20 percent a
decade later. About half will still be in the bottom quintile. And even
those 3 percent that move aren't necessarily Horatio Alger stories. The
top quintile includes everyone from a $60,000 a year regional manager
to Warren Buffett."
Barry. Maybe considering a college kid with a part-time job at all
is a bad idea. Clearly, his improvement in income in a couple of years
skews the figures.
Perhaps his inclusion while getting paid minimum wage at a bookstore
skews the figures. Of course, since the figures are whatever we say they
are, he doesn't. What his inclusion does is skew conclusions drawn as
if we're talking about full-timers.
And the jump from bottom quintile to top quintile is likely to be rare,
but I would opine that bottom to middle is significant, not to mention
satisfactory to a good many people.
The BS/BA by age 23 model of education is not representative of what's
going on. Education is big business and that's not just K-12 and
traditional college. It's hard to avoid running into one or two people
every day who are taking classes in something post high school, at
practically any age, and I dismiss the flower gardening class at
community ed from this consideration. Most of them see this activity as
improving their opportunities and they may be right.
The funny thing is that for many the college degree is just a piece
of paper. Many grads come out without much knowledge of anything. The
degree represents a certain degree of stick-to-it-ness and willingness
to follow direction, but these people can't read or write or calculate
much better than they did when they graduated HS. And the skills they
*have* learned aren't necessary for the jobs they get. The main barrier
to jumping straight to work is the degree; they aren't substantially
better prepared after 4-6 years of 'study'. The biggest social benefit
of the vast expansion of the college population is that it soaks up
workers and lowers unenployment.
"From the ages of 18 to 65, the average male college grad earns $2.5
million over his lifetime, 90% more than his high school counterpart.
That's up from 40% more in 1979, the peak year for U.S. manufacturing.
This goes to the heart of whether you think increasing income inequality is a problem."
This isn't a mysteriously evil cabal of capitalists trying to screw
those who don't go to college. Manufacturing jobs are a) not as
important to the economy, and b) easily done by fewer people due to
mechanization. To call this an in come inequality problem is to totally
mischaracterize the issue. It is not a 'problem' that we can
manufacture items for much cheaper than we could in the 1970s. It is
great that we can manufacture things for cheaper, so that poor people
can afford VCRs and automobiles! To imply that there is an 'unfair'
distribution of wealth by this statistic is to imply that progress and
efficiency in manufacturing techniques is bad.
Richiard, a summary of my post would be: 'that study is BS, and two good economists dissed it'.
I understand that that's pretty much irrelevant to what you said, so back to whatever you were saying.
Barry, I didn't see that the dissing included the issue of counting part-timers in college.
The problem, IMO, with the study is the conclusions drawn. Studies are
generally internally correct, as long as they get the arithmetic right.
Did they count Bill Gates among the high-school grads, or the college
grads? He dropped out of Harvard and never graduated. I think Steve
Jobs may not have finished college, either.
Yes, Richard, as long as one defines 'internally' small enough, all studies are 'internally correct'
(e.g., 'in biased samples using misleading measures, there was a
statistically-significant-for-biased-samples difference on this
However, the study was garbage, in terms of measuring income mobility
for anything other than college students, and probably using bad
measures of income. Therefore, it shouldn't be used to discuss income
mobility in the US without very large caveats.
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