Education as the critical problem behind current inequality

by on May 17, 2007 at 12:57 am in Economics | Permalink

Here is an excerpt from my New York Times column today:

The return for a college education, in percentage terms, is now
about what it was in America’s Gilded Age in the late 19th century;
this drives the current scramble to get into top colleges and
universities.  In contrast, from 1915 to 1950, the relative return for
education fell, mostly because more new college graduates competed for
a relatively few top jobs, and that kept top wages from rising too
high.

Professors Goldin and Katz portray a kind of race. 
Improvements in technology have raised the gains for those with enough
skills to handle complex jobs.  The resulting inequalities are bid back
down only as more people receive more education and move up the wage
ladder.

Income distribution thus depends on the balance between
technological progress and access to college and postgraduate study. 
The problem isn’t so much capitalism as it is that American lower
education does not prepare enough people to receive gains from American
higher education.

Bottlenecks currently keep more individuals from improving their education…

Note that education is a fundamental issue behind the kinds of inequality we should worry about most, namely the failure of many poor people to do better over time.  It is not the fundamental problem behind every kind of measured inequality, as the column itself explains.  It does not, for instance, explain rising gains to the top one percent.  Inequality debates too often conflate different phenomena. 

Here is a non-gated version of the very interesting Goldin-Katz paper which I cover.

In a dynamic era does educational access have much of a chance of keeping up with technological improvement?  Even if we had optimal educational policies, which of course we don’t, modern technology goes "whoosh," education often just pokeys along.

Brad DeLong offers related commentary, though I think he is too quick to accuse Becker and Murphy of confusing the Marshallian scissors.  Mark Thoma offers commentary and relevant links.  Concerning Krugman’s claims, in general the data (see David Card’s Econometrica 2001 piece, plus the work of James Heckman) still find relatively high returns to additional education.

1 adrian May 17, 2007 at 1:53 am

sigh… IQ. IQ. IQ. Why do companies flock to get Harvard grads with useless degrees in gender studies or whatever? Because only really high-IQ people GET into Harvard. What college you get into is used by companies as an indicator of what they are really after – IQ.

2 adrian May 17, 2007 at 2:16 am

“still find relatively high returns to additional education.”

Most people who continue on are studying things like medicine or law, so duh. An couple extra years of gender studies? Not a great additional return methinks.

3 tommy May 17, 2007 at 2:47 am

I am optimistic about the possibilities of improving primary and especially secondary school (K12) education.

If the phrase “irrational exuberance” ever made it into a dictionary, I might have to nominate this as the definition.

4 johnc May 17, 2007 at 4:34 am

“Bottlenecks currently keep more individuals from improving their education…”

Gee, do you think that the cost of higher education might be one of those bottlenecks? Recent graduates from middle income homes are under a mountain of debt many will never pay for, particularly if their expertise isn’t something immediately in high demand. This makes college a bad purchase for them. Bankruptcies are way up, even among highly educated people, while there are legions of people with advanced degrees who have been greatly underemployed or out of work for a long, long time.

In fact, the government projections for areas of job growth have typically been in direct personal services like nursing and cosmetology, not fields requiring higher education which is becoming just another privilege of the rich. Professors Goldin and Katz should take a sabbatical from their ivory towers for a year or two and investigate what’s going on in real America where people with multiple masters degrees in engineering are working as waiters.

Blaming the loss of the middle class on the lack of education is disingenuous and the supporting statistics miss the point that only wealthy parents can keep their progeny in top colleges and then offer them the networking and support to make use of that education. Most high school grads know they are better off becoming plumbers or sanitation workers than advanced degree liberal arts majors, and while that’s a sad commentary on our current state, the simple fact is that we value plumbers more and their jobs can’t be outsourced.

5 jake May 17, 2007 at 7:25 am

“Blaming the loss of the middle class on the lack of education is disingenuous and the supporting statistics miss the point that only wealthy parents can keep their progeny in top colleges and then offer them the networking and support to make use of that education.”

Johnc: You can’t talk about that kind of stuff here, it ain’t ‘economics.’

6 Tyler Cowen May 17, 2007 at 8:11 am

Robin, the studies cited in my post attempt to control for signaling and estimate the returns to education holding type constant. Their “natural experiments” are pretty good, albeit not perfect. Note, however, that these are marginal returns for people on the cusp of going to college. Signaling still might be more important inframarginally.

7 Chris May 17, 2007 at 8:35 am

The real issue is to do with parenting. Without strong family support, kids are much less likely to get a good education.

8 Sean May 17, 2007 at 8:41 am

“In a dynamic era does educational access have much of a chance of keeping up with technological improvement? Even if we had optimal educational policies, which of course we don’t, modern technology goes “whoosh,” education often just pokeys along.”

This observation brought to mind Carlota Perez’s great insights into the long term workings of the economy and in particular the dislocation between technology and institutions during the “installation” phase of a new technological paradigm:

“Suddenly, in relation to the new technologies, the old habits and regulations become obstacles, the old services and infrastructures are found wanting, the old organizations and institutions are inadequate. A new context must be created; a new ‘common sense’ must emerge and propagate.” (from Technological Revolutions and Financial Capital)

Surely this exactly the situation the world finds itself in with respect to education – the existing educational paradigm is mal-adapted for the current (and future) technological paradigms but by virtue of the enormous inertia endemic to most social institutions. The alternatives (at least by historical standards) seem to be wait decades for the institutions to adapt or undergo a more violent, sudden, almost revolutionary shift which would be a likely result of pressure in ‘the system’ rising to a critical point (ie if the sub-optimal outcomes generated by the system became entirely untenable.

9 Jacob May 17, 2007 at 9:29 am

@ricpic

Only if their good. As more and more (competent) people abandon the trades, the value of a good tradesman will rise. But again we are back at basic math skills that are sorely lacking. Why is an odd question.

What I noticed in my educational adventure in the land of mediocrity is that there was no expectation of knowledge retention. Students in Precalc had no idea what an exponent was even though they had been learning it every year since the 4th grade. I have come to the conclusion that our grading system is the primary point of failure. The unfortunate reality is we expect students and teachers to generate grades NOT to engage in learning. Reform grading practices, enforce an expectation of retention, and hopefully return relevancy to the quantification process.

Again feel free to dismiss at your leisure.

10 adrian May 17, 2007 at 10:21 am

Re Griggs and Duke Power

College fees began their inexorable rise right after this decision. Companies no longer used IQ tests, so they began using SAT’s, what college you got into etc as a gauge of your g. Of course ordinary Americans quickly concluded that the relationship thus went from education to high income, when it the causation remained IQ-income. Hence the deluded clamor to get into college, and the willingness to pay large sums of money in the process, leading, in turn, to the endless rise in college fees. It’s all a con.

11 Bernard Guerrero May 17, 2007 at 11:08 am

Johnc,

You said “Professors Goldin and Katz should take a sabbatical from their ivory towers for a year or two and investigate what’s going on in real America where people with multiple masters degrees in engineering are working as waiters.”

I will venture that said engineer is either:

A) a lucky thimble-wit,

B) so dysfunctional in a social context as to be disruptive to a team doing high-complexity work,

-or-

C) so inflexible as to expect to work in precisely the fields he’s got his masters in

Hint: My undergrad was in physics, but I’ve never worked in a particle physics lab and yet manage to find interesting, well-paying work that utilizes many of the skills I picked up in the course of said undergrad. My difficulty in finding similar folks come hiring time tells me they’re either in short supply or aren’t looking in the right places for work.

Note that I’m not saying our hypothetical engineer will be making precisely the same money he did in his original field on day one. Starting on another path implies a learning curve and therefore a lower salary. That said, it’d still beat hustling for tips at a greasy-spoon…..

12 adrian May 17, 2007 at 11:41 am

Racist in favor of who? Asians?

13 Robert May 17, 2007 at 12:31 pm

What fun. I spent 12 hours researching income inequality yesterday.
Anyway:
1. The Bell Curve asserts that as the number of people in college went up, so did the IQ. That means more inequality, since IQ and education both raise wages.
2. Correlation of wages between husband and wife generates household inequality. If correlation has gone up (IE, more college students pairing off and less marrying with non-college grads), then so does inequality. Very significant in ensuring that their children have a good educational experience.
3. Family stability: Half of poor households are headed by a female (I assume single moms being the vast majority). High earning households are much more likely to be stable families.
4. Like you said, this doesn’t speak much for the Top 1%. I’m very concerned about that as well, particularly since you imply that we shouldn’t care about it.

14 Jacob May 17, 2007 at 2:18 pm

@Adrian
I agree it is a con. But its the tune you have to dance to, no matter how badly played.

Here is another trend I find troubling. There is an inverse relationship between financial success and the amount of children they have. Professional men and women, or the “Smart Fraction Jobs” people, aren’t breeding. This is causing serious problems in the entire western world.

15 adrian May 17, 2007 at 3:09 pm

Yes Jacob, but it’s not really a new phenomenon. There has been a dysgenic effect on high IQ individuals in the west since the advent of Christianity, where the cognitive elite tended to become Priests, Bishops etc, and not have any children by definition. An unusual number of western scientists and thinkers have been seemingly asexual as well (Newton, Kant).

Contrast that with Imperial China, where the high IQ mandarins who passed the rigorous exams had their pick of the fillies.

16 Loki on the run May 17, 2007 at 4:10 pm


Why do companies flock to get Harvard grads with useless degrees in gender studies or whatever?

If companies are doing that, they are either stupid or they need to prove to the EEOC that they are not discriminating (and they have a strategy for limiting the damage caused by such employees).

17 hanmeng May 17, 2007 at 5:50 pm

You write, “the new students must be prepared to learn.” Good luck on that one. And I’m not sure additional college aid is the answer; won’t that just encourage colleges to pump up their prices? On the other hand, if it doesn’t, as Milton Friedman wrote in “Free to Choose”, “Low tuition fees mean that while city or state colleges and universities attract many serious students interested in getting an education, they also attract many young men and women who come because the fees are low, residential housing and food are subsidized, and above all, many other young people are there. For them, college is a pleasant interlude between high school and going to work.”

18 Steve Sailer May 17, 2007 at 7:02 pm

Access to education? We don’t live in Lake Wobegon where all children are above average.

Take a look at the nation’s biggest county, Los Angeles, the harbinger of our demographic future. In LA County, which has some of the richest suburbs in the world, only one out of six 18-year-olds (including private school students) scores 1000 or higher on the SAT (equivalent to only 890 on the SAT before scoring was made easier in 1995). There are large schools where only 1% of the entering 9th graders will ever score 1000.

19 adrian May 17, 2007 at 7:11 pm

Oh yeah, certainly Loki. I’m not saying this is a GOOD thing, polygamy leads to social chaos. Some scholars say the dearth of wives for Greek males due to alpha female monopolization was one of the causes of the Trojan War. A mad desire to lie with Trojan women colors the Iliad.

“If companies are doing that, they are either stupid or they need to prove to the EEOC that they are not discriminating.”

No, I gave a reason in my first comment – they got into Harvard. Companies couldn’t care less what you study in college (unless its something like medicine or law naturally), with the rate at which technology changes these days most of what you learn will be obsolete in ten years anyway. They want brains, because high IQ people learn at a much quicker rate than medium/low IQ people, and companies love fast learners. And problem solvers, and everything else IQ measures.

An auditor friend of mine tells me that less than 5% of what she learned in college helped her out, computers do pretty much everything she learned, the rest was ingested on the job. They hired her because she went to a really good college, which indicated she had a high IQ, they couldn’t care less what rubbish she actually learned!

20 albatross May 17, 2007 at 7:33 pm

guest:

I don’t see quite how that follows. I think you’re assuming that the returns on intelligence are higher in the place with the lower average intelligence. What if you need a certain pool of people of a certain level of intelligence to get substantial returns on intelligence?

I don’t know if this is true, but it does seem to be true of education at some level–the returns available for literacy and numeracy are higher in a society where most people are literate and numerate, because the society becomes much, much richer.

21 doctorpat May 17, 2007 at 7:55 pm

A university degree doesn’t JUST signal IQ.

It also signals the ability to turn up and perform (at some level) for 3 or 4 years in a row.
It signals that you can stay somewhere for years without being expelled for behaviour that you might have got away with as a minor in school. And if in a “real degree” (Engineering, Law, Medicine, Science, Maths) it signals that you can actually put some real work in.

All these things aren’t covered in an IQ test. Or in a degenerate public school.

What I don’t understand is why Americans have so few private schools. In Australia (where private schools also compete against free government schools) the % of graduates from private schools is nearing 50%.

Sure a private school might cost thousands of dollars per semester, but have you worked out the cost of buying into the suburbs that have a good state school?

22 Steve Sailer May 17, 2007 at 9:00 pm

Right, a lot of the credentialism that’s rampant today exists to avert discrimination lawsuits. A company declares that job X is only doable by college graduates, and, what do you know, there aren’t many blacks and Hispanics with college degrees, so we’ll just have to hire whites and Asians for the job in disproportionate to the overall work force.

23 eric May 17, 2007 at 10:19 pm

Hey, rich people live in nicer houses than poor people…so why not buy everyone a nice house, and they will be richer!

But seriously, high school dropouts are at a historical lows, and college attendance at historic highs. Have you ever been at a school like Ohio University, Bennington, University of West Virginia, etc? These places are filled with people who are getting absolutely nothing out of college than a 4 year spring break. And then the dumbing down of majors. Were you such a nerd in college that you didn’t see that? Don’t you know how 75% of college students just go to engage in 3 of the 4 Fs?

The following is the advice that the Wizard of Oz imparted to the Scarecrow, of which I think would satisfy those of Tyler’s persuasion:

“Back where I come from we have Universities…seats of great learning, where men go to become great thinkers…and when they come out they think deep thoughts, and with no more brains than you have. BUT, they have one thing you haven’t got…A DIPLOMA.”

I have a friend who taught at Ohio State, and taught at a different school. His opinion was that the main problem with Ohio State is that too many kids are there because it has a good football team, and have absolutely no business in college. You can imagine trying to submit a paper to JET on Monday, then explain supply and demand to student accepted because they graduated high school on Tuesday. I’m all for better education, but more college? You are treating students too homogeneously.

24 adrian May 18, 2007 at 6:00 am

“The fact that we don’t observe a huge brain drain from Belgium to Morocco or black Africa suggests that institutional factors are more important.”

There is no migration to Africa for the same reason that there is no capital investment in Africa – insecurity of person and property rights. The black majority is pushing out the white minority all over the continent, look at Zimbabwe and South Africa.

I could point out a gazzilion other reasons not to migrate to Africa, but this is a family blog.

25 guest May 18, 2007 at 7:36 am

Meanwhile, I also know people who are funtionally illiterate working in secure jobs like construction and dockwork that pay well into six figures.

I suspect that these jobs are overpaid due to artificial barriers to entry. What about all the functionally illiterate people who do not get a safe union job?

26 guest May 18, 2007 at 9:04 am

Every South African I’ve met left because of the black crime rate and widespread intimidation. While Mugabes land seizures were more popular than the western press let on.

South Africa is a special case in some ways because of the legacy of Apartheid. And I can see how Mugabe’s “land reform” would be popular among these blacks who were assigned the land, but most blacks are clearly losing out.

27 Christina May 18, 2007 at 2:23 pm

I think a major problem with higher education is the fact that you pick your major before you’ve probably had any practical experience in the field. Hence the tons of people who are working in fields wholly unrelated to their educations.

In particular there is the common practice of young women with college degrees getting jobs as Administrative Assistants right out of school, and then continuing along their careers in Admin. Then they wonder why they are making so little compared to their male classmates! It’s an especially amusing trend considering the feminist distain for “traditional” work roles has caused the extinction of 1-year Secretarial schools the likes of which my grandmother and her sisters attended in the 20s. My compatriots are getting a far more rotten deal, trading a year of school with very low tuition, for 4+ years of school at a far higher tuition, and the same boring job.

28 Julian May 19, 2007 at 6:58 am

Of course not. They just have to go through the same couple of thousand years of selection that the Chinese went through, or get some cheap genetic engineering.

This truly reveals ignorance about even basic high school facts on human evolution and the history of the Americas.

29 Jason Malloy May 20, 2007 at 4:37 am

. If data suggests Latino immigrants do not test as well as Asians, does that mean Latinos are somehow inherently incapable of improving? OF COURSE NOT, THAT’S CRAZY!!

Kevin, you are correct that the fact of low IQ by itself doesn’t necessarily suggest genetics, but familiarity with the relevant literature shows it does under most non-extreme circumstances.

I also research transracial adoption, and Mexican-Americans adopted into and raised in white American homes perform significantly worse, on average, in school and on IQ tests, despite often self-identifying as white. This and a number of other related facts suggest that the IQ difference does indeed have a genetic component. Of course, even if it doesn’t, the evidence still shows it is largely intractable – and that there are going to be real national consequences from this.

30 sakthi May 21, 2007 at 8:58 am

Corporates are always giving priority to students whom they finished their degree in big institutions,Because companies don’t want to waste their time by giving training to newly joined staffs if they selected from some other mid level colleges..But the fact is we have to give training to every new joiner invariable of institutions and to solve this problem we have to increase the value of our primary education…
Car Breakdown Cover

31 JB March 26, 2008 at 8:45 pm

This may add or subtract to people’s theories: Asians have, on average, a lower IQ than whites with the same level of achievement. Which means that Asians much more efficiently use whatever IQ measures. Which also means whatever IQ measures isn’t so important to achievement.

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