America’s inequality problem — and I mean the stagnation at the lower end, not the hedge funds guys at the top — does indeed seem to stem from dysfunctional families and bad education:
We examine changes in the characteristics of American youth between the
late 1970s and the late 1990s, with a focus on characteristics that
matter for labor market success. We reweight the NLSY79 to look like
the NLSY97 along a number of dimensions that are related to labor
market success, including race, gender, parental background, education,
test scores, and variables that capture whether individuals transition
smoothly from school to work. We then use the re-weighted sample to
examine how changes in the distribution of observable skills affect
employment and wages. We also use more standard regression methods to
assess the labor market consequences of differences between the two
cohorts. Overall, we find that the current generation is more skilled
than the previous one. Blacks and Hispanics have gained relative to
whites and women have gained relative to men. However, skill
differences within groups have increased considerably and in aggregate
the skill distribution has widened. Changes in parental education seem
to generate many of the observed changes.
Here is the paper., ungated version here. The authors use a different method but their results suggest that the earlier Goldin and Katz paper, which focuses on the connection between inequality and the inability to spring into higher levels of education, is essentially correct. The problems with lower income stagnation do not stem fundamentally from trade, weak labor unions, or for that matter technical change. I won’t call this question settled, but the Goldin and Katz result is looking increasingly strong. I would also say that we, for better or worse, have more separating equilibria in today’s world.
Here’s an intuitive way to grasp the hypothesis Let’s say that today you are a young Korean-American, perhaps even a Korean-American from a non-wealthy family. Are your future income prospects good or bad? Is upward mobility still there for you, if you want it? Most people don’t even have to go to the numbers to answer these questions.
Here is a not unrelated article about the prospects for affirmative action. And, if you’re more worried about the growth in income inequality that comes from gains at the top, well, the last few months have remedied that just a bit.