The inequality that matters

by on May 23, 2014 at 7:31 am in Data Source, Economics, Education | Permalink

Brenda Cronin reports:

Recent hand-wringing about income inequality has focused on the gap between the top 1% and everyone else. A new paper argues that the more telling inequities exist among the 99%, primarily driven by education.

“The single-minded focus on the top 1% can be counterproductive given that the changes to the other 99% have been more economically significant,” says David Autor, a Massachusetts Institute of Technology economist and author of the study.

His paper, “Skills, Education and the Rise of Earnings Inequality Among the ‘Other 99 Percent’,” comes as something of riposte to French economist Thomas Piketty, whose bestselling “Capital in the 21st Century” has ignited sales and conversation around the world with its historical look at the fortunes of the top 1%.

Mr. Autor estimates that since the early 1980s, the earnings gap between workers with a high school degree and those with a college education has become four times greater than the shift in income during the same period to the very top from the 99%.

Between 1979 and 2012, the gap in median annual earnings between households of high-school educated workers and households with college-educated ones expanded from $30,298 to $58,249, or by roughly $28,000, Mr. Autor says. During the same period, he argues, 99% of households would have gained about $7,000 each, had they realized the amount of income that shifted during that time to the top 1%.

There is more here, including good graphs.

Eduard May 23, 2014 at 8:00 am

The “coming apart” thing, indeed. And in research like this paper, I tend to see words like “skills”, “education,” and “college-educated” as mere proxies/euphemisms for IQ.

dan1111 May 23, 2014 at 8:25 am

There is a lot of confounding go on, although I don’t think it’s just IQ. There are also things like motivation, discipline, and privileged upbringing that are likely to be associated with both college education and income.

What we really want to know is how much money would the college educated people have made if they had not gone to college. But that is a lot harder to figure out.

Z May 23, 2014 at 8:52 am

One thing we do know is those without a degree are more likely to reach a networth of a million dollars or more. This is not startling to anyone in small business. You take a relatively small salary, but you build up the value of the business. Salary men may have a larger income, but they gain nothing on the asset side from their employment. The typical independent plumber probably has a higher net worth than the typical lawyer.

As a high school dropout, I tend to be biased against credentials. In my trade, I have found useful skills are inversely proportional to the number of acronyms following the name. There are always exceptions and blah, blah blah so Rahul and Jan can indulge their pedantry over that. The point is measuring income levels and trying to correlate it to education misses an important reality.

charlie May 23, 2014 at 8:58 am

I’ll be delighted to tell this to all the urban youth I see today — since they have no chance to actually graduating from high school.

Z May 23, 2014 at 9:21 am

Can they even hear you as you shout at them from your couch out in suburbia?

Boonton May 23, 2014 at 9:32 am

Or from the basement in your parents home?

derek May 23, 2014 at 9:55 am

My competitive advantage is to hire young fellows from solid families who spent their high school years tinkering with the beat up old car, who don’t have substance abuse problems and who want to have a very good paying job without having to take on enormous debt. In Canada, the averages are somewhere around $40k school debt for jobs that pay $49k. Anyone who would approach that type of return on investment wouldn’t qualify for what I do. They aren’t smart enough.

Nor anyone who spend the years 18-22 in a hookup culture exploring their inner whatever in exchange for a piece of paper.

The most challenging thing I face in training is convincing people that they don’t know anything at all. Once they recognize that they can begin the serious challenge of learning. I haven’t had the opportunity to teach anyone out of college. The work I do is below them, the pay is above them.

Young men who come from unstable family situations are almost useless. Very sad. Four years schooling won’t help that much. If you want to help urban youth wean them from the hip hop culture, slap their parents and tell them to keep their god damp pants on, shut their mouth, be sober enough to get their kids off to school and around when they finish so they don’t have to live on the street. Their kids can’t learn self discipline and determination if their parents are substance abusers, serial monogamists or worse, or don’t have the self discipline and determination to stick it out in a relationship for the sake of their kids. That is what it takes to roust your son out of bed every morning to get to high school.

Jan May 23, 2014 at 12:22 pm

I’m sure this straightforward approach works great for auto mechanics a limited number of other lines of work. But you can’t really apply it to certain fields where people really do need years of training before they create any value for the company.

derek May 23, 2014 at 6:33 pm

Do you know any non trivial job that can be taken on by someone with a degree without further training? I talked to a mechanical engineer and asked him how long does it take for an engineer to be able to take on a project and run it to completion. He said 10 years. It is the same for what I do.

dan1111 May 23, 2014 at 9:01 am

“Those without a degree are more likely to reach a net worth of a million dollars or more.”

Evidence please? I am fairly anti-credential, too, but I really doubt that.

Z May 23, 2014 at 9:20 am

There was a book out a few years back that did the homework. I no longer recall the title, but the NYTimes was fond of it for a while. Maybe someone else recalls it. In fairness, when there are five non-degree holders for every one degree holder, it is not a useful statistic. Then you have to factor in the college dropouts. In tech, this is a surprisingly large group.

The fact no one disputes is owning your own business is the key to accumulating a high net worth. That does not require a degree. It may be useful, but it is not necessary. That suggests the goal should be more business owners, not more degree holders. But, there’s not much fun in that position so it will never happen.

dan1111 May 23, 2014 at 9:26 am

@Z, are you referring to The Millionaire Next Door? Found the first chapter online, and it states that 80% of millionaires have a college degree.

Z May 23, 2014 at 9:55 am

@dan, That does not ring a bell, but I’m getting old and I forget things. Thinking about it, it may have been a lot longer ago as a million dollar net worth is not all that much these days. Regardless, that’s not really the point. The difference between wealth and income is where I was going.

Would you rather be the plumber with a $5 million dollar business, but a $150K salary or the lawyer with the $250K salary? That’s a matter of choice, but calling the later a better outcome misses a broad swath of reality.

Z May 23, 2014 at 10:07 am

@dan, Before I forget, I think Steve Sailer wrote a bunch of pieces on how IQ correlates to educational attainment and how that correlates to income and wealth. High IQ people tend to excel at those things most prized by society at the time. In another age, very bright people ended up in the clergy or military. Today they end up in universities. Even the not so bright.

Finch May 23, 2014 at 10:55 am

Z, it does sound like you are referring to The Millionaire Next Door, which is a good book with some important insights. But there are a few real criticisms of it.

The first is that it ignores survivorship bias when it talks about the success of business owners. A path to real wealth is to create a business and have it succeed. The successes make up a large fraction of millionaires. But there are many failures for each success and the book doesn’t highlight that. The multimillionaire plumber is rare and lucky among plumbers. The $250k doctor has taken much less risk and is pretty common among doctors.

The second is that much of the data in the book (there may have been updates, I don’t know) dates from quite a long time ago, and in particular dates to before Reagan’s tax reforms. In those days business owning made a lot more relative sense as tax shelters abounded and marginal rates on income were confiscatory. These days earned income is a better path to modest wealth than it was in the 70s.

Greg May 23, 2014 at 11:28 am

Sounds like Millionaire Nextdoor to me too. The main idea of the book was that many high income professionals (doctors and lawyers for example) are also high consumption and high debt and consequently fail to accumulate significant net worth. Meanwhile, the truly wealthy are often frugal and invest their savings in productive assets. These people are often owners of unglamorous small businesses. All that said, the claim that non-college grads are more likely to be wealthy is pretty clearly not true.

Z May 23, 2014 at 11:34 am

@Finch, it could be, I just don’t recall anymore. If it dates back to the 80′s then maybe that is what I recall. or at least the debate over it.

As to the faults, I tend to agree with the argument that a mix of innate ability, good luck, education and IQ is what drives success. I would define success very broadly. For many people, Scrooge McDuck is the dream while others have little interest in material goods, but are successful in their field. The heavy bias toward education is a mistake for that reason. It narrows the pipeline, I think.

Finch May 23, 2014 at 11:57 am

The book was published in the 90s but describes people who accumulated their wealth in the 50s, 60s, 70s, and 80s.

I more or less agree with you that education, or at least credentialing, is overrated.

trollwatch May 23, 2014 at 4:17 pm

> As a high school dropout, I tend to be biased against credentials.

Well that explains what you have against Ronald Coase but not how you became the resident troll of a website run by Econ PhDs.

Z May 24, 2014 at 12:58 pm

For intensely stupid people like yourself, most of life is a mystery. You should be used to it by now.

Cliff May 23, 2014 at 10:28 pm

Many, many lawyers own small businesses

John Mansfield May 23, 2014 at 8:42 am

I, too, wonder if anything has changed other than that higher-wage workers are more likely now to have gone to college than those forty years ago.

go May 23, 2014 at 8:49 am

Exactly. Every professional in the world will tell you that when evaluating people for a role on a team, what matters is “are they good“, meaning: are they diligent and a quick thinker. Education, experience, and personal references are signals for those two qualities, with personal references being the best, experience being a slightly worse signal, and education being the worst of the three. Hence why the personal network is still king when seeking a job.

The point being, you can educate everyone but that just means that everyone has a little bit more ability to write, a little more knowledge of history, etc. A good thing for society, I suppose, but when I’m looking to staff up a team, I’m still more-or-less looking for high-IQ people with a great work ethic. There are a limited number of those people. Education is just a signal for those two things, and thus a positional good. I’m still going to take the people who my current “good people” vouch for, and who have a track record of proven accomplishments, over those who have a piece of paper from a school.

JWatts May 23, 2014 at 11:15 am

“I, too, wonder if anything has changed other than that higher-wage workers are more likely now to have gone to college than those forty years ago.”

I suspect this could easily account for all the change. The smart kids that wouldn’t have gotten a degree in 1979, would have in 2009. The only telling difference is that despite the rising cost of college it still remains a good deal.

Lord May 23, 2014 at 2:09 pm

Some 80% of the increase has been on medicaid and other social spending. Not that many of the degreed benefiting from that.

Boonton May 23, 2014 at 9:36 am

“I tend to see words like “skills”, “education,” and “college-educated” as mere proxies/euphemisms for IQ.”

Then IQ must have increased in recent years as the # with college degrees has gone up.

Boonton May 23, 2014 at 9:38 am

And a key theme in Murray’s ‘coming apart’ was not so much IQ divergence but cultural divergence. Granted he claimed IQ sorting (high IQ men and women seek each other out more in todays world than in decades past) had a role in that but that doesn’t really drive as much of the diversity you see in the ‘bottom 99%’.

JonFraz May 24, 2014 at 9:57 pm

I am dubious there were ever (well, in recent times) very many marriages where the spouses were greatly divergent in intelligence. Simply from my own experience that’s a serious romance killer.

XVO May 23, 2014 at 9:49 am

No, not at all. That doesn’t even…… I just?!

Just because more people are getting degrees doesn’t mean IQ has risen, it just means more people possess the proxy, a college education, than before. IQ is a heritable and mostly static trait. Perhaps what this really shows is that the perceived opportunities outside of college education have changed. Thus you see more people trying for a college degree which increases the number of people with a college degree.

Just Another MR Blogger May 23, 2014 at 10:59 am

Tyler deleted my previous comment! Hysterical.

ricardo May 23, 2014 at 8:42 pm

You must have been trolling.

JWatts May 23, 2014 at 11:21 am

“Then IQ must have increased in recent years as the # with college degrees has gone up. ”

That doesn’t seem like a well thought out conclusion. I suspect that most people getting college degrees in the 1970′s were in the top 10% of the IQ range. Now we have a much larger group getting degrees, but they are probably still in the top 50% of the IQ range.

So a college degree is still a good indicator of high IQ. Furthermore, it’s also an indicator of discipline and motivation.

JonFraz May 24, 2014 at 10:00 pm

The latter is probably a bigger factor than is often acknowledged. It’s perfectly possible for someone to do well on a fairly brief test, but lack the stamina and perseverence to succeed in the long haul. This, more than as a proxy for IQ, is why college degrees have come to matter so much to employers.

Jan May 23, 2014 at 8:00 am

The super high wealth of the top .1 or .01% is worthy of continued examination, but Autor makes a great point. I’d be interested to see what salary premium a university degree provides in other rich countries. I can’t find it just now, but I’d guess the US is leading in this type of inequality as well.

In any case, I’m not sure we are prepared to do what is needed to increase the number of people who earn college degrees. I’m also skeptical that the marginal benefit from increasing the number of college degrees granted would actually be that significant, if only because more degrees wouldn’t necessarily translate to that many more highly qualified workers. We should stop guaranteeing federal loans for students to study at low achieving colleges with dismal graduation rates. Maybe low-cost online credentialing will save us?

Dan Weber May 23, 2014 at 8:28 am

It’s a somewhat big change, but I’ll suggest it again: make inquiring about a college degree verboten to most employers, the same way it is verboten to inquire about family status or the like. [1]

I agree that trying to squeeze more people into college is a bad idea. Even if it were somehow to become free in terms of dollars (it isn’t, even if the state pays for it), it’s still expensive in terms of time and opportunity cost.

[1] It’s not technically an “illegal question” but it’s illegal to discriminate against applicants for a number of specific reasons, so any sane interview process will avoid leaning about it and discourage applicants from talking about it.

dan1111 May 23, 2014 at 8:48 am

Should employers be barred from “discriminating” based on the fact that one individual has successfully completed a challenging four-year undertaking, and another has not? This is a really bizarre idea.

Z May 23, 2014 at 8:55 am

Alternatively, I’d advise those with a high IQ to get an official test and include that on their resume. Heck, join Mensa and put that on your resume. Take a big five personality test and include that too.

Jan May 23, 2014 at 12:38 pm

I think it is worth trying. The downside is that it violates social norms–it just seems weird to put one’s IQ on a resume, so it will turn some employers off. You have to know your audience.

I believe some employers look for a college degree as a way to ensure a person can stick with a program, meet deadlines, achieve a long-term goal. But absolutely requiring a degree or a certain level of degree is stupid if a candidate has experience and can otherwise show they are right for the job. I can’t tell you how many positions in DC arbitrarily require a masters. The same seemed to be true when I lived in Boston, for obvious reasons, but with less attitude.

The Anti-Gnostic May 23, 2014 at 8:38 am

Isn’t this an economics website? If you give everybody in the US a college degree, what happens to the value of a college degree?

Education imparts knowledge and training; it doesn’t make people more intelligent. Most high school graduates do not belong in college, if a BA/BS is to have any value.

Z May 23, 2014 at 9:22 am

But, the only way everyone can be above average is if they have an education!

cheesetrader May 23, 2014 at 11:14 am

we’re all above average now

Jan May 23, 2014 at 12:29 pm

Right. I am saying a push to just increase college degrees is meaningless unless we ensure that the increase means additional skills/training that employers find useful and add value.

I disagree that there is some arbitrary cutoff beyond which more college degrees no longer have value. In the early 1900s would people have been correct to say that a university degree is meaningless if more than 5% of the population receives one?

The Anti-Gnostic May 23, 2014 at 5:18 pm

In the early 1900s would people have been correct to say that a university degree is meaningless if more than 5% of the population receives one?

Not meaningless, but definitely worth less. Same with field marshal batons, Medals of Honor, Bar membership, etc.

Most people are actually NOT capable of college-level work, if there is to be such a thing as “college-level” work rather than just a 4-year repeat of your senior year of high school.

go May 23, 2014 at 8:35 am

What “Eduard” said above. People are distributed according to normal distributions on IQ (or g) and time preference (ability to defer gratification to the future), and these traits are mostly genetic, or at least set in stone by early childhood.

Then, there are two effects happening in the modern world. First, developing-world labor and technology competes for the jobs that the people on the left side of the IQ curve are capable of doing. If you have an IQ of <100, the modern world doesn't have honorable, respectable work for you anymore. And the threshold is rising: it's like a curtain sweeping from left to right on the IQ curve.

go May 23, 2014 at 8:43 am

Forgot my second point: that the social changes that began in the 1960s and continue today are to the detriment of those with low IQ and high time preference. For example, the decoupling of sex from marriage in respectable society. (Yes, I know that people have always had premarital and extramarital sex. But there was pressure to make it legitimate before.) What a stifling straitjacket for those who are capable of controlling themselves! So much better nowadays when you can “test out” a marriage by sleeping with different people through your 20s, cohabitating for a while, buying a dog, and then getting married after 5 or 10 years in the relationship. And it has worked out very well for the top half of the bell curve: divorce rates are down (or were never that high in the first place), people can have fun and play the field when young and STD rates are under control, you can get out of an unhappy or abusive marriage, etc.

But for the bottom half of the distribution, not so much. The old social order, so stifling for the intelligent and naturally disciplined, gave a needed framework for those less capable of controlling themselves. This is why you see the great divergence between Belmont and Fishtown.

It’s funny, people will criticize Murray all day but the thing is, his system of looking at the world is simple, clear, and it just works. It’s Occam’s Razor: take the theory that requires the fewest independent assumptions. If you don’t believe in the IQ and time preference curves to explain the “coming apart”, then you have to posit a multitude of other factors to explain it. Just use the simplest theory!

(Aside, and hopefully this won’t derail the discussion – I find it hilarious when people are quite happy to accept anthropogenic climate change because it’s the simplest explanation for the observed facts, but won’t do the same for IQ curves explaining society.)

The Anti-Gnostic May 23, 2014 at 8:57 am

Once again, high-g atheists are confounded by the fact that the rules of social conservatism weren’t necessarily propounded for their benefit. (Credit to a prior commenter.)

Maybe we should also consider giving our lower-g citizens a safe harbor, or at least a time-out, in this competition with the global poor for wages and the global rich for housing. I have to think that would be cheaper and less socially destructive than welfare.

RmDeep May 23, 2014 at 9:02 am

That was me on this thread from January 2012.

This thread is hilarious as all the high-g atheistic libertarians belatedly realize that social conservativism is not for their benefit, but for the benefit of the left half of the bell curve.

The Anti-Gnostic May 23, 2014 at 9:18 am

That is a comment for the ages. And I’m betting the GMU Econ Department still hasn’t figured it out.

derek May 23, 2014 at 10:02 am

Indeed. A young kid who knows how to work, is disciplined and able to perform without emotional baggage is going to do ok no matter how smart they score on some test.

By emotional baggage I mean something very simple like the ability to say I don’t know and listen when someone smarter and richer tells them what to do.

JWatts May 23, 2014 at 2:56 pm

“This thread is hilarious as all the high-g atheistic libertarians belatedly realize that social conservativism is not for their benefit, but for the benefit of the left half of the bell curve. ”

Who in particular is confounded by that? Every intelligent atheistic libertarian I ever met always chaffed at the rules set up by social conservatives. Particularly the ones who attended Catholic schools growing up. More than once I’ve told someone fitting that description that I was tired of hearing about how awful nuns were back in the day. It was decades ago, get over it.

JonFraz May 24, 2014 at 10:06 pm

The elite classes were always able to live fairly decadent lives if they were so minded (not all of them were; some actually loved their spouses and were faithful to them). The difference is if you had enough money a misstep in the boudoir would not lead to ruinous consequences. Nowadays not just money per se, but comprehensive insurance serves the purpose for the upper half of the income distribution.

ricardo May 23, 2014 at 8:53 pm

This “time-out”: analogous to the Amish? Would they be stuck using, say, dial-up internet?

I’m being flippant, but actually an interesting idea. How would one design such a time-out? Would we want them to know they were in a time-out? Are _we_ in a time-out designed by our Bostromian overlords?

The Anti-Gnostic May 24, 2014 at 5:06 pm

Halting immigration would be a much-needed “time out.” Far more effective and much less socially destructive than transfer payments.

Greg May 23, 2014 at 12:10 pm

Good stuff. But I think what you are calling “time preference” is perhaps a bit more general. I might prefer something like “frontal lobe function” or maybe even “moral reasoning.” I like how you point out the importance of social institutions. Murray-ish ideas are often seen as dismissing social influences entirely which is a complete misinterpretation. Rather what’s dismissed is the variety of dopey social interventions that liberals favor. Conservative social institutions are really the only option, but we no longer have the stomach for rigid enforcement.

Sam May 23, 2014 at 8:49 am

During Larry Summers’ recent talk at the Kennedy School ( http://forum.iop.harvard.edu/content/conversation-lawrence-summers-0 ) he talked about rising inequality and was asked point blank about education, after omitting it from his monologue. He claimed it was more important to look at the top end of the distribution, i.e. the growing disparity between the top 10% and the top 1%. He didn’t dismiss the rising inequality at the lower end; rather, he didn’t see it as the most salient fact about the phenomenon. And, as he pointed out, the top end are all well educated.

In the US, since the 80s the top 10% of the distribution more and more fits to a power law distribution, and its unique compared to other advanced economies. Thus the salient inequality phenomenon people are protesting over, and its peculiar concentration in the US, deserves a domestic explanation.

http://www.stanford.edu/~chadj/inequality020.pdf This paper lays out some of the possibilities. The one that makes the most sense of the facts and timing is the decline in top MTRs. In some models this can increase the return to human capital accumulation (ex. http://fakultaetsseminar.uni-mannheim.de/material/PaperKim.pdf ) so its not surprising education premia have risen. The important point is education premia are another effect, not part of the cause.

Bill May 23, 2014 at 11:13 am

+1 What is the education premia in countries with free or universal post-secondary education? This would seem to eliminate a premia for access to education based on wealth constraints. I like the comment about the difficulty in separating cause and effect, as the world is more complicated: wealthy parents with education push their kids to be educated, not only because they see the value, but they have the resources to give them the education, whereas a poorer parent knows they do not have the resources, and has no education, so the kid and parent are risk averse both as to cost of education and the rigors of embarking on something (going to college as a first generation kid) that neither has experienced. Moreover, even if a kid aspires for education, the kids cohorts do not, creating a peer effect motivational problem as well.

JWatts May 23, 2014 at 2:58 pm

“In the US, since the 80s the top 10% of the distribution more and more fits to a power law distribution, and its unique compared to other advanced economies. ”

I haven’t read Piketty’s book, but I thought part of the premise was that this phenomenon was happening all over the Western world?

Kabal May 23, 2014 at 9:03 am

Increasing assortative mating and increasing diversity fattening both the left and right sides of the cognitive bell curves for various traits such as IQ, conscientiousness, and fondness for authority.

Education increasingly functioning as de facto licensing for many jobs, rewarding those high in IQ, conscientiousness, and fondness for authority (people who are more likely to stick it out for longer education).

Increasing proliferation of corporate drone jobs, cultures that also reward these traits.

ummm May 23, 2014 at 9:26 am

people like http://jamesaltucher.com/ see it differently. drone jobs seem to be the most at risk for being destroyed compared to jobs that involve directly interacting with people and creativity jobs.

Cahokia May 23, 2014 at 9:31 am

“Education increasingly functioning as de facto licensing for many jobs, rewarding those high in IQ, conscientiousness, and fondness for authority (people who are more likely to stick it out for longer education).

Increasing proliferation of corporate drone jobs, cultures that also reward these traits.”

And decreasing GDP growth rates as a result.

Imperial China had the most well educated government for centuries, yet it peaked in the Song Dynasty, as was discussed on this blog recently.

Tyler and his colleagues keep pushing higher education but they’re simply promoting a more bureaucratized society that stifles innovation and small business creation.

prior_approval May 23, 2014 at 9:12 am

So, roughly 100,000,000, million households in the 99% means 700,000,000,000 dollars going to roughly 1 million households, in the same time frame that uses figures involving a change of $30,298 to $58,249. That’s right, 7 hundred billion dollars – per year, if the text is to be trusted.

Somehow, I think that the absolute number is just a touch more relevant here. Particularly considering how that poor 1 percenter may only be able to set aside a palty 60,000 dollars a year for retirement (assuming that saving 20% of your income for retirement is considered sound financial advice for those making over 250,000 dollars a year).

ummm May 23, 2014 at 9:23 am

Just more evidence we’re in a smartist era . With few exceptions, risk-taking, being smart, hard-work, and creativity is a path to prosperity in this economy now more so than any prior decade. Stocks will keep going up and people will keep getting richer than ever even if many, on a personal level, are unable to participate in the strong economy. There are record valuations for 2-3 year old tech companies and record foodstamp rolls

mulp May 23, 2014 at 12:32 pm

Why do you think those getting rich or the high incomes are working harder?

Why do you think 90% of those high tech companies with high evaluations are useful to the real economy?

How much has Facebook improved your life? Is your air, water, food cleaner or healthier? Twitter? Based on your focus on the soaring price of those companies, they must have lengthened your life by years.

On the other hand, I bet you see the same amount of labor paid for as the market cap of Facebook, Twitter, etc to build wind and solar power production assets by the overwhelmingly non-college degree workers and even dropouts as being a drag on the economy. All that money is going into assets that will always fall in value, and price.

Of course, coal mining done by dropouts is too expensive as well, so those workers are killed to cut labor costs, or when forced to not kill them, they are fired and the dropout labor of factory worker capital is used to blow off the top of entire mountains to get to the coal with less labor. Again, that totally reduces the asset values dramatically.

But hey, you would not notice the impact of all the garbage and toilet cleaners vanishing as much as you would the absence of Facebook, Twitter, and your car talking.

TallDave May 25, 2014 at 12:12 am

Does LeBron James makes your air and water cleaner? Did he make anyone live longer? What about Madonna? James Cameron?

Clearly there’s a lot of terrible economic misallocation going on, and it won’t be fixed until the coal miners face the same risks as office workers.

The Other Jim May 23, 2014 at 9:28 am

Sadly, far too many people look at stats like these, and then conclude that the solution is to give everyone a college degree. The only way to do that is to have the taxpayer foot all the bills, have the colleges create useless degrees that require no work or intelligence or attendance, and then watch tuition skyrocket while these useless “graduates” remain unemployed and live with their parents.

Oh wait. That perfectly describes the last 15 years. By all means, keep publishing these studies. They are really helping.

Brandon May 23, 2014 at 9:47 am

It’s the old adage about job-seeking advice: it might work for the individual, but it doesn’t work for society as a whole. If getting a college degree currently gives you a leg up in the job market, you can’t fix things by giving everyone a college degree. Individually it works to a point, but if everyone has a degree, there’s no longer any advantage.

bartman May 23, 2014 at 10:19 am

It’s called the fallacy of composition.

Dan Weber May 23, 2014 at 10:23 am

It ends up as a negative-sum game, since everyone has to pour more and more resources into chasing the credential.

And eventually the credentialling institution will capture 90% of the gains from the credential.

NB: “Income-sensitive repayment plans” will make this problem much worse. Instead of making an economic guess at your future earnings boost from getting the degree, they will then be able to capture the percentage of your actual earnings differential, enforced by the IRS.

mw May 23, 2014 at 9:31 am

“4 times bigger.” Wow. What’s 4 times a small number? How about if we measure in real units like, say, dollars? How big is it then comparatively? Terrific argument.

Boonton May 23, 2014 at 9:33 am

And yet we keep hearing that student loans are a ‘ponzi scheme’ and college is a ‘bubble’….

bartman May 23, 2014 at 10:20 am

Those words are usually used by people who don’t know the meaning of either of them.

Frederic Mari May 23, 2014 at 9:38 am

Again and again, in those discussions, I cannot get Americans who think education is key to wealth to engage with the French/European experiences. We have, as a society, devoted more public resources to public education. As you’d imagine, the consequence is that we get more degree holders.

The least that can be said is that this has not done Europe any particular favour…

Cahokia May 23, 2014 at 10:02 am

The French/European experience… as with the Soviet experience… and the Middle Eastern experience of well educated unemployed angry young men.

Frederic Mari May 23, 2014 at 10:51 am

Indeed. Now you may argue that all those places are/were badly managed (to various degrees) and that, if they just adopted the supply-side reforms of Reagan and Thatcher, all would be well.

OTOH, since one of those reforms would consist of gutting public education, it’s a bit of a snake-biting-its-tail issue… :)

Furthermore, even in the US, we are starting to see some serious volatility in the outcome of degree holders. One way to phrase it is that we went from a diploma being both necessary and sufficient to guarantee yourself a middle class lifestyle (at the very least) to it being only necessary but no longer sufficient…

So, on average, it still beats not having a diploma. But, in practice, quite a few will not get much out of their degree…

mulp May 23, 2014 at 11:39 am

With supply side you simply ask how can we boost profits to create the incentives to produce more because production gains is driven purely by profits and rewards.

As opposed to the commie economy whether orders were issued to increase supply to be rewarded with living longer, and if you failed to deliver your quota of tractors or tanks or pants, you were shot. I remember how it used to be a joke to focus on supply side economics because it never delivered what consumers wanted or could afford.

But Reagan supply side economics delivered by way of GM and Toyota twice as many cars being recalled to dealers to have manufacturing – supply – flaws fixed as the automakers are going to supply.

Focus exclusively on supply side in the US works no better than in USSR, China, or Cuba.

TMC May 23, 2014 at 12:17 pm

“So, on average, it still beats not having a diploma.”

Only if you ignore the costs associated with that diploma. (especially those dropouts).

JonFraz May 24, 2014 at 10:12 pm

In Europe, as here, the unemployed (and often unemployable) underclass tends to be people with poor education and skills. Though with a heavier immigrant than we have.

JWatts May 23, 2014 at 3:09 pm

“Again and again, in those discussions, I cannot get Americans who think education is key to wealth to engage with the French/European experiences”

Frederic meet Mike Rowe: http://profoundlydisconnected.com/

He has a dirty job just for you.

Finch May 23, 2014 at 4:03 pm

Mike Rowe should be made king.

Noumenon72 May 23, 2014 at 10:38 am

He’s comparing two totally different things, isn’t he?

consider the conceptual experiment of redistributing the gains of the top 1% between 1979 and 2012 to the bottom 99% of households (10). How much would this redistribution raise household incomes of the bottom 99%? The answer is $7107 per household

and

consider the earnings gap between a college-educated two-earner husband-wife family and a high school–educated two-earner husband-wife family, which rose by $27,951 between 1979 and 2012 (from $30,298 to $58,249). This increase in the earnings gap between the typical college-educated and high school–educated household earnings levels is four times as large as the redistribution that has notionally occurred from the bottom 99% to the top 1% of households.

It certainly doesn’t seem fair to calculate one difference by dividing three million people’s wealth among 300 million, and the other by subtracting one single family’s wealth from another family’s, and then directly compare the magnitudes. It actually seems pretty dishonest.

Frederic Mari May 23, 2014 at 10:53 am

Well, you wouldn’t want people to actually realise that, would you? Divide and conquer…

mulp May 23, 2014 at 11:29 am

So, it seems fairer to you to take $7000 from 300 million and giving it to 3 million, instead of taking $28,000 from 150 million and giving it to the other 150 million?

Of course, the assumption that economists have to have totally internalized is that this is a transfer of $7000 in individual consumption each from 300 million people to $7,000,000 in goods and service consumption each by 3 million people, vs a transfer of $28,000 in consumption each from 150 million to an increase of $28,000 each by the other 150 million people.

If the income is not tied to consumption of GDP, then the economy will collapse because every account must balance one way or another.

Noumenon72 May 23, 2014 at 3:12 pm

Why is taking even coming into it? Would you calculate “speed inequality” by saying “if you took all the speed from the top 1% of drivers who drive 300 mph, the 99% would get only 3 mph each, so the real inequality is between the drivers who drive 75 and those who drive 65 — that’s 10 mph!”

joan May 23, 2014 at 10:39 am

Labor share of national income in the US is about 6% less now that it was in 1979 and it was mostly the top 1% that got increase in income from .capital that workers lost. The growing wage gap shows that non college educated workers lost the most , not that gains of the top 1% does not matter.
http://www.economist.com/news/finance-and-economics/21588900-all-around-world-labour-losing-out-capital-labour-pains

prior_approval May 23, 2014 at 11:06 am

So the rich got richer, and the working class got poorer?

That does not fit the narrative, regardless of how factual it is.

JWatts May 23, 2014 at 3:06 pm

“So the rich got richer, and the working class got poorer?”

But what you said doesn’t fit the facts. The facts are the rich got richer, the poor got richer and the middle class stagnated.

Nathan W May 24, 2014 at 12:51 pm

Smartphones are whizz bang cool. But that does not make up for incredible deterioration in affordability of basics such as rent, food and utilities.

ThomasH May 23, 2014 at 10:43 am

“The more telling inequities exist among the 99%, primarily driven by education. That depends on what is being “told.”

I think that lying behind more focus being placed on differences between the top .1 or .01 % and the mean/mode/median than between high school and college is the belief (not necessarily true, of course) that the relative increase in incomes of college educated people reflect actual relative contributions to society that others benefit from. It’s harder to think that about the income going to the hedge fund partner or the holder of a copyright in its 50th year. Krugman’s parable of the farmer society and the gold nugget discovery society is relevant.

mulp May 23, 2014 at 11:20 am

The capitalist farmer vs the pillage and plundering gold rush miner (or Wall Street asset churner).

bryan willman May 23, 2014 at 10:50 am

i think there is too much emphasis on the “cause” and not enough on what we might call anti-success or potential destroying factors

that is, it is not that graduating from high school makes you more successful, it is that failing to get a HS degree, indeed, a mainline HS degree rather than a GED, marks one as a kind of failure.

and thus, being a college grad may no longer mean much, but failure to have a college degree will often exclude one from many opportunities

it is a lot like smoking – it is not that abstaining from smoking makes you live longer, it is very much that smoking makes you live shorter.

chuck martel May 23, 2014 at 11:01 am

Nowhere in this thread appear the two words, satisfaction and happiness. It’s assumed without argument that a normal person is willing to devote his life to increasing his wealth. Not everybody thinks that way. Many intelligent people like to spend their time in the outdoors and are willing to accept low-paying jobs to do so. To a percentage of society, waking up each morning with a smile on their face is more important than their adjusted gross income. The idea that each and every human wants to put forth the effort to maximize their income and wealth, and, in fact should do so, is a sad remnant of the Massachusetts Bay Colony Puritan thought process that has corrupted this culture for over 500 years.

Krong May 23, 2014 at 11:22 am

Good point

As we keep raising the bar it becomes more attractive to drop out.

chuck martel May 23, 2014 at 1:18 pm

They probably didn’t drop out, they declined to enter the rat race from the start. So the real arguments about income inequality come from academics that need to have subjects for publication and losers, or at least non-winners, in the competition for wealth. Millions of others might have an opinion about the subject but it’s mostly whining about how unfair it all is. Rather than putting the nose to the grindstone, they’ll go along with the academics that recommend confiscation and redistribution. And why not, as long as they don’t actually have do anything?

Logan Circle Dreaming May 23, 2014 at 3:27 pm

I look at at managing director on Wall Street with with pity, not envy. Why begrudge them their wealth? They work like dogs, into their 60s — golden handcuffs and all that.

It is easier now than at any time in history to live well by doing little — provided you are smart with your spending, a little over a decade at work in a standard accounting/engineering type job can set you up for life.

mulp May 23, 2014 at 11:15 am

Yet another study that argues that pay defines value in a rational way.

In an economy that works, every job is needed. But the logic today is that cleaning up the waste of the top 50 percent is an undesirable job left to the lower caste who are born to be lower caste trash sorters, poop scoopers, body handlers.

I bet no one here arguing that the low pay is deserved by those who get it because they are low IQ would be willing to do those low wage jobs.

But on the other hand, they will be very angry when they need those low wage jobs done well, whether going to the john and finding shit and vomit everywhere, finding themselves disabled in nursing care, their child injured on the school bus trip, or strolling a resort beach with family and a loved one stepping on a broken bottle from the good time the guests had partying the night before.

My question is whether those claiming the low pay because of low IQ will carry through to the logical next step of calling for euthanizing all the worthless people who are dragging down the economy without contributing anything at all. Obviously the unemployed, disabled, poor are totally dragging down the economy sucking money out of the economy never to be seen again, so euthanizing them will result in higher GDP – eliminating the bottom 50% of the population would be a big boost to economic growth, according to all the analysis I see.

Nathan W May 23, 2014 at 12:21 pm

Most of us will never have a clue about anything of the living of the top 1%. (Fairness considerations aside, others simply couldn’t care less about the 8th bathroom or second Mediterranean yacht …)

But the bottom 10-20% sure has heck know that the middle 60-70% has loads of things they can hardly aspire to, in particular when new jobs actually worth having are only in a handful of industries which require personal connections or for which a decade of specialized training is required.

No car, a shitty apartment, can’t afford organized sports or music activities for the kids, etc. Yeah, I bet that pisses off some people, especially when the government offers tax deductions for things they can’t afford in the first place (in Canada, we now have tax deductions for activities for rich kids while we close community centres and/or jack up fees).

bryan willman May 23, 2014 at 12:43 pm

the tax story is perverse – why should Jo Renter be subsidizing my mortgage?

Nathan W May 24, 2014 at 12:42 pm

I 100% agree.

Finch May 23, 2014 at 4:09 pm

> Fairness considerations aside, others simply couldn’t care less about the 8th bathroom or second Mediterranean yacht …

I think you have a mistaken impression about how the 1% lives. For the vast majority of the 1%, we’re talking nice house in nice neighborhood and a new Land Rover. Not yachts and mansions. $400k/year doesn’t buy that in the cities where people make $400k/year.

Nathan W May 24, 2014 at 12:46 pm

Fair enough – the subsidies for your mortgage payments on the mortgage many will never qualify for, and the tax deductions on children’s activities many will never be able to afford in the first place, will frustrate many people, whether observing the middle 60-70% or the top 1%, where such deductions are even more misplaced.

Finch May 27, 2014 at 9:43 am

This is too late for anybody to see, but all expenses associated with children should be deductible. As that seems like a difficult record-keeping task, I’d suggest just expanding the child tax credit to $30k (from $1k), but making it non-refundable. That would produce a tax code that was child-neutral, instead of one that heavily penalizes having children.

Robert May 23, 2014 at 12:51 pm

The unproductive people in the “99%” believe that it’s a zero sum game.

“had they realized the amount of income that shifted during that time to the top 1%”

No income “shifted.” They just became less productive. I’m glad someone here is pointing out that the 99% needs to learn how to take care of themselves and stop attacking the people who are productive members of society.

JonFraz May 24, 2014 at 10:16 pm

I hope your comment is snark. If not it represents a fatuous and blind arrogance that would embarrass Nero.

Nigel May 23, 2014 at 10:21 pm

Me: Why did you specify ” must have Ph.D. in hand” for this position that obviously doesn’t need a Ph.D.?
Recruiter: To limit the number of people who would apply because we can’t interview a thousand people.

His assumption was that the three people with Ph.Ds who wanted (or needed) that gig were representative of the 1,000 who didn’t have Ph.Ds and would otherwise apply, with respect to the actually needed job skills, was probably correct.

I guess credential requirements serve that function in many other cases as well.

Bryan Willman May 27, 2014 at 7:20 pm

No question – I’ve been there done that (sadly.) Why require “BS in Comp Sci or equivalent” ??? Because it lets you weed out the insane numbers of people who (a) think it would be cool to work with you and (b) don’t have ANY of the relevent skills and likely can’t acquire them in the next 10 years. Not only cannot interview 1000 people, cannot afford to interview 1000 people who have no hope of doing the job.

This is also part of why firms do things like exclude people with misdemeanor convictions for say MJ possession 10 or 20 years ago – it filters lots of people out, and the pool that’s left always contains adequate candidates. (One strong reason to fully legalize MJ – it removes a pointless filter that blights people’s lives.)

John B. May 24, 2014 at 11:52 am

I do not feel angry, I do not feel anything at all. They are rich and get richer, yet they only contribute to the destruction of this planet and its ecosystem. Friedman said “Greed is Good”, and died in 2006 before he had to deal with the consequences of the very same greed. We are at least trying to fight the consequences by volunteering in Daily Bread Bank among others. Middle and lower classes have to deal with the consequences. Student debt, mortgage, neverending slavery, depressions, suicides, everything at once.

TallDave May 25, 2014 at 12:09 am

I enjoy the comments from 1863, but I don’t understand how they get on to Tyler’s blog.

TallDave May 25, 2014 at 12:08 am

something of riposte to French economist Thomas Piketty

Hmmm. I’m not a fencing terminology expert, but I’m pretty sure a riposte is not the proper response to a faceplant.

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