“It’s not the economy, stupid”

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.

Comments

You mean we can not scape goat Sergey Brin and NAFTA for the struggles of the poor and working poor in this country. I think that quite a few people will have something to say about this post. Who would think that educational outcomes would have any bearing on income distribution?

So what? There have always been dysfunctional families and subcultures in the US. However, lower growth in the bottom quintile is a relatively recent phenomenon. So the question is, what differences were there for NLSY79 and say the NLSY59 that led to these outcomes. You will probably find the same sort of differences as exist between the NLSY79 and NLSY97, but the NLSY79 bottom quintile stagnating more than the NLSY59. This is because most future generations are more skilled than the ones that preceded them. Comparing kids from 97 to 79 tells us nothing about what happened to the kids of 79. We need to compare the kids of 79 with a group whose final outcomes we know, those of the 50s.

"So what? There have always been dysfunctional families and subcultures in the US. However, lower growth in the bottom quintile is a relatively recent phenomenon."

I don't have the data at my my fingertips but it seems to me that the number of divorces and young single mothers is much higher today than it was in the 50's or 70's. So I would say that family disfunction has increasd or at least changed.

Maybe we've become so familiar with the current status quo in terms of family and social realities that we've lost sight of the fact that things were very different, even 40 years ago. Take Daniel patrick Moynihan's 1964 study of the black family. Contrary to our impression today, black families and black communities were quite intact and robust. They're not anymore. Something changed. And it wasn't labor unions.

Unions work by raising the pay of those in the union at the cost of the job prospects of those who are not in. That sounds like at best a zero sum game, less the costs of the union and the non-pay costs it imposes on employers. Weakening unions is a good move for the lower quintile people who want to find a job.

Wouldn't unions/trade tend to affect the next quintile up more than the poorest (maybe the next 2 quintiles)? Union jobs and similar non-union jobs would take you out of the poorest group, I'd think. The working class groups are probably the ones concerned about trade and the personal effect on them of "creative destruction" via globalization. Improvements in unemployment insurance & health insurance are probably going to have the biggest impact for them.

I find it intuitive that the bottom quintile has a very different profile. I don't know how one intervenes to make families less dysfunction (either practically or morally). The leverage point seems to be more obviously the schooling. Progressive taxation aimed at improving the schools for the bottom quintile seems like the obvious approach. I have a hunch that some of the family dysfunction may also be related to medical issues -- poor health and/or possibly lower rates of treatment for mental health issues due to inaccessibility of medical care (on top of any cultural stigma).

Is this really news? DeLong calls it the "Barney Frank bargain" -- increasing trade and globalization of markets balanced by greater intervention to improve education and healthcare (paid for by taxing the former). Still sounds good to me.

James Heckman's 2007 paper found that the high school dropout rate had bottomed out at about 20% around 1969 and since risen to about 25%. The racial gap in dropout rates was constant with blacks and Hispanics who had grown up in America at about twice the dropout rate of whites. The increase in the dropout rate was caused both by shifts in the demographic balance to more people from ethnic groups with high dropout propensities and to worsening dropout rates within each group. Most of the worsening problems were due to males, not females.

In contrast, the college graduation rate continues to increase, especially for females.

One interpretation would be that our culture offers more freedom to people today to succeed or fail, so the rates of both have gone up.

I saw a quote the other day that in 2007 half the children born in the US were born out of wedlock as compared to I think it was 6% in 1960. If this quote is true it clearly holds massive problems for educating and bringing the poor out of poverty.

I would suggest ending the War on Drugs, which is establishing a barrier between cultures of success and lack of success.

The The Pew Center on the States recently found that 1 in 9 African-American men between the ages of 20 and 34 is behind bars.

That can really drop your lifetime earning potential, not only if you are the African-American male in jail, but also if you are the African-American woman who would like to have a child but can't find a man willing to stick with you under the distorted sex ratio.

I've had friends with illegal drug problems - guess what, they obtained their drugs despite the drug war. They were white, and the few that ever entered the criminal process got off easy.

I'd never put someone in jail for someone else's chemical challenge. That any of us who are reasonable enough allow this to continue to occur is a travesty.

I dont think that race should determine social standing although it often does. No matter if you are white, black, chinese, whatever, you have to work for what you want. I for one, am tired of the race card being pulled for every little thing. If you want something bad enough, you'll work for it, no matter what race you are. I also dont feel that the youth of today are not motivated enough. Every thing has been handed to them for most of their life and for the most part they havent had to work hard for what they want. They've gotten used to the idea that if a job doesnt work out for them, they can just rely on the government and go on welfare. Maybe if the government wasnt providing (which is not the role of the government; its to protect not to provide) for everyone who doesnt want to work hard to make a living for themselves, people would have a more motivation to work.

Regarding the rise in out of wedlock births, much of that is due to the US trending towards the European model, with more couples cohabitating rather than getting married, or cohabitating first, then marrying.

Meant to post this as well.

"At the bottom of the education scale, the picture is reversed. Among high-school dropouts, the divorce rate rose from 38% for those who first married in 1975-79 to 46% for those who first married in 1990-94. Among those with a high school diploma but no college, it rose from 35% to 38%. And these figures are only part of the story. Many mothers avoid divorce by never marrying in the first place. The out-of-wedlock birth rate among women who drop out of high school is 15%. Among African-Americans, it is a staggering 67%. "

With regard to the hypothetical Korean kid's prospects, it is easy to see what the education situation is by looking at the OECD testing information from Australia and Canada. Both countries have longitudinal data and their first, second, and native data agrees.

Children of immigrants are about twenty percent behind children of second generation immigrants, who are in turn twenty percent behind long-time residents. This is an over-simplification, but is generally consistent with fact. These are national averages and while you can see it in immigrant populations, you can also see it in native or aboriginal populations in Canada.

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