Income Inequality in America

Tyler Cowen has a good article in today's NYT on the causes of income inequality in America.

The most commonly cited culprits for the income inequality in America — outsourcing, immigration and the gains of the super-rich — are diversions from the main issue. Instead, the problem is largely one of (a lack of) education.

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College graduates have been gaining relative to high school graduates...

Starting about 1950, the relative returns for schooling rose, and they skyrocketed after 1980. The reason is supply and demand. For the first time in American history, the current generation is not significantly more educated than its parents. Those in need of skilled labor are bidding for a relatively stagnant supply and so must pay more.

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.

... 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.

Bingo. In America, as in many western countries, K-12 education has been stagnant for the past 50 years. Student performance remains flat. Productivity is decreasing because we spend more and more with nothing to show for it.

Bottlenecks currently keep more individuals from improving their education. Professor Katz has suggested changes at multiple levels, including additional college aid, more-accessible community colleges, easier financial aid forms, more serious attempts to identify and retain top teachers in high schools and school voucher experiments.

The bottleneck is K-12 education. But, there's scant evidence that any of those things are going to improve K-12 education.

Vouchers? Have you seen the state of private schools lately? The private schools that do well mostly do well because they are loaded with easily educable kids, not because they employ superior instruction. I visited my son's CCD class at our local parochial school last Sunday and there I saw the same rotten reading and math programs that our local public school uses.

It doesn’t suffice simply to increase the number of people in college; rather the new students must be prepared to learn. There is, however, no single magic bullet.

There isn't a magic bullet for most of the problems we face today, so I'm not sure why Tyler is looking for one in education. The "solution" will be found in the same places it is found in other areas -- through lots of hard work by skilled people.

Pessimists like Charles Murray, co-author of the much-debated 1994 book “The Bell Curve,” have argued that only so many individuals are educable at a high level. If that were the case, current levels of inequality might be here to stay.

Unfortunately, the evidence seems to be on Murray's side (though I've disagreed with him on many of his recent policy forays). Even with a far superior K-8 education, there is little evidence to suggest that you can prepare the bottom 2/3 of the curve for a rigorous college education in a competitive major that employers are looking for. Sure, you can cherry pick the smarter ones at the margins who are currently being underserved. And, you can pull many of these kids out of illiteracy and innumeracy, but there is a long way between being literate and numerate and being prepared for college level work.

Primarily, the problem remains language acquisition. Language skills are especially difficult to acquire for low performers who (a) lack the cognitive ability to learn language quickly and (b) typically, do not grow up in language rich households. Most of the advanced vocabulary students will need to succeed in college will only come from reading lots of difficult books-- the kind of books that don't get assigned much anymore.

We could be doing a lot better with K-12 education today and improving the lot of many underserved students. Many average students would benefit immensely from a decent high school education instead of the watered-down babysitting that they get today. many lower performing students would benefit immensely if they learned to read and do basic at an eighth grade level. But you're never going to get equality of college education for the same reason you don't see midgets playing in the NBA.