Wednesday, February 27, 2008

US inequality


I was lecturing about inequality in my development economics class yesterday. But it is also worth thinking about changes in inequality in the United States. Over at Dani Rodrik’s blog he uses data from Frank Levy to create the graph that goes along with this post.

What does the graph tell us? If you do not have a high school degree you earn less in real terms then you did 25 years ago (high school wages are the blue line). If you have a college degree you earn about 20% (pink line) more and 50% more if you have a graduate degree (green line) than 25 years ago. This also shows the gap between college educated and non-college educated is growing.

Given this data what would be good policy responses for those with no college degree? Getting more people to go to college would seem to be a good policy solution. This is happening as college attendance is increasing: 30% of adults aged 25-39 had completed college in 2007 compared to 22% in 1980.

Still this means that 70% of the country that did not go to college* has not seen an increase in wages from the economic growth of the last 25 years.


* See my father's note in the comments, Rodrik does not include some college, so my 70% figure is not quite right.

2 comments:

rjgitter said...

Just a slight thought on the data. You state

"This is happening as college attendance is increasing: 30% of adults aged 25-39 had completed college in 2007 compared to 22% in 1980.

"Still this means that 70% of the country that did not go to college has not seen an increase in wages from the economic growth of the last 25 years."

Comparing high school graduates to four year college graduates is not quite the same as saying 70 % did not go to high school. For 35-44 year old males, the share that received a two year associates was about nine percent and the share that attended post-secondary education that received no degree was about 15 percent. So, of the the 70 % that were not college grads, about a third (15 % + 9 %) had some college. Rodrick does not provide data for them.

Be that as it may, there is still a problem of growing inequality.

Dan said...

Seems to me there's a lot of "yes, buts" here. Without seeing the source data it's hard to know, but usually these figures do not include non-cash benefits such as health care, income from transfer schemes (most notable child tax credits and EITC), income from the informal economy (Venkatesh's characters come to mind), etc.

Additionally, these are median not mean figures, so it's entirely possible that there's a powerful explanatory variable within the high school-only group which would show an increases in median wages for at least one significant subset of the group (for instance, people with skilled trade certifications). And these are weekly, not hourly wages; it's entirely possible that the indifference curves for work and leisure between these groups are very different (which could at least in some part, though I would guess the explanatory power of the variable would be quite low, explain why people chose to invest in education versus not.)

Also, it does not follow that 70% of the country has not seen an increase in wages. It only follows that the median working man age 35 to 44 years old (see header) has not seen an increase in gross, formal, cash, weekly (not per-hour) earnings in that period.

And finally, I am always curious when economists describe inequality as a "problem." This strikes me as a normative and not positive assertion. Stagnant wages, or decreasing average labor productivity, or an increase in risk might be problems, but this is not the same as inequality. Pareto improvements can be highly unequal, but that does not make them problematic per se. It may be that inequality leads to social ills and there is a utility maximizing case for tax-and-transfer policies to decrease it. But this is not apparent on its face, and let's not forget that buckets tend to be very leaky.

Okay, that's enough goading economists for one morning.