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Education as the critical problem behind current inequality
Here is an excerpt from my New York Times column today:
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.
Professors Goldin and Katz portray a kind of race. 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.
Bottlenecks currently keep more individuals from improving their education...
Note that education is a fundamental issue behind the kinds of inequality we should worry about most, namely the failure of many poor people to do better over time. It is not the fundamental problem behind every kind of measured inequality, as the column itself explains. It does not, for instance, explain rising gains to the top one percent. Inequality debates too often conflate different phenomena.
Here is a non-gated version of the very interesting Goldin-Katz paper which I cover.
In a dynamic era does educational access have much of a chance of keeping up with technological improvement? Even if we had optimal educational policies, which of course we don't, modern technology goes "whoosh," education often just pokeys along.
Brad DeLong offers related commentary, though I think he is too quick to accuse Becker and Murphy of confusing the Marshallian scissors. Mark Thoma offers commentary and relevant links. Concerning Krugman's claims, in general the data (see David Card's Econometrica 2001 piece, plus the work of James Heckman) still find relatively high returns to additional education.
Posted by Tyler Cowen on May 17, 2007 at 12:57 AM in Economics | Permalink
Comments
sigh... IQ. IQ. IQ. Why do companies flock to get Harvard grads with useless degrees in gender studies or whatever? Because only really high-IQ people GET into Harvard. What college you get into is used by companies as an indicator of what they are really after - IQ.
Posted by: adrian at May 17, 2007 1:53:20 AM
Excellent column.
I am optimistic about the possibilities of improving primary and especially secondary school (K12) education. But I strongly suspect current institutional arrangements cannot deliver this.
Furthermore, nobody knows what changes are required. So, what is needed is a period of educational experiment, competition and evolution of the forms of primary and secondary education - and this reform should be driven by parental choice (probably by something like a voucher system).
Future schools should increasingly be private, competing for pupils, funded by the fees (and vouchers) of their pupils and state intervention should be restricted to subsidies for the poorest and perhaps to areas of national need (eg promoting math by bursaries to study it, or by cash rewards for exam success).
And we shall see what range of educational forms emerges from the process.
Will it happen? Yes - but maybe not soon. The opposing interest groups (educational administrators and teachers unions) will need to be overcome; however this may be made easier as the chronic and intractable failure of current K12 systems erodes their self confidence.
Posted by: Bruce G Charlton at May 17, 2007 2:11:00 AM
"still find relatively high returns to additional education."
Most people who continue on are studying things like medicine or law, so duh. An couple extra years of gender studies? Not a great additional return methinks.
Posted by: adrian at May 17, 2007 2:16:54 AM
sigh... IQ. IQ. IQ. Why do companies flock to get Harvard grads with useless degrees in gender studies or whatever? Because only really high-IQ people GET into Harvard. What college you get into is used by companies as an indicator of what they are really after - IQ.
Yes, IQ. You're a smart guy, do yourself a favor and stop ignoring it, Tyler.
What matters in a society, in any society, is a healthy mean IQ. I've noticed a tendency on this blog by some people to assume that if IQ matters at all then it is strictly the presence of a reasonable percentage of high IQ individuals that is important. This is all wrong. If all the Ashkenazic Jews in America were to immigrate to Ethiopia, then Ethiopia might have more high IQ people than Germany. Yet Germany, which has few Jews these days, will still be a First World country while Ethiopia will remain, on the whole, a Third World country. A country that wants to succeed must maintain a sufficient mean IQ.
Posted by: tommy at May 17, 2007 2:43:24 AM
I am optimistic about the possibilities of improving primary and especially secondary school (K12) education.
If the phrase "irrational exuberance" ever made it into a dictionary, I might have to nominate this as the definition.
Posted by: tommy at May 17, 2007 2:47:50 AM
"In a dynamic era does educational access have much of a chance of keeping up with technological improvement?"
Not whether it can, but rather **how it can** because it absolutely must!
IMHO Elitist gatekeepers like Harvard or Stanford or UC Berkeley or U of Mich are essential drivers of excellence, but:
1. Supply has not expanded proportionally with the demand of qualified applicants, too many 4.0 high school graduates cannot get into their idealized university, so it admissions becomes a lottery (or at least the criteria are not predictable in advance).
2. Coverage in courses and research is not expanding to keep up with knowledge.
For example, whole large parts of the world are neglected. I gave up ages ago looking for a place to do PhD work in Burmese history.
Unless the instructor was a geek, the IT instructors at a foreign university I taught at were clueless about open source software (probably what this blog runs off of, either OS or applications software). This leads to clueless decisions down the line when students graduate and get jobs in IT, whereas if students were actively participating in these projects, they would be doing apprenticeships during their coursework.
3. Skill set diversification with a eye towards what you would do if your whole sector of the economy was laid off, like combining carpentry with computer programming, i.e. cross-training.
4. Never-ending education, education should account for a fraction of the work day, continual technological upgrade.
5. It doesn't have to be like it is, because near costless self-education via the internet is quickly becoming much more of a reality, everywhere in the world.
Posted by: jonfernquest at May 17, 2007 3:21:45 AM
"Bottlenecks currently keep more individuals from improving their education..."
Gee, do you think that the cost of higher education might be one of those bottlenecks? Recent graduates from middle income homes are under a mountain of debt many will never pay for, particularly if their expertise isn't something immediately in high demand. This makes college a bad purchase for them. Bankruptcies are way up, even among highly educated people, while there are legions of people with advanced degrees who have been greatly underemployed or out of work for a long, long time.
In fact, the government projections for areas of job growth have typically been in direct personal services like nursing and cosmetology, not fields requiring higher education which is becoming just another privilege of the rich. Professors Goldin and Katz should take a sabbatical from their ivory towers for a year or two and investigate what's going on in real America where people with multiple masters degrees in engineering are working as waiters.
Blaming the loss of the middle class on the lack of education is disingenuous and the supporting statistics miss the point that only wealthy parents can keep their progeny in top colleges and then offer them the networking and support to make use of that education. Most high school grads know they are better off becoming plumbers or sanitation workers than advanced degree liberal arts majors, and while that's a sad commentary on our current state, the simple fact is that we value plumbers more and their jobs can't be outsourced.
Posted by: johnc at May 17, 2007 4:34:56 AM
If IQ is all there is to it, why spend all that money on the degree? Just administer a test which gives you sufficient confidence in applicant IQ and hire away.
Posted by: Tom at May 17, 2007 6:12:24 AM
"Blaming the loss of the middle class on the lack of education is disingenuous and the supporting statistics miss the point that only wealthy parents can keep their progeny in top colleges and then offer them the networking and support to make use of that education."
Johnc: You can't talk about that kind of stuff here, it ain't 'economics.'
Posted by: jake at May 17, 2007 7:25:36 AM
What, not even a passing mention of the signaling theory of education? These private gains to education need not correspond to much net social gain. Tyler knows better, but as with his articles on health care, Tyler clearly expects that his NYT audience would prefer not to hear about such "cynical" considerations.
Posted by: Robin Hanson at May 17, 2007 7:59:25 AM
Robin, the studies cited in my post attempt to control for signaling and estimate the returns to education holding type constant. Their "natural experiments" are pretty good, albeit not perfect. Note, however, that these are marginal returns for people on the cusp of going to college. Signaling still might be more important inframarginally.
Posted by: Tyler Cowen at May 17, 2007 8:11:05 AM
Education is all well and good (please note that I did not say schooling), but most people do not have basic creativity or problem solving skills/abilities that are required to fully utilize that knowledge. Combine that with a cultural sense of entitlement and lack of motivation and we have a recipe for disaster.
The sophists will tell you that the main benefit of the college education is that it demonstrates learning abilities and motivation. Where as I see a group of people's whose approach to life and knowledge is voyeuristic and shallow; and whose approach to problem solving is to throw money at it.
I have absolutely nothing against scholarship, there are decided benefits to people who wish to dedicate their lives to it. Today the model is so abused and stretched that it has lost its value. Most people who go to a university today would be much better suited with vocational training in many fields that involved reinforcing algebra and trig.
Just my self-righteous pontifications, dismiss at your leisure.
Posted by: Jacob at May 17, 2007 8:31:55 AM
The real issue is to do with parenting. Without strong family support, kids are much less likely to get a good education.
Posted by: Chris at May 17, 2007 8:35:25 AM
"modern technology goes "whoosh," education often just pokeys along."
Yeah, but the rate at which education can change is not fixed and we should try to speed it up.
How will we know how fast schools can change till we try a free market? Sweeden doesn't count as an example.
Posted by: stuart at May 17, 2007 8:38:10 AM
"In a dynamic era does educational access have much of a chance of keeping up with technological improvement? Even if we had optimal educational policies, which of course we don't, modern technology goes "whoosh," education often just pokeys along."
This observation brought to mind Carlota Perez's great insights into the long term workings of the economy and in particular the dislocation between technology and institutions during the "installation" phase of a new technological paradigm:
"Suddenly, in relation to the new technologies, the old habits and regulations become obstacles, the old services and infrastructures are found wanting, the old organizations and institutions are inadequate. A new context must be created; a new 'common sense' must emerge and propagate." (from Technological Revolutions and Financial Capital)
Surely this exactly the situation the world finds itself in with respect to education - the existing educational paradigm is mal-adapted for the current (and future) technological paradigms but by virtue of the enormous inertia endemic to most social institutions. The alternatives (at least by historical standards) seem to be wait decades for the institutions to adapt or undergo a more violent, sudden, almost revolutionary shift which would be a likely result of pressure in 'the system' rising to a critical point (ie if the sub-optimal outcomes generated by the system became entirely untenable.
Posted by: Sean at May 17, 2007 8:41:13 AM
Electricians; plumbers: those guys can write their own ticket. Plus, they're useful.
Education? pffooey!
Posted by: ricpic at May 17, 2007 9:13:35 AM
@ricpic
Only if their good. As more and more (competent) people abandon the trades, the value of a good tradesman will rise. But again we are back at basic math skills that are sorely lacking. Why is an odd question.
What I noticed in my educational adventure in the land of mediocrity is that there was no expectation of knowledge retention. Students in Precalc had no idea what an exponent was even though they had been learning it every year since the 4th grade. I have come to the conclusion that our grading system is the primary point of failure. The unfortunate reality is we expect students and teachers to generate grades NOT to engage in learning. Reform grading practices, enforce an expectation of retention, and hopefully return relevancy to the quantification process.
Again feel free to dismiss at your leisure.
Posted by: Jacob at May 17, 2007 9:29:30 AM
Tom
"If IQ is all there is to it, why spend all that money on the degree? Just administer a test which gives you sufficient confidence in applicant IQ and hire away."
The Supreme Court's 1971 Griggs v. Duke Power decision made it difficult for companies to assess the general intelligent of job applicants. Some companies, like Google and Microsoft, rigorously test for g in their interviews, but it's not a blatant IQ test so they get away with it. Only the military uses IQ tests to decide everything: politically correct lies about IQ cost too much when war is concerned, as the cost of those lies is dead soldiers.
Tommy
"What matters in a society, in any society, is a healthy mean IQ."
Yes, LaGriffe's Smart Fraction Theory explains this. High IQ people are important, but they can't do EVERYTHING. So you need a stable number of reasonably capable individuals: store managers, detectives etc, to keep a society ticking along.
LaGriffe pretty much sums up the universe here:
"In a developed country like Belgium with an average IQ of 100, thirty-four percent of the general population makes up its smart fraction. Morocco, in contrast, has an average IQ of 85. Less than eight percent of its people are capable of doing smart-fraction jobs, a fact made plain by its dreary third-world economy. But if you think that's bad, black Africa is utterly hopeless with less than two percent qualifying for smart-fraction jobs. The demise of colonialism sealed its economic doom."
Posted by: adrian at May 17, 2007 10:11:13 AM
Re Griggs and Duke Power
College fees began their inexorable rise right after this decision. Companies no longer used IQ tests, so they began using SAT's, what college you got into etc as a gauge of your g. Of course ordinary Americans quickly concluded that the relationship thus went from education to high income, when it the causation remained IQ-income. Hence the deluded clamor to get into college, and the willingness to pay large sums of money in the process, leading, in turn, to the endless rise in college fees. It's all a con.
Posted by: adrian at May 17, 2007 10:21:02 AM
"Smart fraction theory" is obviously counterfactual. A smaller "smart fraction" in third world countries implies that smart people are more productive at the margin, after controlling for purchasing power. The fact that we don't observe a huge brain drain from Belgium to Morocco or black Africa suggests that institutional factors are more important.
Posted by: guest at May 17, 2007 10:46:31 AM
Johnc,
You said "Professors Goldin and Katz should take a sabbatical from their ivory towers for a year or two and investigate what's going on in real America where people with multiple masters degrees in engineering are working as waiters."
I will venture that said engineer is either:
A) a lucky thimble-wit,
-
B) so dysfunctional in a social context as to be disruptive to a team doing high-complexity work,
-or-
C) so inflexible as to expect to work in precisely the fields he's got his masters in
Hint: My undergrad was in physics, but I've never worked in a particle physics lab and yet manage to find interesting, well-paying work that utilizes many of the skills I picked up in the course of said undergrad. My difficulty in finding similar folks come hiring time tells me they're either in short supply or aren't looking in the right places for work.
Note that I'm not saying our hypothetical engineer will be making precisely the same money he did in his original field on day one. Starting on another path implies a learning curve and therefore a lower salary. That said, it'd still beat hustling for tips at a greasy-spoon.....
Posted by: Bernard Guerrero at May 17, 2007 11:08:19 AM
I liked the article, but I find the reference to the racist propaganda book "The Bell Curve" a big turn off to anybody reading your article. To even reference it gives it credibility it does not deserve. Judging from the previous posting you have opened to door to anybody with a racist agenda. Which I'm sure was not the intend of your article.
Posted by: Terry Leach at May 17, 2007 11:33:56 AM
Racist in favor of who? Asians?
Posted by: adrian at May 17, 2007 11:41:46 AM
Racist in favor of Asians and Jews? Interesting.
Posted by: adrian at May 17, 2007 12:00:01 PM
What fun. I spent 12 hours researching income inequality yesterday.
Anyway:
1. The Bell Curve asserts that as the number of people in college went up, so did the IQ. That means more inequality, since IQ and education both raise wages.
2. Correlation of wages between husband and wife generates household inequality. If correlation has gone up (IE, more college students pairing off and less marrying with non-college grads), then so does inequality. Very significant in ensuring that their children have a good educational experience.
3. Family stability: Half of poor households are headed by a female (I assume single moms being the vast majority). High earning households are much more likely to be stable families.
4. Like you said, this doesn't speak much for the Top 1%. I'm very concerned about that as well, particularly since you imply that we shouldn't care about it.
Posted by: Robert at May 17, 2007 12:31:09 PM
