« Why Anti-Cassandras Get the Media Attention | Main | Education isn't mainly about signalling »
"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.
Posted by Tyler Cowen on March 26, 2008 at 06:51 AM in Economics | Permalink
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?
Posted by: john pertz at Mar 26, 2008 8:21:46 AM
Dysfunctional families and bad education are connected in a fundamental way: if there are too many dysfunctional kids in a class, it is much more difficult to maintain control and teach anything.
Maintenance/repair costs are higher. There's more need for more expensive remedial education, which further drains resources. And teachers are economic beings, too -- they'd rather be making the same/more money with an easier/ more rewarding workload in a more upscale school.
Posted by: zbicyclist at Mar 26, 2008 9:14:42 AM
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.
Posted by: Mo at Mar 26, 2008 9:34:34 AM
Mo is right. And I can possibly agree that Trade and Technological change can be dismissed as the cause of income stagnation, but I wouldn't lump unions in. Unions have likely been crucial in increasing the value of less skilled labor just like the country club, the ivy league, the boardroom, and such have likely been crucial in increasing the value of our overlords. In pure economic terms these increases in value may or may not be artificial but on the bottom end they undoubtedly helped combat inequality. I don't think one should underestimate the value of controlling the levers of government or bringing a strong presence to the negotiating table and the decline of unions decreases both of these factors.
Posted by: KJ at Mar 26, 2008 10:35:21 AM
"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.
Posted by: eccdogg at Mar 26, 2008 11:00:23 AM
I would hope that a young Korean-American would be more worried about his unique skills and experience than his "race" -- or whatever lame classification some statistician is trying to fit him into. The micro variance in such macro measures is way more important.
Posted by: David Zetland at Mar 26, 2008 11:12:09 AM
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.
Posted by: massrepublican at Mar 26, 2008 11:14:25 AM
eccdogg,
Yes, but the 79 vs. 97 had the exact same trend. Despite this, the report says that the people in 97 are more skilled and prepared for a job that overwhelms the higher divorce and single parent rate. My guess is the difference between 79 and 59 would be about the same.
Posted by: Mo at Mar 26, 2008 11:15:09 AM
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.
Posted by: dearieme at Mar 26, 2008 1:03:06 PM
Mo,
My guess is that the value of education now is higher than it was in times past, so the poorly educated are now facing stagnant wages where they may have previously been able to advance without it.
Posted by: JasonL at Mar 26, 2008 2:44:00 PM
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.
Posted by: Paul J. Reber at Mar 26, 2008 2:48:54 PM
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.
Posted by: Steve Sailer at Mar 26, 2008 3:51:08 PM
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.
Posted by: Steve Sailer at Mar 26, 2008 3:52:08 PM
I would really like to see a test of the hypothesis that if you:
o graduate from high school
o don't get arrested
o don't have kids until you're married
o aren't disabled
You're not in the bottom quintile after you're 25.
Posted by: Larry at Mar 26, 2008 4:46:11 PM
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.
Posted by: spencer at Mar 26, 2008 4:56:33 PM
Spencer
More than half the children born in Scandinavian countries are born outside wedlock and these countries have lower relative poverty and higher social mobility than the US. Policy makes a difference.
Posted by: disinterested observer at Mar 26, 2008 5:50:20 PM
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.
Posted by: Mr. Econotarian at Mar 26, 2008 7:35:23 PM
"More than half the children born in Scandinavian countries are born outside wedlock and these countries have lower relative poverty and higher social mobility than the US. Policy makes a difference."
But isn't that a very different form of out of wedlock birth than what we are talking about in the US?
From what I know about Scandinavian marriage trends (little), my impression is that many of these are cohabitating parents who have children in their late 20's early 30's. Many of these folks are not married only in the legal sense. There are still two parents taking an active role in raising the children.
That is quite different from a teenage mother who see's her childs father only occasionally.
Posted by: eccdoggat at Mar 27, 2008 9:57:27 AM
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.
Posted by: Suzanne at Mar 27, 2008 10:02:14 AM
I would hope that a young Korean-American would be more worried about his unique skills and experience than his "race" -- or whatever lame classification some statistician is trying to fit him into. The micro variance in such macro measures is way more important.
I think the point of the analogy was that you can be poor and underprivileged and still have take advantage of opportunities to move up the SES chain. I think the shift is usually generational, with the first generation arriving poor, no property at all, possibly unable to speak or read English, and working up to a lower-middle to middle-class SES. Then the children have a shot at going to Harvard and becoming ibankers or whatever. I think we saw this pretty clearly with the Vietnamese refugees who arrived after North Vietnam conquered the South. Poverty itself (or absence of structural features like unions, etc.) does not appear to be the most important cause of enduring poverty, generation after generation. Indeed, the experience of the Vietnamese offers us an example with considerable racism thrown into the mix too.
You state that micro variance is more important that macro measures -- true. After all, a stupid Korean isn't going to succeed just because he's Korean. But to the extent there is a narrative about structural features of the economy conspiring to keep poor people poor generation after generation (e.g. weakened unions, technological change, usw.), the fact that during the very period these changes are supposed to have taken place, we have seen particular ethnic groups enter the United States and make the move from poverty to wealth smoothly suggests that such a narrative is incomplete. It emphasises, that is, that micro differences, like individual attributes enabling him to acquire the necessary skills and experience, really do matter. Those individual attributes may be, in part, a product of individual culture, and hence be correlated with race (particularly for fairly recent immigrant groups, like Koreans or Vietnamese). Or they may not. But either way, it points us in the direction we ought to be looking.
Posted by: Taeyoung at Mar 27, 2008 11:09:25 AM
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.
Posted by: econ2econ at Mar 27, 2008 5:42:39 PM
I don't know if that is the case. I really don't think the US is trending toward the european model except maybe in the upper income groups of a few big cities. (LA New York)
Most middle/upper income people in the US get married before they have children and are more likely to stay married.
See this article from the Economist
http://www.economist.com/world/na/PrinterFriendly.cfm?story_id=9218127
"There is a widening gulf between how the best- and least-educated Americans approach marriage and child-rearing. Among the elite (excluding film stars), the nuclear family is holding up quite well. Only 4% of the children of mothers with college degrees are born out of wedlock. And the divorce rate among college-educated women has plummeted. Of those who first tied the knot between 1975 and 1979, 29% were divorced within ten years. Among those who first married between 1990 and 1994, only 16.5% were."
Both my parents and both my siblings are teachers in a middle-low income area. Many of the problem children they see are directly related to the colapse of the family at the lower end of the economic spectrum.
Posted by: eccdogg at Mar 28, 2008 10:07:21 AM
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%. "
Posted by: eccdogg at Mar 28, 2008 10:09:01 AM
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.
Your insensitivity and ignorance is staggering, Suzanne. Kids in poor communities frequently grow up without good parents, in danger, with inadequate nutrition and certainly without the reinforcement of the value of education. And they grow up to be the kind of people that provide kids with that kind of upbringing. Sure, any given person can find a way out of that mess with a reasonable level of talent, but if a person is taught to fail that is what they'll do most of the time.
What I think is important is to try and figure out the best way to break this cycle, if it can be broken. Does increasing the absolute wealth level of the lowest quintile help? Does progressive funding of their early education matter? Do we need more federally funded prenatal and early child healthcare? Or would just ending the war on drugs do the trick? Maybe a reformation of the legal and punitive systems would have a big impact. It's tough to say, but this is certainly not the land of opportunity for those folks.
Posted by: mpowell at Mar 28, 2008 4:13:33 PM
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.
Posted by: Bob Calder at Mar 29, 2008 5:57:38 PM
Like it or not, the social mobility today is larger in Europe (especially Scandinavia) than in the USA.
The problem is not the ability or desire to work hard, but the very uneven starting points.
In Denmark we have for a long time had the idea, that a stable society builds on real equality in some fundamental terms.
1. A relatively high minimum salary. In Denmark it is 103DKR equaling about 20 USD an hour. in spite of that our unemployment rate today is 2.7% and our overall employment rate is 5-6% higher than the USA.
2. Free health care.
3. Free education, and subsidies for the students (today about 800 USD a month)
4. A good living place. About 1/4 of danish dwellings are self-owned foundations, originally build and financed with low interest loans guaranteed by the state but otherwise self-financing. As no profit needs to be made, the dwellings are rather fair in rent. Low income peoples get rent support.
4.Guaranteed child care to an affordable price for all. Support for low income families (single parents)
5.High unemployment support for 4 years.
6.Life long education.
7.A relative short working week (37 hours) and 6 weeks vacation.
This is the result among other things of good union work dating back to a original agreement from 1899 and a political deal from 1933.
In spite of this we have no public net debt, no foreign debt and quoting the CIA world fact book "Because of high GDP per capita, welfare benefits, a low Gini index, and political stability, the Danish people enjoy living standards topped by no other nation."
So it is a political/economic problem requiring political/economic solutions.
The rich has to share with the others.
By the way. Our imprisonment rate is less than 1/10 of the US imprisontment rate.
maybe there is a slight connection.
Mogens
Posted by: Mogens at Mar 30, 2008 4:22:49 AM
