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Positive feedback in inequality
Here is a very nice summary of some important trends from Arnold Kling. Arnold buried the lede on this one so a hat tip to Tim Kane at Growthology.
I think that perhaps the most important trend of the past thirty years is the increased importance of cognitive skills relative to physical labor. Obviously, this has been going on for more than just the past thirty years, but during the past thirty years we saw an acceleration. This has had a number of consequences:
1. It changed the role of women. Their comparative advantage went from housework to market work.
2. This in turn, as Wolfers and Stevenson have pointed out, changed the nature of marriage. Men and women look for complementarity in consumption rather than in production.
3. This in turn leads to more assortive mating, with achievement-oriented men looking for interesting mates rather than for good maids.
4. This in turn leads to greater inequality across households. It also fosters greater inequality among children. The children of two affluent parents are likely to have much better genetic and environmental endowments than the children of two (likely unmarried) low-income parents.
5. Inequality is exacerbated by globalization and technological change. If your comparative advantage is basic physical labor, you have to compete with machines as well is with workers from the Third World.
The net result is an economy that has improved considerably for people with high cognitive skills, but which has improved only somewhat for people with relatively low cognitive skills.
Posted by Alex Tabarrok on November 1, 2009 at 06:50 AM | Permalink
Comments
I think it's important to especially focus on #4: even if you have the potential for a high comparative advantage in cognitive skills, if your family lacks the capital to develop it, you'll end up with an actual comparative advantage in physical labor and be poor. This is something policymakers can improve with better public education: if a student's education doesn't depend on his family's income, he'll more likely realize his potential (if he has it).
Posted by: Neal at Nov 1, 2009 7:35:32 AM
Cross-posted: a comment I posted to Kling's post.
"Do you have data to support your assortative mating hypothesis?
"When women have the potential to be primary breadwinners, it takes more than dollars to woo us. We aren't just sitting in a lineup waiting for the best financial offer - knowing that ultimately we will be forced to accept an offer of some kind, no matter how distasteful. Sure, we are looking for someone with complementary skills to contribute to a relationship. But if we can earn our own money, we have the option of being lesbians, staying single, or holding out for someone who is good with his hands, or good with kids.
"Also: there is much more to running a household than being a good maid. I find this comment extremely insulting. There's more to running a restaurant than being good at running the dishwasher. Men have always sought cognitive skills in their partners. (Not all men of course. But men who didn't seek them in the past are probably not seeking them today either. I don't see a good reason to assume this would have changed significantly.)
You could be right. But you need data, because you could just as well be wrong."
Posted by: Alison Cummins at Nov 1, 2009 8:34:44 AM
This appears to be more of a US phenomenon. You do not see the same levels of inequality in Europe. We look to be heading towards a two tier society while Europe maintains a larger middle. What does that imply going forward?
Posted by: Ralph at Nov 1, 2009 8:36:03 AM
Quality service skills yield comparatively high-paying jobs in restaurants, nursing, logistics and other fields that require focus, compassion, diligence, but not so much physical labor or high-end cognition. These are local jobs that won't go overseas but are highly valued by wealthy and middle-income customers.
Plus, wage income is far less important than managing expenses and the habit of savings in securing a healthy and prosperous household.
Posted by: Gregory Rehmke at Nov 1, 2009 9:06:10 AM
"people with high cognitive skills": this is all very mealy-mouthed, isn't it?
Posted by: dearieme at Nov 1, 2009 9:12:57 AM
This will be the major political framework for the next few years. You already saw a glimpse of it in the polarizing effect of Sarah Palin. As for Europe, I'm not sure it's that equal. Look at the growing splits in Spain and Belgium, as well as the rioting in Paris.
Posted by: Ted Craig at Nov 1, 2009 9:32:23 AM
you'll end up with an actual comparative advantage in physical labor and be poor.
Oh, you mean like plumbers and electricians and auto mechanics. Those kind of poor people?
Posted by: anon at Nov 1, 2009 9:42:36 AM
I would take issue with this based on my own observations:
"The children of two affluent parents are likely to have much better genetic and environmental endowments than the children of two (likely unmarried) low-income parents."
My observation is that affluent parents also instill in their children affluent tastes. And, unless the affluent parents have an estate they can pass on to their children, often the children just inherit the affluent tastes but not the zeal to work hard.
How many affluent children take science, engineering, and mathematics oriented classes, versus how many affluent childrent take language, literature, environmental or women's studies and top it off with a year abroad?
Posted by: Bill at Nov 1, 2009 10:04:07 AM
Globally, inequality is down over the last thirty years. More here.
Posted by: Robin Hanson at Nov 1, 2009 10:15:57 AM
If global inequality is down, but US inequality is up, perhaps we should be looking at how other countries grow their middle class.
Posted by: Bill at Nov 1, 2009 10:23:49 AM
"The children of two affluent parents are likely to have much better genetic and environmental endowments than the children of two (likely unmarried) low-income parents."
Note to self: time to watch the movie "Idiocracy" again.
Posted by: RJ at Nov 1, 2009 10:31:35 AM
(1) Except women still do the overwhelming majority of the housework, in addition to working, yes?
(4) More like "the child" of affluent parents will have better endowments than "the children" of low-income parents- both per person and in sum.
(5) Well, yeah, unless your physical labor is localized (as some have mentioned). Then all you have to worry about is immigration.
And global inequality is down because of development (i.e. China and India growing at ~7% per year). That part about physical labor competing with workers from the Third World decreases global inequality but it makes sense that it would increase inequality in the US.
What does the inequality evolution picture look like in other developed countries? I can imagine that #4 is stronger in the US than elsewhere. Maybe #5 as well because we have a more open economy and it is easier to fire people.
Posted by: Matt at Nov 1, 2009 10:56:19 AM
"Oh, you mean like plumbers and electricians and auto mechanics. Those kind of poor people? "
Anon, if you think that plumbers, electricians, and auto mechanics don't have cognitive skills, especially today, you're mistaken. Perhaps you're confusing the signaling of formal schooling with the cognitive skills it purports to measure?
"If global inequality is down, but US inequality is up, perhaps we should be looking at how other countries grow their middle class."
Global inequality is down because other countries are achieving the standard of living previously only seen in the First World. Their poor were far worse off than the poor in the US and other rich countries; plenty of people with lower skills were able to be much better off simply because they were lucky enough to be born in the US or Europe.
Global inequality is decreasing because poor people in other countries are coming up to the level of poor people in the US. Rich people in other countries were always at similar levels to rich people in the US. (Sometimes with fewer capital goods, but with more labor-reliant things like servant labor and as many positional goods.) That says very little about how we can make our poor like our rich.
Posted by: John Thacker at Nov 1, 2009 12:18:35 PM
Actually, what I would like to see are statistics on generational social mobility: if you are middle class, the probability your children will be middle class or above, over time. Similarly, if you are lower class, the probability your children will achieve middle class status, over time. I would also like to see statistics on comparative mobility as well as the income spread between middle and lower class.
The initial post posits that children of affluent parents will themselves be affluent or achieve or maintain middle class status. It did not offer any statistics on this, however, nor did it offer statistics on mobility (or stability) between generations and over time.
My observation is that the children of affluent parents are selecting career paths that are not as likely to see them achieve the affluence of their parents. This is only observational, it could be wrong, but I would like to see some statistics other than observations on affluent mating habits.
Posted by: Bill at Nov 1, 2009 12:40:29 PM
"If global inequality is down, but US inequality is up, perhaps we should be looking at how other countries grow their middle class."
This pre-supposes that "inequality" is a bad thing.
I'd suggest renaming it "Socio-Economic Diversity". Shouldn't we all be in favour of more diversity?
Posted by: Russ R at Nov 1, 2009 2:31:36 PM
i think it's even narrower than as you report it. It's pretty much now just the "two m's" of math and medicine. The top student of either willl vastly out-earn the top student in, say, philosophy or english, despite the fact that it seems fair to assume both have the same cognitive umph. In fact, the top english student is likely to be lower even than the person who never went to college, due to debt. I don't think it's that we're becoming more geared towards intellectual labor, but specifically more geared towards the two m's at the expense of any and everything else
Posted by: farmer at Nov 1, 2009 2:51:52 PM
Kling seems to greatly overestimate the importance of being good at physical labor in the past. It was of course never a way into the upper classes, and women were not kept out of offical positions of power because of their lesser body strength when many of those positions were held by 60+ men.
But also to grow your farm for example, being a good organizer and negotiator were more useful skills than (easily hirable) physical power. Of course, being able to work long hours helped, just as keeping a good health for several decades and not having to carry your children inside you. But those physical abilities are still as large advantages as they used to be.
Posted by: Zamfir at Nov 1, 2009 2:54:36 PM
"This is something policymakers can improve with better public education: if a student's education doesn't depend on his family's income, he'll more likely realize his potential (if he has it)."
I doubt it. It is actually quite difficult to buy a decent educational advantage early and almost impossible not to buy it later.
Posted by: Andrew at Nov 1, 2009 4:07:35 PM
Didn't Malthus take the same view of how things naturally were?
Didn't the world move away from that natural state of things in Malthus day by enormous transfers of wealth from the hereditary American landowners to the poor immigrants from Malthus' Britain?
Once all the land had been taken for the original hereditary owners and 80% given away to spread the wealth by about 1900, it took the WWII planned economy to have government employ almost everyone, pay almost everyone equally, distribute the goods almost equally with rationing, and by forcing huge savings and investment programs that allowed the common people who didn't deserve by hereditary reasons to get things like education and property.
So, the US has had two massive government run transfers of wealth to fight the natural state of a small number with the hereditary wealth they deserve and most people not having or deserving a larger share of the wealth.
Posted by: mulp at Nov 1, 2009 4:38:57 PM
Improving public education is very important (adding universal higher education would be great too), but it won't work on its own.
How about early childhood nutrition? If the parents don't know/can't afford food which best helps with cognitive development, there's not much public education (of the child) can do. We'd need to have some sort of enforced, or strongly incentivized/discounted high quality food program.
How about early, near-compulsory work? Many young teens feel compelled to go to work (legal or not) to "help their families" and wind up sacrificing their educations. This may go along with an idea that "education isn't worth it, because it doesn't help now" (and in this particular circumstance, they're right.) Very tough one to fix.
How about security in their local environment? Forget abusive parents. If you live in a neighborhood where there's constant violence, it's awfully hard to concentrate on your studies (and you may get caught in the crossfire). The parents may be too poor, too stupid, or too sentimental to move. What can the child do? Nothing. Government has to step in yet again, since the parents aren't doing the job here.
It's not as simple as fixing public education. As described above, nutrition, near-forced labor, and security are other major and difficult to fix issues that need to be addressed to make an actual difference.
Posted by: AyeCarumba at Nov 1, 2009 4:47:19 PM
Surely we need to look at #3 with a skeptical eye. First, if you look at the cult of motherhood in the 19th century it was much more than maid skills that were emphasized. Perhaps things were different by the 50s, but we should hesitate before thinking that women were marriagable based on their housework. Second, assortive mating based on earnings is a lot different than assortive mating based on interestingness. As far as I can tell, Kling's comment doesn't make sense if you don't conflate them.
Posted by: Justin at Nov 1, 2009 5:16:32 PM
It is very doubtful whether the blue-collar work becomes more skilled. Consider the Luddite argument that machines pushed out skilled workers.
Posted by: Dan @ Israeli Uncensored News at Nov 1, 2009 6:06:24 PM
"....math and medicine. The top student of either willl vastly out-earn the top student in, say, philosophy or english, despite the fact that it seems fair to assume both have the same cognitive umph." Fair, perhaps - but not very likely.
Posted by: dearieme at Nov 1, 2009 6:10:57 PM
Justin, my interpretation of Kling's thinking is that smart men are high earners. In the past, smart men used to marry stupid women because stupid women would scrub floors. These days, smart men marry smart women because smart women are interesting and floors no longer need scrubbing. This has the effect of concentrating the smartness genes in the families of the affluent.
Kling is mistaken in most of these assumptions here. In the past, men used to marry the smartest, most competent and creative women they could find, because their lives could very well depend on it. (Check out the classic Proverbs 31 10-31 http://tinyurl.com/yc2dece for an ancient description of the ideal wife. She works hard physically, yes. She also invests her money in land; closely supervises, feeds and clothes a household staff; she's a small manufacturer; is a community resource for the poor; and is sought out for her wisdom. Oh yeah, and everyone loves her and other men are jealous of her husband. This fantasy wife was most definitely endowed with superior cognitive skills.) Today, an urban-dwelling man is very unlikely to starve to death if his wife's farming and manufacturing enterprises all fail. So today he can actually afford to marry a stupid woman with much less risk than in the past.
And floors still do need scrubbing, even today.
Posted by: Alison Cummins at Nov 1, 2009 6:48:38 PM
Can you not a make point that U.S income inequality is more ethical than Western European income equality? In the sense that the US economy can inhale people and capital to a much greater degree than it's Western European counterpart, it seems to me like the better deal is in the states. I mean look what happened to France with an uptick in Muslim immigrants, their unemployment rate hit nearly 10 percent.
For my money, I dont worry about inequality philosophically. I do worry about it's effect on politics though.
Posted by: John Pertz at Nov 1, 2009 7:00:39 PM
