Greg Mankiw examines one of the factors that may explain rising income inequality — education. In particular, educational advancement has slowed.
…The best diagnosis so far comes from two of my Harvard colleagues, Claudia Goldin and Lawrence F. Katz, in their forthcoming book “The Race Between Education and Technology” (Harvard University Press). Professor Goldin is an economic historian, and Professor Katz is a labor economist who briefly worked in the Clinton administration. Their bottom line: “the sharp rise in inequality was largely due to an educational slowdown.”
According to Professors Goldin and Katz, for the past century technological progress has been a steady force not only increasing average living standards, but also increasing the demand for skilled workers relative to unskilled workers. Skilled workers are needed to apply and manage new technologies, while less skilled workers are more likely to become obsolete.
For much of the 20th century, however, skill-biased technological change was outpaced by advances in educational attainment. In other words, while technological progress increased the demand for skilled workers, our educational system increased the supply of them even faster. As a result, skilled workers did not benefit disproportionately from economic growth.
But recently things have changed. Over the last several decades, technology has kept up its pace, while educational advancement has slowed down. The numbers are striking. The cohort of workers born in 1950 had an average of 4.67 more years of schooling than the cohort born in 1900, representing an increase of 0.93 year in each decade. By contrast, the cohort born in 1975 had only 0.74 more years of schooling than that born in 1950, an increase of only 0.30 year a decade.
…If the Clintons had been content with high school diplomas and not attended Georgetown, Wellesley, Oxford and Yale, they most likely would not have reached the White House and Senate, and it is a good bet that they would not now be getting multimillion-dollar book deals and $100,000 speaking dates. A top education is no guarantee of great riches, but it often helps.
In his blog Greg restores the final paragraph (without a small confusing edit from the Times):
Maybe educations are like Willie Wonka’s chocolate bars. A few of them come with golden tickets that give you opportunities almost beyond imagination. But even if you aren’t lucky enough to get a golden ticket, you can still enjoy the chocolate, which by itself is well worth the price.
Another effect that I suspect accounts for the growth of the super-rich — the networks acquired at Stanford, MIT, … Have there been any studies on the network effect?
A few questions about this:
They mention a reduction in the rate of increase in years of education, but how much of this change is simply an approach to some limit? In other words, a kind of market “saturation” in which once everyone is going to university, there’s no room for increase.
Then there’s another threshold (with its own set of barriers - competitive admissions, cost, deferred earning years) between the four-year university programs and graduate or professional programs: law school, med school, MBA programs, etc. But a lot fewer people do that than a four-year Bachelors program.
Goldin and Katz do mention this effect “In 1980, each year of college raised a person’s wage by 7.6 percent. In 2005, each year of college yielded an additional 12.9 percent. The rate of return from each year of graduate school has risen even more — from 7.3 to 14.2 percent.” Though to me this looks like marginal advantage and makes going to grad school look like not such a great deal (now they tell me).
As to the “network” effect: it would be difficult to get some handle on that but you could break down the analysis to compare highly-competitive top-tier schools (Ivy Leagues, Stanford, Duke, MIT, CalTech etc.) to other institutions.
There’s another variable to consider if trying to analyse a “network” effect: Stanford and MIT have highly competitive admissions to begin with.
Thanks Will, good points. I read the Goldin and Katz excerpt a different way [haven’t seen the book]. That the rate of improvement of the bottom end was declining. E.g. that technology was advancing faster than the rate at which students completed high school, or advanced to university or vocational school.
Post-graduation education would certainly be subject to the upper-bound effect. But aren’t there a very small absolute number of people who advance beyond the 4-yr degree — so small as to be insignificant compared to what is happening to the “feedstock cohort”?
I’ve seen some research, that isn’t at my fingertips, indicating that the majority of students would be better-served by some practical education, e.g.rather than by liberal arts 4-yr degree programs. There’s empirical evidence that there’s a good bit of “qualification inflation” for entry jobs due to an excess of grads with non-useful training.