High and rising income inequality in the United States has recently been widely commented upon. What has not been as widely discussed is the role educational attainment has played in these disparities. Indeed, America is in some ways two different countries economically, segregated by educational achievement.
Table 1 below shows a significant relationship between income levels and educational attainment. Basically, the higher the education level, the higher the income. For example, people with professional degrees earned 6x as much as people who did not graduate from high school (in 2009: $128,000 vs. $20,000).
However, this is not just an income effect. Table 2 demonstrates that US unemployment rates and educational attainment are also strongly related to each other. The better educated the group, the lower the unemployment rate -- and this striking result is consistent over a ten-year period and is highly significant. These figures strongly suggest weak demand in our economy -- over a long period -- for less educated workers, and greater demand for more educated workers. Even assuming an imperfect labor market, this indicates rising wages for workers in demand (high educational attainment), and weak-to-flat wages for workers not in demand (low educational attainment).
At the extremes, if you have less than a high school education, you've spent the last 10 years in a recession -- with the lowest unemployment rate being 7%, and the highest reaching 15%. If you have a four-year college degree and at least some graduate school, recessions have been mild -- with current unemployment rates of 4.5%, compared to an overall rate of 9%.
In many ways, our two economies have created two separate societies. Those with low educational attainment drift permanently between recessions and depressions, with little stability. Those with high educational attainment experience increased wealth, only mild recessions, and interesting projects with personal growth.
Additionally, these numbers suggest that our lack of highly-skilled knowledge workers is a major binding constraint on the growth of the American economy. In 2006 and 2007, unemployment rates for the highly-skilled group were as low as 2% -- a figure viewed as basically beyond full employment. These results also imply that further economic growth in 2007 would have resulted in even higher wages (and more income inequality) for the more highly educated group.
Interestingly, it appears that high school students are already reacting to these price signals from the market. In 2000, 63% of high school completers enrolled in college. By 2009, this number approached 70% (SAUS, Table 276).
Some potential policy implications:
With due respect to our presidential hopefuls -- flat taxes, regulatory reform and fiscal austerity don't address a major cause underlying income inequality and unemployment. Instead, their proposals might just make things worse.
Notes: All amounts are in real terms; SAUS (Statistical Abstract of the United States) published by the US Census Bureau.
Steven Strauss was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. He will be an Advanced Leadership Fellow at Harvard University for 2011-2012. He has a Ph.D. in Management from Yale University. Follow him on Twitter @steven_strauss.
Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
Additionally, doesn't it make sense that people who "make more money" have college educations? This is merely a reflection of the class which can most easily put itself through a 4(+) year college program and walk out with a decent level job, which they've probably been afford through some interpersonal relation established, in some proximity, due to their families wealth and standing.
The upper strat's of the system have always been cherry rigged. They've just duped millions of people that they might have access too them too through an institution (which they manage) like education.
Much was made of a report last week showing that the top 1% of income earners had income growth of 275% over 32 years, compared to only 80% for the middle 60% and 40% for the bottom 20%. But what they failed to acknowledge was that the "income spike" for those at the top amounted to only 3.2% per year, compounded. That probably didn't even keep them up with inflation! So it ain't the rich making a killing. It's the lower income levels that are not keeping up.
A report yesterday showed 34% of 3rd and 4th graders scoring proficient. The dropout rate is the highest it's ever been and many HS grads are functionally illiterate.
As Pogo famously said, "We have met the enemy and he is us."
What the author didn't point out, and what is probably far more important, is that the children of highly educated parents grow up in far more stable and supportive environments (lower unwed mothers, lower divorce, lower poverty, more emphasis upon education) and are far more prepared to achieve in schools that the children of less educated parents (higher unwed mothers, higher divorce, higher poverty, higher instability, less emphasis upon education).
And my first job out of college was driving a taxi...for a YEAR. This isn't the FIRST recession to hit the US. Despite all that, I retired at 55 with more money than I'll ever spend. "Adaptability" can really pay off!
I wouldn't go the college route again, based on the experience I've had of being more in poverty WITH a degree than I ever was without one.
Researchers for the same organization wrote in September 2010 that public-employee compensation in general lags behind the private sector, to the tune of nearly $23,000 for bachelor’s holders and $33,600 for those with a master’s.
At what point do diminishing returns impact voting? Sure Democrats are the better choice for education and progress but their answers are so far from where we need to be that Occupy Anything seems better. The answer is obvious. Power will be manipulated by money.
Education is a lamb. Girls and futurists care. If it mattered there'd be a Dept of Endangered Brains.
When only the wealthy can afford a higher education for their children, only the children of the wealthy will thrive.
Sounds like a plan to me, and it looks like it's working............................
We as a society do not "owe it to ANY students" to "forgive ANY of their tuition debts". If they were truly intelligent people with COMMON SENSE they would not have put themselves into the position of such heavy debt without a reasonable expectation to be able to pay it off. We, as a society, do not owe ANY of them ANYTHING . . . like their parents and their ancestors, they are resposible to handle their won finances and their adublt lives, INCLUDING the indebtedness that they incor of their own volition. It would be morally CRIMINAL to expect "society" to bail them out . . . what about those pwople who didn't foolishly incur such indebtedness? Would we then owe them an equal amount for having been prudent about NOT going into debt for tuition?
You may consider it criminal to expect "society" to bail them out too. In fact, it would appear that only the obscene losses made by the finance sector deserves forgiveness for their foolishly incurred indebtedness.