Study: College education is the big driver in income gap

Posted May 23, 2014, at 9:18 a.m.

One of the striking stories in the American economy over the last several decades is just how much the incomes of the super-rich have grown, compared to the incomes of everyone else.

But what if the focus on those super-rich — the top 1 percent of all earners — has overshadowed a larger, more troubling gap: the widening one between college graduates and workers whose education stopped after high school?

That’s the argument MIT economist David Autor makes in a brief research paper released Thursday — that “the growth of skill differentials among the ‘other 99 percent’ is arguably even more consequential than the rise of the 1% for the welfare of most citizens.”

By Autor’s calculations, if you take all the income gains that flowed to the 1 percent over the last 35 years and redistribute them evenly to everyone else in the economy, that would deliver an extra $7,100 a year to every household in the bottom 99 percent. That’s a lot of money. But it’s not as much as the growing pay differential between workers who went to college and those who didn’t.

In the last 35 years, he calculates, the so-called college premium — the boost in your paycheck from earning a diploma — increased by $28,000, adjusted for inflation. So if you took that entire increase and redistributed it to non-college workers, you’d be giving them a raise four times the size of the 1 percent redistribution.

As he described it in an interview: “Imagine two people, average people, four people who go to the same high school, two men, two women. One of the men and one of the women decide to go to college, and one of the men and one of the women decide to call it off in high school. Let’s say that happens in 1979. . . at the time, they could have expected the college graduate family would earn about $30,000 more a year than the high school grad family. . . . Now, roll the tape forward 23, 24 years, and that annual gap has expanded from $30,000 to $58,000. So, almost doubled. So what might have looked reasonable in 1979 now looks like a bad bet.”

Contrasting that increase with the growing income share of the 1 percent isn’t exactly apples to apples. But Autor says it should be sufficient to challenge Americans’ perceptions of inequality — and push policymakers toward more efforts to lift lower-skill workers up.

“I don’t mean to say the 1 percent thing is not a big deal. It is,” he said. But the “real reason to worry about inequality,” he added, is “because of the falling bottom.”

Autor has spent much of his career tracking the forces that have hurt workers and incomes at the bottom, most notably outsourcing and automation trends that have reduced the value of physical labor and increased the value of brainpower. (In this paper, he notes that workers have also suffered because of steadily reduced power to bargain for better wages.) Workers have been relatively slow to catch on, he says — but there’s hope.

“Prior cohorts of U.S. students, particularly males, were slow to react to the rising return to education during the 1980s and 1990s,” he writes in the paper, “but the message appears to have finally gotten through. During the first decade of the 21st century, the U.S. high school graduation rate rose sharply after having been essentially stagnant since the late 1960s. This unanticipated rise was followed just a few years later by a surge in college completions.”

Once that surge began, he notes, the college premium stopped going up.

 

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