Inequality and education demand.

David Brooks misses two things about inequality and education in his column today that I’ve been looking for an excuse to talk about, and I’ll address them below the fold.

David Brooks today, in the New York Times, about low levels of education as the force behind inequality:

…As Claudia Goldin and Lawrence Katz describe in their book, “The Race Between Education and Technology,” America’s educational progress was amazingly steady over those decades, and the U.S. opened up a gigantic global lead….

America’s edge boosted productivity and growth. But the happy era ended around 1970 when America’s educational progress slowed to a crawl. Between 1975 and 1990, educational attainments stagnated completely. Since then, progress has been modest. America’s lead over its economic rivals has been entirely forfeited, with many nations surging ahead in school attainment.

This threatens the country’s long-term prospects. It also widens the gap between rich and poor. Goldin and Katz describe a race between technology and education. The pace of technological change has been surprisingly steady. In periods when educational progress outpaces this change, inequality narrows. The market is flooded with skilled workers, so their wages rise modestly. In periods, like the current one, when educational progress lags behind technological change, inequality widens. The relatively few skilled workers command higher prices, while the many unskilled ones have little bargaining power. [my underline]

I haven’t read all of the new Goldin and Katz book that Brooks mention, but I get the sneaking suspicion he hasn’t either. Since this book will probably be floating out in the blogosphere’s discourse, it is important to clear up one thing. Brooks, and the authors, seems to be saying that the supply of college educated workers hasn’t kept up with the demand, hence our growing inequality. Theory: Supply, demand, ta-da. Solution: We should be preparing more kids for college level work. Note that the premium for all college-level workers should go up since the supply hasn’t increased, though the demand has.

I had encountered this theory when I was doing a lot of reading on the current research of inequality. This theory seems (from the rave reviews) to be a good approximation of what has been going on in the 20th century but it isn’t good for the past 20 years as the earnings premium has decline empirically for college education since 1992. There is plenty of supply, but the market isn’t using it. The book doesn’t quite know what to do with this factum which seems the most relevant for this day and age; let’s open to chapter 8 of the book:

Demand growth for college workers appears to have slowed in the 1990s, as indicated by the negative coefficient on the trend interacted with 1992. Given the rapid spread of information technology and work-place reorganization in the 1990s and beyond, this finding would appear to be at odds with the skill-biased technological change explanation. But a resolution exists. As the college educated group became a larger share of the labor force, it also became more heterogeneous. Demand for those who graduated from more selective institutions as well as those with post-B.A. degrees is still soaring and they are doing spectacularly well. But demand for the remaining group is less strong and they are not doing as well.16

[footnote]16 Autor, Katz, and Kearney (2006) discuss the “polarization” of the U.S. labor market since 1990, by which they mean that the two end of the distribution are doing better than the middle. The top is doing well, the middle is doing poorly, and the bottom is doing fairly well. Their explanation is that demand is soaring for those who have both technical and “people” skills and is strong, as well, for those who have lower-skilled jobs in the service sector. Computers substitute for routine manual and cognitive tasks, thus reducing demand for many college workers. But new information technologies complement the nonroutine analytic and interactive tasks of those with post-college training and have relatively little impact on non-routine manual tasks of many lower-skilled service sector jobs. The growth of international outsourcing (also known as off-shoring) appears to have had similar impacts on labor demand. See also Autor, Levy, and Murnane (2003) and Levy and Murnane (2004). [p. 11-12]

Take a second to make sure you catch what is going on there. (Here is that follow-up paper in the footnote if interested, which claims that computers and layoffs have decimated the middle-class; it presupposes what it wants to prove a bit too much, assuming that computers and middle-class labor are substitutes). The problem, according to them, isn’t that there isn’t enough college graduates but not enough elite college graduates. The solution would be for more (many more, given the scale they are talking about) students to go to Harvard. (Or more students to not go to college, if you follow the footnote paper, as there is still work available in the manual economy.)

This appears to be similar to the question for the lawyer salaries that I mentioned earlier on this blog; it alludes to something other than having skills, but instead increasing returns to certain types of employment, status and class. Perhaps a college education isn’t what it used to be – I would need more than what is shown here to conclude that though. Or perhaps the nature is what is being employed is changing. Other papers conclude it is a great time to be management given the way the income distribution is tilting – that’s (quite) distinct from high-iq workers the people above are talking about.

Brooks also mentions the other inequality paper of the summer:

In “Schools, Skills and Synapses,” Heckman probes the sources of that decline. It’s not falling school quality, he argues. Nor is it primarily a shortage of funding or rising college tuition costs. Instead, Heckman directs attention at family environments, which have deteriorated over the past 40 years.

Heckman points out that big gaps in educational attainment are present at age 5. Some children are bathed in an atmosphere that promotes human capital development and, increasingly, more are not. By 5, it is possible to predict, with depressing accuracy, who will complete high school and college and who won’t.

I.Q. matters, but Heckman points to equally important traits that start and then build from those early years: motivation levels, emotional stability, self-control and sociability. He uses common sense to intuit what these traits are, but on this subject economists have a lot to learn from developmental psychologists.

When an economist breaks out “common sense” start reaching for your revolver. For all the theory-dropping Brooks does on human/cultural capital, he isn’t really approaching the tension Bourdieu would inject with what is being transfered from child to parent. It is important to note that “synapses” could be full of skills and IQ scores and attention spans, or it could be full of knowing how to navigate schools, getting letters of recommendation ready, the proper marks of prestige, transfering/protecting your stock of prestige, etc. It could be both obviously, but one has different implications than the other. I need to dig into the Heckman paper at some point, but it is important to investigate what exactly the family is transferring and how, and not just assume it is contained entirely within the individual.

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4 Responses to Inequality and education demand.

  1. EW says:

    I’ll break out some common sense. The work by the economists seems to avoid the issue of collective bargaining. If that middle class of workers had some ability to unionize (or to join some entity advocating for labor rights), the malaise since the early 90s wouldn’t exist. Or at least there would be less inequality. I really don’t think going to SIU and being made redundant by computers is the issue, and your post really gets at that.

  2. Mike says:

    Thanks for the comment EW (Sorry about the minor censor edit to your other one!).

    I should have made above clearer – I wanted to point out how when the data doesn’t match their theory of supply/demand at a key moment (1992-now) they simply shrug their theory and the data, so they can keep up their argument of “more education!” You point out, obviously, that to whatever extent more people should get college education, it isn’t going to slow inequality.

    It’s like they are saying “see all those Harvard kids are making a ton of money, there must be high demand for them and a lack of supply of them then!” When really, as you point out, there are other things to be looking at.

    The 21st century needs a Robert Moses more than ever. How many titles and positions do you have now?

  3. EW says:

    No problem on the minor censor. My employer also has thin skin and has a black eye in public perception, to say the least.

    Still the same number of titles and positions: 2. However, working for the Army through the DoJ sets up an interesting ethical question: Who is my client?

    The next Robert Moses won’t be in New York. He’ll be in the American west, and he will be the American water baron. I really believe that in the next 100 years, the US might annex, invade, and conquer a large part of Canada to secure water rights.

  4. Pingback: Balanced Economic Growth and Defaults « Rortybomb

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