Tuesday, December 14, 2010

More Education is not The Cure for Income Inequality


Tom Friedman, President Obama and now Ben Bernanke (on 60 Minutes), have linked income inequality to differences in educational attainment. While there is a correlation between education level and income, growing income inequality cannot be explained by education level, and it is not the cure for income inequality. Moreover, the focus on education level as the cure distracts us from the real sources of inequality.

In the first place, the relationship between education level and income has been weakening in recent years. College graduates under age 25 have an unemployment rate of 9.2%, which is about equal to the average rate. Median pay for college graduates has stagnated in the last 10 years at $72,000 for men and $52,000 for women. These data indicate that the supply of college graduates is growing faster than the demand for college graduates in the job market. One of our problems is to create more jobs that require a highly educated workforce.

The other problem is to improve the policies and programs that have fostered shared prosperity and broad opportunity in the past. Income inequality was greatly decreased by the policies and programs of government following World War 2. Government policies, particularly tax policy beginning in the 80's, has become less progressive, and a major cause of growing income inequality. This is the result of greater disparity in political power. Today we look more like we did in the "Guilded Age", prior to the Great Depression, when political power was concentrated among a financial elite.

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