There has been considerable debate in economics about the source of growing inequality. Is it from skill-based technological change, changes in union power, globalization, immigration, changes in tax rates favoring those at the top, changes in the minimum wage, or what? But no matter what the source of recent trends in inequality is, education is still important. You will do much better on average with more education than with less, education can help to offset inequality, education helps to ensure equal opportunity, and I believe that emphasis on education is required if we are going to compete successfully in the global marketplace.
Here's David Warsh:
Looking Forward, Economic Principles: Bull markets, it is said, like to climb a wall of worry. It is the same with political campaigns. In the wake of the Democratic National Convention, many stories are being written ... that Barack Obama just might lose the election. ...
Never mind what the polls and pundits are saying now. Barring something completely unexpected, Obama is going to be elected president in November. ... (I can’t prove this, obviously. You’ll just have to trust me for now.)
The really interesting question is what might Obama realistically hope to accomplish? He has made rising inequality the centerpiece of his campaign. But inequality cannot be redressed strictly, or even mainly, through taxation. What else is there? ...
As it happens, a provocative diagnosis ... has just appeared, offering a deep and durable metaphor with which to frame the problem, and an appealing new Rx with which to address it.
The Race between Education and Technology, by Claudia Goldin and Lawrence Katz, argues that it is American education that has fallen behind in its attempt to equip citizens to fit in smoothly with the new division of labor. ...
There’s no doubt that inequality in the United States has increased dramatically since the late 1970s... Indeed, by 2005, the degree of inequality in the United States had reached levels not seen since before 1940... That was the beginning of the gradual evening-out of income between 1940 and 1980 known today among economists as The Great Compression of wages.
So what has caused the new inequality?
At first glance, the authors are concerned with knocking down an interpretation that has gained currency in recent years – that the advent of computers is sufficient to explain what happened. Clearly computerization is part of the story, the authors say. So are international trade, immigration and the decline in unionization. But dwelling on the demand for new skills is only half the equation. The other half is supply. And if the “supply of skills” increases apace, in the form of well-educated workers, there need be no increasing inequality.
Exhibit A, say Goldin and Katz, are the first few decades of the twentieth century. That’s the period when electricity was widely adopted in manufacturing, when many new goods and services were introduced, when various “black-box” technologies emerged for manufacturing everything from paper to cigarettes. Technology raced ahead, requiring greater knowledge, skill and flexibility on the part of nearly all workers. Yet earnings inequality fell, for decades.
Why? Because, say the authors, a pool of skilled workers was available thanks to another new invention – the American high school.
The “high school movement,” as it became known, is dated to 1910... All over America, the authors write, independent school districts raised taxes, hired teachers, built schools, designed curricula and enrolled students. “Americans were keenly aware that they were involved in a historic achievement and knew, as well, that they were setting America on a course far different from that being followed elsewhere in the world.”
What happened to set those events in motion? The origins of the high school movement grew out of the experience of growing inequality of 1870s and 1880s, the authors say, in the decades after the Civil War, when new technology, big business, waves of immigration combined to conjure visions of a looming war between the rich and the poor. Bitter strikes and riots were hallmarks of the times. College was still mainly for clergy and lawyers... In 1888, Edward Bellamy published Looking Backward, a utopian vision of an egalitarian future of benevolent socialism whose power stemmed from its stinging indictment of the present day.
Parents in those days recognized the extent to which those who possessed some extra education were getting ahead. Increasing numbers sacrificed to send their children (mostly their sons) to a somewhat shadowy precursor of the high school, the academy. A few of the earliest examples of these institutions still survive as exclusive “prep” schools... Nearly all of them charged tuition.
It was the obvious success of the academies, coupled with a gradual thickening of demand for better-educated workers, that gave rise to the high school movement. Goldin and Katz take pains to enumerate and elucidate six characteristic “virtues” of the educational system that developed in the US after its revolution, as it gave rise to system of universal primary public education...
These would include:
1.) lots of decentralization and competition, thanks to a tradition of local control (districts as small as a township could go into the high school business, even if other nearby districts declined);
2.) public ownership of schools, financed mainly by property taxes;
3.) universal schooling, open to all and free (not until the 1950s would the legacy of slavery be tackled in this regard);
4.) separation of church and state;
5.) gender neutrality, with girls educated to about the same extent as boys;
6.) an open and forgiving system, far less forbidding than the systems of France and Germany, where rigorous examinations were required to advance.
The remarkable thing is that the invention of the high school required almost no top-down authority from the federal government, or even from the states... “An ameliorative policy,” write Goldin and Katz, “in the form of the high school movement, was embraced by thousands of individual school districts, in one of the grandest grassroots movement in US history. ...
And then (for reasons about which the authors are not nearly so clear) the US education system somehow did it all again, extending “the right to a good education” ... to mean college, in the years after World War II. The GI Bill in 1944 ... and the National Defense Education Act in 1958 broadened considerably the opportunity to attend college. State support for education grew. And a steady stream of graduates poured forth – until about 1980.
But at that point, the growth in the educated American work forced slowed down. The high school graduation rate crested at around 78 percent in 1970 and has been flat ever since. The growth in average educational attainment, which averaged about a year of extra schooling per decade from 1930 until 1980, gained less than one year in the quarter century after 1980.
Again, why? ... [T]he authors say, that the “virtues” of the American educational system have turned against themselves in some degree. Decentralization led to much greater experimentation in the nineteenth century, but the logic of supporting schools almost solely through property taxation has led to much greater inequality in per-pupil expenditure among rich and poor districts than in the past. ... Today’s proposals for reform include many that run counter to traditional ideals: vouchers, charter schools, public funding for church-based schools, and “high-stakes testing with real consequences.” Yet the widespread bottom-up nature of these break-away institutes, charter and magnet schools, are reminiscent of the distant (and little remembered) outlines of the grassroots academy movement.
What now? Goldin and Katz offer three broad recommendations. Improve the operation of the schools themselves, so that students are better prepared by the time they are ready for college. Make financial aid more generous for college students once they arrive. Above all, spend more heavily on better pre-school interventions such as Head Start, since of the few things on which almost all expert economists can agree is that investments in early childhood education (and prenatal healthcare) pay off at a significantly higher rate than any other measure to reduce inequality. Couple these programs with some increased aid to workers at the bottom of the wage scale in the form of more generous Earned Income Tax Credits, payroll tax relief and better access to health insurance, and it would go a long way towards ameliorating the present situation.
So that’s the task for Barack Obama, assuming he is elected — to find ways to “increase the stock of educated Americans,” or, to put it slightly differently, to make sure that almost every young American goes to an appropriate school. What’s wanted is not some lofty top-down No Child Left Behind rhetoric, but rather a considerable welling-up from the bottom, furthered in this day and age by federal dollars, such that schools once again become places of hope for poor people, not boredom and fear. It has happened before, say Goldin and Katz. Perhaps it can happen again.