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Sunday, June 15, 2014

How Education Drives Inequality Among the 99%

From the Wall Street Journal Blog "Real Time Economics"

By Brenda Cronin
May 23, 2014

Recent hand-wringing about income inequality has focused on the gap between the top 1% and everyone else. A new paper argues that the more telling inequities exist among the 99%, primarily driven by education.

“The single-minded focus on the top 1% can be counterproductive given that the changes to the other 99% have been more economically significant,” says David Autor, a Massachusetts Institute of Technology economist and author of the study.

His paper, “Skills, Education and the Rise of Earnings Inequality Among the ‘Other 99 Percent’,” comes as something of riposte to French economist Thomas Piketty, whose bestselling “Capital in the 21st Century” has ignited sales and conversation around the world with its historical look at the fortunes of the top 1%.

Mr. Autor estimates that since the early 1980s, the earnings gap between workers with a high school degree and those with a college education has become four times greater than the shift in income during the same period to the very top from the 99%.

Between 1979 and 2012, the gap in median annual earnings between households of high-school educated workers and households with college-educated ones expanded from $30,298 to $58,249, or by roughly $28,000, Mr. Autor says. During the same period, he argues, 99% of households would have gained about $7,000 each, had they realized the amount of income that shifted during that time to the top 1%.

The income gap among the 99%, he says, is due to rising earnings of college-educated workers as well as declining real earnings of workers with high-school degrees.

Two “destructive” points that Mr. Autor tries to skewer with his most recent work are the idea that prospects are dim for all but the financial elite—and the notion that too many students are giving rise to a “college bubble.”

Just because an individual isn’t among the 1% or “hooked into the plutocracy,” Mr. Autor said, he or she can have improved earnings prospects by securing education and skills. And while tuition may be a big commitment, the “education premium”—which has plateaued in the past few years after surging for three decades—remains at a very high level.

Mr. Autor cites research by Christopher Avery and Sarah Turner illustrating education’s rising influence on lifetime earnings. Over a 42-year career, male college graduates take in almost $600,000 more than men who stopped their education after high-school. Among women, the difference is $370,000. Both gaps widened during the past 50 years, from $213,000 for men and $129,000 for women in 1965.

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