NCPA - National Center for Policy Analysis

THE WEALTH TRAJECTORY

April 22, 2008

The sharp rise in income inequality is largely due to an educational slowdown, according Claudia Goldin, an economic historian, and Lawrence F. Katz, a labor economist, at Harvard University.

Consider:

  • For the past century technological progress has been a steady force not only increasing average living standards, but also increasing the demand for skilled workers relative to unskilled workers.
  • During the 20th century, technological progress increased the demand for skilled workers, while our educational system increased the supply of them even faster.
  • As a result, skilled workers did not benefit disproportionately from economic growth.

But recently things have changed.  Over the last several decades, technology has kept up its pace, while educational advancement has slowed down.  The numbers are striking:

  • The cohort of workers born in 1950 had an average of 4.67 more years of schooling than the cohort born in 1900, representing an increase of 0.93 year in each decade.
  • By contrast, the cohort born in 1975 had only 0.74 more years of schooling than that born in 1950, an increase of only 0.30 year a decade.

Because growth in the supply of skilled workers has slowed, their wages have grown relative to those of the unskilled.  This shows up in the estimates of the financial return to education made by Professors Goldin and Katz:

  • In 1980, each year of college raised a person's wage by 7.6 percent.
  • In 2005, each year of college yielded an additional 12.9 percent.
  • The rate of return from each year of graduate school has risen even more -- from 7.3 to 14.2 percent.

Source: N. Gregory Mankiw, "The Wealth Trajectory: Rewards for the Few," New York Times, April 20, 2008.

For text:

http://www.nytimes.com/2008/04/20/business/20view.html 

 

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