Minding the inequality gap

During the first 70 years of the 20th century, inequality declined and Americans prospered together. But over the last 30 years, the United States has developed an extremely unequal distribution of income and wages. Some analysts see the gulf between the rich and the rest as an incentive. Others see it as having a corrosive effect on people's faith in the markets and democracy. Still others contend that economic polarisation is a root cause of America's political polarisation. Could, and should, something be done?

Economists Claudia Goldin and Lawrence Katz, in their new book, "The Race Between Education and Technology," demonstrate that for more than a century, and at a steady rate, technological breakthroughs have been increasing the demand for ever more educated workers.

Moreover, they show that America's school system meets this demand, not with a national policy, but in grassroots fashion, as communities tax themselves and build schools:

By the 1850s, America's school enrolment rate already exceeded that of any other nation, and this held for a long time.

By 1960, some 70 per cent of Americans graduated from high school – far above the rate in any other country; college graduation rates also rose appreciably.

However, the wage premium – or differential paid to people with a high school or college education – fell between 1915 and 1950.

The upshot is that while the average college graduate in 1970 earned 45 per cent more than high school graduates, the differential three decades later exceeds 80 per cent.

What, then, is holding American youth back? For one, the financial aid system is a maze, many high school graduates are not ready for college and the poor have a difficult time moving to better school districts. The authors contend that charter schools as well as vouchers, including those for private schools, could be helpful, but more evaluation is necessary.

Source: Stephen Kotkin, Minding the Inequality Gap, New York Times, October 5, 2008; based upon: Claudia Goldin and Lawrence F. Katz, The Race Between Education and Technology, Harvard University Press, 2008.

For text: http://www.nytimes.com/2008/10/05/business/05shelf.html

For more on Education Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=27

FMF Policy Bulletin/ 14 October 2008