It’s An “Educated-Take-All” Economy

In an interview with The Wall Street Journal, Barack Obama said that he was trying to put together tax and spending policies that dealt with two challenges. One is the competition from rapidly growing developing countries, like India and China. The other: the U.S. becoming what he called a “winner-take-all” economy, where the gains from economic growth skew heavily toward the wealthy.

MP: Sen. Obama should take note of the chart above (click to enlarge), from the Brookings Institution study “Education and Income Mobility,” showing the Median Family Income (adjusted for inflation) of Adults Ages 30–39, with Various Levels of Educational Achievement from 1964–2005.

In 1964 the median income of households with a college degree or greater was about 1.67 times higher than households with less than a high school degree ($50,000 vs. $30,000). By 2005, that ratio almost doubled to 3.21 for households with a professional degree - their median income was $90,000 compared to only $28,000 for high school dropout families. That is, the real median income of households with a professional degree increased by 80% between 1964 and 2005, and the real median household income of households with less than a high school degree decreased by almost 7%!

For households with a college degree, median income increased by almost 60% between 1964 and 2005 to about $58,000, increasing the ratio of college-educated income to high school dropout income to almost 3:1 in 2005 (from 1.67 in 1964).

In other words, it would be more accurate to say that the U.S. has become an “educated-take-all” economy, where the gains from economic growth are heavily skewed toward the educated. Wouldn’t one way for Obama to solve this “problem” be to have the government shut down all American colleges and universities, eliminate all federal funding for higher education, or have the government put limits on the number of students attending college?

There is rising income inequality, but the inequality is due to the increasing gains to education over time. It’s not so much that the “rich are getting richer and the poor are getting poorer,” as much as it’s “the college-educated are getting richer in an Information Age Global Economy, and the high school dropouts are staying the same or getting poorer.”

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Comment by jlounsbury59

2008-06-20 22:58:26

With respect to these statistics, it is clear that poverty is self determined, by educational performance. It still doesn’t justify why one person (presumably well educated) can make $100,000,000 a year while another (maybe better educated) makes $100,000.

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