Education and Economic Inequality

7 Dec

People seem to believe that increasing levels of education will reduce economic inequality. However, it isn’t clear if the policy is empirically supported. Here are some potential ways increasing levels of education can impact economic inequality:

  1. As Grusky argues, the current high wage earners, whose high wages depend on education and lack of competition from similarly educated men and women (High Education Low Competition or HELCO) from similarly highly educated, will start earning a lower wage because of increased competition (thereby reducing inequality). This is assuming that HELCO won’t respond by trying to burnish their education credentials, etc. This is also assuming that HELCO exists as a large class. What likely exists is success attributable to networks, etc. That kind of advantage cannot be blunted by increasing education of those not in the network.
  2. Another possibility is that education increases the number of high paying jobs available in the economy and it raises the boats of non-HELCO more than HELCO.
  3. Another plausible scenario is that additional education produces only a modest effect with non-HELCO still mostly doing low paying jobs. This may due to only a modest increase in overall availability of ‘good jobs.’ Already easy access to education has meant that many a janitor and store clerk walk around with college degrees (see Why Did 17 Million Students Go to College?, and The Underemployed College Graduate).

Without an increase in ‘good jobs,’ the result of an increase in education is an increased heterogeneity in who succeeds (random draw at the extreme) but no change in the proportion of successful people. Or, increasing equality of opportunity (a commendable goal) but not reduction in economic inequality (though in a multi-generation game, it may even out). Increasing access to education also has the positive externality of producing a more educated society, another worthy goal.

How plentiful ‘good’ jobs are depends partly on how the economic activity is constructed. For instance, there may have once have been a case for only hiring one ‘super-talented person’ (say ‘superstar’) for a top shelf job (say CEO). Now we have systems that can harness the wisdom of many. It is also plausible that that wisdom is greater than that of the superstar. It reasons then that the superstar is replaced; economic activity will be more efficient. Or else let other smart people who can contribute equally (if educated) be recompensed alternately for doing work that is ‘beneath them.’