Take Education as the Key Link!

Tyler Cowen accuses me of being "too quick" to resort to the Marshallian scissors in defending Goldin-Katz "inequality the result of too few people going to college" against Becker-Murphy "inequality the result of wonderful technological progress." How can an economist be too quick to resort to the Marshallian scissors--i.e., supply and demand? As J.R. MacCulloch said in the early 19th century:

It is very simple to turn a parrot into a tolerable political economist. All you must do is to teach it to say, "Supply and demand! Supply and demand!"

Apparently, "Pieces of eight!" and "Yo, ho, ho, and a bottle of rum!" are optional.

Here's Tyler:

Marginal Revolution: Education as the critical problem behind current inequality: Here is an excerpt from my New York Times column today:

The return for a college education, in percentage terms, is now about what it was in America’s Gilded Age in the late 19th century; this drives the current scramble to get into top colleges and universities.  In contrast, from 1915 to 1950, the relative return for education fell, mostly because more new college graduates competed for a relatively few top jobs.... Goldin and Katz portray a kind of race. Improvements in technology have raised the gains for those with enough skills to handle complex jobs.  The resulting inequalities are bid back down only as more people receive more education and move up the wage ladder.

Income distribution thus depends on the balance between technological progress and access to college and postgraduate study. The problem... is that American lower education does not prepare enough people to receive gains from American higher education. Bottlenecks currently keep more individuals from improving their education...

Note that education is a fundamental issue behind the kinds of inequality we should worry about most, namely the failure of many poor people to do better over time.... In a dynamic era does educational access have much of a chance of keeping up with technological improvement?

The answer is "Yes." 1915-1950 was a time of extraordinary technological dynamism. And it does not seem to be the case that lousy public schools diminish the returns to higher education. Lousy schools lead people not to pursue further education, they don't seem to make further education unuseful. As Tyler says:

the data (see David Card's Econometrica 2001 piece, plus the work of James Heckman) still find relatively high returns to additional education...

And this seems to be as true for those who have no college as for those with some college and those with B.A. degrees: it seems that there is a 7% to 10% real return on investments in education, including as a cost of the investment the money you don't earn because you are in school rather than working, no matter how much education you have. (Some disciplinary Ph.D. programs excepted, of course.)

One additional point: the "current scramble to get into top colleges and universities" is the result of a large increase in the pool applying--300 million Americans rather than 200 million, plus a huge increase in foreigners who can afford American college--coupled with a failure of the "name" colleges to add slots for students. Demand for places at the top 50 name colleges has outrun supply, demand for places at colleges has not.

Clark Kerr saw this coming fifty years ago: that Berkeley-the-city was happy to benefit from surrounding Berkeley-the-university, but that Berkeley could not grow as fast as California would. Hence his attempt to make "University of California" the brand. To this day my stationery lists all the UC campuses: Berkeley, Davis, Irvine, Los Angeles, Merced, Riverside, San Francisco, San Diego, Santa Barbara, Santa Cruz, and, of course, Sunnydale[1]. (And we professors at the older campuses resist this common branding: we teach at "Cal" or "Berkeley" and our colleagues in Westwood teach at "UCLA" rather than at "UC.")

And with that, it's time for graduation.

---

[1] University of California at Sunnydale is, of course, a special case with a faculty and student body with some unique qualifications. It is the sibling school to the well-known Miskatonic University in Arkham, Massachusetts.

Comments

[PK]

"all the UC campuses: Berkeley, Davis, Irvine, Los Angeles, Merced, Riverside, San Francisco, Santa Barbara, Santa Cruz."

Brad, you shouldn't try to recite your stationery letterhead from memory.

Last I checked, San Diego was one of the UC's.

--PK

[steve]

The supply of slots at the 60 most competitive universities and colleges *has* kept pace with recent population growth.

Increased competition for those slots is due to a sociological trend (increased cachet of elite education) and not due to demographic changes.

http://infoproc.blogspot.com/2007/05/elite-cachet.html

Washington Post: ...Driven by the baby-boom echo, the number of high school graduates jumped from 2.9 million in 2002 to 3.1 million in 2006, an increase of 8.4 percent.

"But the number of spaces in elite colleges is increasing too, at a nearly identical rate. According to U.S. Department of Education statistics, the 60-odd colleges and universities rated 'Most Competitive" by Barron's Guide to Colleges sent out 199,821 acceptance letters in 2002. In 2006, the number of 'fat envelopes' had increased to 215,738, an 8.0 percent jump. As the nation has grown, its elite colleges have grown along with it.

[Jonathan Andreas]

To add to Steve's comment, there IS an apparent increase in demand for elite colleges, but it is an illusion caused by each applicant who applies to many more top schools than in the past. Thus, there ARE a lot more applications, but perhaps no more actual student applicants.

[Andrea]

Clark Kerr was far more than a clerk - he rose to be president!

[steve]

There has been a change (at least among the upper middle class) in higher ed aspirations: more demand for slots at the top schools than in the past. If they were satisfied with local state U there would be no need for all the additional applications.

Many kids who would have applied only to state U in the past now want to attend an elite school. Hence the increased competition, but not due to overall demographics.

[Bloix]

The increase in the number of "fat" envelopes is not evidence of an increase in the number of spaces. It is a reflection of the fact that students apply to many more schools now (in part because of the common application), so in order to get the same number of matriculating students a school needs to send out more acceptances.

[Slocum]

"And it does not seem to be the case that lousy public schools diminish the returns to higher education. Lousy schools lead people not to pursue further education, they don't seem to make further education unuseful."

Well, right, exactly -- lousy K-12 schools leave too many unable (or unwilling) to pursue the higher education that would pay off. And this "lousy K-12" restriction in the numbers of students enrolling and graduating from colleges & universities is responsible, in part, for the supply-demand imbalance for highly-educated workers.

[Douglass Carmichael]

The idea that education is the solution in an economy that does not need workers seems ludicrous. Last week we had two news reports: LA county was hiring tutors for kids - in India! And a newspaper got rid of local reporters and replaced them with two in New Delhi who would follow the town on the Internet and do phone interviews, and then report. This economy does not need as many degreed people as there are in the talent pool. Holding out education as the solution when increasinly returns accrue to the very top only is cruel.

[Jon Fernquest]

"This economy does not need as many degreed people as there are in the talent pool. Holding out education as the solution when increasinly returns accrue to the very top only is cruel."

A university-educated carpenter is not a contradiction in terms. A college education is a lot more than earning potential and some of that earning potential is less immediately tangible, for instance, a university educated carpenter with business or creative skills picked up at the uni, might be able to differentiate himself above other plumbers later in life. Also college education makes for informed citizens who can choose better leaders, something particularly important nowadays.

[christofay]

The fire breathing robo-saurus is for sale

http://www.core77.com/blog/object_culture/electrohydromechanical_monster_robot_for_sale_6336.asp#comments

Just one of the things to buy if you graduate from an elite institution and strike a mother lode in finance.

Differentiate yourself from the Warhol-bidding elite and go for the robo-saurus

[anne]

Notice again the deception of Tyler Cowen to take education as the cause of rampantly increasing wealth and income inequality, while making sure we understand that because most people are not educable there is nothing to be done but applaud the increasing inequality. This is what Tyler Cowen is always about, even to the extent of using a Charles Murray to drive the miserable deceptiveness of argument.

[anne]

Ah, I am all tingly over the typical use of the research of non-conservatives to show just how conservative we really are and must be. Nothing like a little passing mention of, well, Charles Murray, to show just how conservative we really are in using non-conservative research to show how conservative we are.

Not to worry, even if we could be educated we really couldn't be educated. I understand.

"Pessimists like Charles Murray, co-author of the much-debated 1994 book "The Bell Curve," have argued that only so many individuals are educable at a high level. If that were the case, current levels of inequality might be here to stay."

[anne]

Charles Murray of course is sort of the perpetual excuse for those who are really arguing that even if we happen to find education useful for, say, students, we still know that most students cannot be educated so why bother? Me, I say the person who just cannot be educated is the same Charles Murray.

[anne]

Notice that structure such as taxes or loss of benefits from health care on or education costs or antagonism to unions or corporate management dominance at the expense of labor and ownership has nothing to do with rising inequality in Tyler Cowen's economics. A fabulously rich country with 47 million lacking health care insurance in the course of a year, but blindness to what that might mean.

Ah, but I am being unfair to the George Masonites, for there is social structure that is always permissible and welcome and encouraged. Spending $2 trillion on an insane war and occupation is always fine. The problem is just, shudder, any social structure that does not emphasize inequality.

[anne]

Education is, however, fine with me, and I could not be more for facilitating and encouraging education. Referring back to the momentous personal and broad economic benefits of free public education a century ago as opposed to England, Brad DeLong and Benjamin Friedman have found the roots of American developmental distinctiveness. This distinctiveness was carried through in free or nearly free public college education from New York to North Carolina to Texas to California by the 1930s, to the wonderful veterans benefits for free college education from the 1940s.

Then, I find every reason to return to free public college education now. But, any such social program would be quickly dismissed by the George Masonites who never found a social program worth the while and who would question free elementary schooling were we living in 1850.

[Robert Waldmann]

I do like Cowan's point that inequality in the lower tail (poverty and extreme poverty) is more important than inequality in the upper tail. This is important to his argument, because the supply and demand for formal education story can not explain the huge increase in incomes of the top 1%. I thought it might be useful to spell out his thought.

On the other hand, I don't see what the difficult problem is. We have a decline in real wages of young workers without educational qualifications. This is terrible. Whatever can we do while we try to improve education and access to education ? How about increasing the EITC ? Worked great last time it was tried (or at least was followed by a good Phillips curve shift). What's the problem ? How to pay for it ? the huge increase in income of the top 1% (who have disproportionate political power but not 50% of political power) makes that easy. Do Clinton recovery plan II tried and true.

I think it is about as easy to be an OK policy analysis as it was to be an OK political economist. It's harder to teach a Parrot to say "EITC EITC" but, I'm sure it can be done.

[anne]

Notice that Robert Waldmann would use the Earned Income Tax Credit to provide for increased educational opportunites, where I would choose federal-state revenue sharing directed to a dramatic reduction in public college-university tuition. I would however be pleased as punch in using the EITC.

Would such education assistance be affordable? Well, we are spending $15.8 billion a month directly on the strategic and moral lunacy and tragedy of Iraq. Education is vastly more affordable.

[Benjamin]

Another reason I think the top tier universities are becoming more expensive is partially related to the "superstar" effect. The development of the internet as a medium of application to these universities has enabled a much larger potential pool of students to apply, more quickly and easier than ever before. This makes the available spaces much more competitive, as the "superstar" universities like Harvard and Berkeley receive thousands of extra applications.

[bakho]

Education comes from role models as well as schools. If inner city unemployment is above 10% and even higher for young people, what kinds of role models (older brothers and sisters) will the impressionable youth have? Will they see that working hard is school is the path to opportunity? If opportunities are lacking in an area and the youth once educated move away, what does that model? What kind of role models do many of our rural areas have where lack of education easily drifts into anti-intellectualism?

Greater progress will be made in K12 education if we address the social issues created by underemployment and high rates of unemployment.