Education Cannot Solve Income Inequality

Higher education may be the surest path to the middle class. That belief in the power of education lies behind the current administration’s recent efforts to make community college free for students, increase Pell Grants for the neediest students, and keep student loan interest rates low.

Our economy is now five years into an economic recovery, yet the wages of most Americans are flat. For the entire period between 1979 and 2013, median worker wages rose by just 7.9 percent while the economy’s growth and productivity rose 64.9 percent. The top one percent has made off with nearly all of the economy’s gains since 2000.

Is there nothing that can be done to improve this picture?

To hear a lot of economists tell the story, the remedy is mostly education. It’s true that better-educated people command higher earnings. But it’s also the case that the relative premium paid to college graduates has been declining in recent years. If everyone in America got a PhD, the job market would not be transformed. Mainly, we’d have a lot of frustrated, over-educated people.

Imagine that every poor person suddenly has successfully completed a rigorous course of study and has earned a bachelor’s degree. Do we then no longer need child care workers, home health aides, landscape workers, security guards, food servers, office cleaners and retail sales associates? Or will companies employing workers in these occupations suddenly decide that, since these workers now have bachelor’s degrees, they should be paid more than $11 or $12 per hour? Will these corporations now decide that these workers should have regular or at least predictable schedules and a predictable income? Or that they are due at least a modest amount of paid sick leave and the opportunity to save for retirement?

It seems unlikely that either the demand for these workers or their wages and working conditions will change as their education levels increase. Indeed that has been the experience to date. The truth is that we have more bachelors’ degreed workers than ever. Some economists find there is an excess of college graduates who are competing for jobs that don’t require a degree. The New York Federal Reserve found that 46 percent of recent college graduates, and 35 percent of college graduates overall, are employed in jobs that do not need a college degree.

Secondly, corporate America got increasingly into the habit of hiring people on a temporary, part time, or contracted-out basis. Traditional payroll jobs became harder to come by. The idea that employers had some reciprocal loyalty to their workers became a relic. A small fraction of Americans turned this new insecurity into a plus, becoming entrepreneurs. But for every genuinely successful Internet startup and every truly joyous freelancer, there are dozens of people for whom working as a “consultant” is nothing but disguised unemployment. Also, the sources of labor bargaining power have been weakened. Those included strong federal labor-market regulation and trade unionism. In the absence of these, corporations and investors are able capture the lion’s share of the economy’s productivity growth.

All that stands in our way are a lot of bad economics and a consensus of the elites that cutting deficits and rewarding speculators take precedence over rebuilding the country. The obstacles to restoring broad prosperity are not economic.

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