Returns to education

by Rob Horning

18 May 2007


Tyler Cowen’s NYT column yesterday pertains to some of the same issues about education raised in my previous post. He cites recent work by economists Claudia Golden and Lawrence Katz about the return to education and its role in generating income inequality and argues that variations in the supply of highly skilled (educated) workers explains trends in the income inequality gap.

Starting about 1950, the relative returns for schooling rose, and they skyrocketed after 1980. The reason is supply and demand. For the first time in American history, the current generation is not significantly more educated than its parents. Those in need of skilled labor are bidding for a relatively stagnant supply and so must pay more.
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, and that kept top wages from rising too high.
Professors 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.

This paints a somewhat different picture than what Posner was painting, because the ultimate intention behind the argument is different. Though it’s not explicitly mentioned, Cowen’s argument suggests that higher education supplies the skills in a straightforward way—you learn things you need to know in class via texts and teachers and so on. Posner suggests that the content of education is arbitrary and college merely certifies skills that more or less pre-exist a student’s being admitted. That places him in the camp with the “pessimists” that Cowen acknowledges, who believe “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.” Whether the pessimists’ belief in the existence of the intractably stupid precedes their concern that the state not subsidize education is an open question. The beliefs probably mutually reinforce each other.

Cowen seems more interested in a different point: “Nonetheless it will, sooner or later, become increasingly difficult to deliver the gains from college — not to mention postgraduate study — to the entire population. Technology is advancing faster than our ability to educate. So even if inequality declines today, it may well intensify in the future.” He seems less interested in halting education subsidies than stifling the argument about income inequality, which appears as inevitable.

I find myself still wondering whether the gains from higher education stem from its amplifying preexisting advantages in social capital (which the “pessimists” suggest is a product not of an unfair society but of different natural abilities—sorry, blame God) rather than the quality of what one learns in the classroom. I’d like to see the skills that are so important to the new economy delineated somewhere—maybe I should do some actual research on this point, but usually economists are content to point to skills-biased technological change and keep the skills themselves in the black box. (Part of my inquisitiveness is personal mystification: I’m not sure I can spell out exactly what I learned from college, and I would not at all feel comfortable claiming it justified any of its effects on my income.) I also wonder if there is anything useful the state can do to prevent education from being the means of perpetuating class privilege.

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