Still think that college is a waste...............................

Skills, not wealth, drive U.S. income inequality

Education, especially at an early age, leads to college and higher wages

By

Howard Gold

As soon as it was published just over a year ago, Thomas Piketty’s “Capital in the 21st Century” became the most influential book on economics since the turn of the millennium.
The dense, nearly 700-page tome, which used decades of data from many countries, spent 22 weeks on The New York Times best-seller list and was named the Financial Times and McKinsey Business Book of the Year. It intensified an already red-hot debate on economic inequality.
The facts are clear: The top 1% of U.S. households takes in more than twice as big a share of income as it did in 1979, while middle-class incomes have stagnated since the mid-1990s. The debate is over what causes this growing divide and what to do about it.
Piketty argued that wealth itself, especially inherited wealth, gives the rich advantages that only increase over time. His now famous equation (r>g) states that return on capital exceeds economic growth, so that capital keeps accumulating, like a perpetual-motion machine, deepening the divide between the wealthy and everyone else. He advocated a progressive global wealth tax to correct the imbalance.

In 2013, college graduates earned 98% more an hour than high-school grads, according to the Economic Policy Institute.

But the U.S. gave him problems. Unlike his native France, he found that “the unprecedented increase in wage inequality explains most of the increase in U.S. income inequality” (Italics added.)
And what drives wage inequality?
“Over the long run, education and technology are the decisive determinants of wage levels,” Piketty conceded. “If inequality is to decrease, … the supply of new skills must increase even more rapidly, especially for the least well-educated.” (I wrote more about this topic here.)
Unfortunately, Piketty’s preoccupation with inheritance caused him to miss much deeper causes: The principal transmission vehicle for income inequality in the developed world, particularly the U.S., is educational wealth, which goes hand in hand with affluence.
The advantage of a college degree has grown considerably over the past three decades, and those who don’t have one have fallen further behind.
In the 2000s, automation and offshoring eliminated 5.7 million U.S. manufacturing jobs that used to provide middle-class incomes to high-school grads.
In their place, people who don’t have college degrees increasingly have taken low-wage or part-time jobs.


In 2013, college graduates earned 98% more an hour than high-school grads, according to the Economic Policy Institute. There’s a steeper wage premium for those who have advanced degrees, particularly in the STEM (science, technology, engineering and mathematics) fields.


Getting even to the college level, however, is much more difficult for young people who are not “bathed in cognitive and financial resources” from the very beginning, as the University of Chicago’s Nobel Prize-winning economist James Heckman put it.
Children who have educated parents have nearly an insurmountable edge in acquiring human capital, the principal currency of an information economy.
Only 20,000 of the 70,000 top-scoring low-income students in the U.S. even bother to apply to top colleges, Richard Sander of UCLA School of Law found.
“Students from the wealthiest families outscored those from the poorest by just shy of 400 points” on Scholastic Aptitude Tests, The Wall Street Journal reported.
And it’s not just test prep; children of educated parents get enrichment programs from music lessons to summer camp from their toddler years on. They go to better schools in safer neighborhoods, have many after-school activities, get tutoring when they need it, and have knowledgeable college-admissions counselors.
So it’s no surprise that Sean Reardon of Stanford found that “the gap between rich and poor children’s math and reading achievement scores is now much larger than it was 50 years ago.”
A famous study by Betty Hart and Todd Risley from the University of Kansas found that “by age 3, a poor child would have heard 30 million fewer words in his home environment than a child from a professional family, … so a language deficit is passed down through generations.”


Researchers recently found that children who grow up in families whose annual income was less than $25,000 a year had brain surfaces that were 6% smaller than those of kids whose families earned $150,000 or more.
And unfortunately, concluded James Heckman and University of Chicago colleague Stefano Mosso,
“To our knowledge there is no evidence of full recovery from initial disadvantage.” (Italics added.)
On a more hopeful note, however, Heckman wrote: “High-quality early education can be an equalizing factor.”
Some universal pre-K programs and early-intervention experiments like those in Providence, R.I., have shown promise in narrowing that critical gap.
But now, more than ever, knowledge is power. Passing critical skills from one educated generation to the next confers as sure an advantage in the 21st century as land and titles did in Piketty’s native France in the 19th. By focusing so intently on inherited wealth rather than education as the root of economic inequality, Piketty missed the forest for the trees — and the path to solutions that might really work.