Education and inequality

We have written frequently on the correlation between college attainment and both income and employment. It is now the best predictor of  both. (See data in this previous post.) Education attainment is also a––if not the–major cause of rising income inequality. College attainment is by far the best pathway out of poverty and to the middle class. Unfortunately we are going in the wrong direction.

Laura D’Andrea Tyson, professor at UC Berkeley, in a New York Times Economix blog provides a good overview of the compelling data on the correlation between education attainment and income inequality. The blog is entitled “Income Inequality and Educational Opportunity”. She writes:

Education has been the traditional American pathway to opportunity and upward mobility, but this pathway is closing for a growing number of Americans in low- and middle-income families…. Educational attainment levels rose rapidly throughout much of the 20th century, with the college completion rate quadrupling for those born between 1915 and 1975. But it has been largely stagnant since. The slowdown in college attainment levels has been most pronounced for individuals from low-income families. At the same time, the economic benefits of higher education have risen. In 1979, the average college graduate made 38 percent more than the average high school graduate. The comparable figure today is more than 75 percent. (Emphasis added.)

… The United States is caught in a vicious cycle largely of its own making. Rising income inequality is breeding more inequality in educational opportunity, which results in greater inequality in educational attainment. That, in turn, undermines the intergenerational mobility upon which Americans have always prided themselves and perpetuates income inequality from generation to generation. This dynamic all but guarantees a permanent underclass. Indeed, the process is already under way: An American child’s future income is already more dependent on his or her parents’ income than a child born in most other developed countries.

Tyson ends her blog with policy recommendations to reduce income inequality. Some is tax and saftey net related. But much of her agenda is a call to increase public investments in education from birth through college. She writes:

What can the federal government do to mitigate these trends? First, the progressivity of the federal tax and transfer system should be strengthened. The United States has one of the most unequal income distributions in the developed world, but its tax and transfer system is among the least progressive. Tax expenditures that disproportionately benefit high-income families should be limited, while the earned-income tax credit that benefits working families should be expanded. The tax rates on capital gains, dividends and carried interest, most of which go to top income earners, should be increased as part of a multiyear deficit reduction plan.

Such a plan should also include more means-testing of entitlement programs and adequate funds for programs like food stamps, Head Start and Medicaid that address the needs of low-income families.

Second, the investments championed by President Obama to enhance educational opportunities – the $4 billion Race to the Top program to reward states for school reforms; the increase in the number and size of Pell grants; the tuition tax credit; the reformed student loan program; federal support for partnerships with community colleges – must be sustained. Deficit reduction must not be at the expense of these investments. Because they are investments, not handouts, they will end up paying for themselves.
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