Education part of inequality story, Fed post says

Education is partly to blame for the rise in inequality, according to Atlanta Fed economists.

That’s not a reason to discourage schooling, they wrote this week, but it might be helpful in figuring out what to do about the yawning economic gap between Americans at the top and those farther down the chain.

In short: people with more education are doing better, people with high school or less are doing worse.

The economists tried to “control for” experience and age, that is, to mathematically eliminate them as factors. When they did, they found that higher wages paid to older, more experienced workers, was not a cause.

However, they found that education had an outsized impact.

“We intend this post to add to the evidence that growing educational attainment has contributed to rising inequality,” wrote research economist Julie L. Hotchkiss and Fernando Rios-Avila, a research scholar at the Levy Economics Institute of Bard College.

The researchers were quick to add that they are not saying that education is the only reason for rising inequality. And they likewise emphasized that they are not saying more education is a bad thing.

But the evidence is clear, they wrote, that there is a link between education and inequality “and understanding that association will be central to understanding the overall growth in inequality in the United States.”

The Fed economists don’t try to explain what is behind their finding.

But for many years, there has long been a “premium” – that is, higher pay – for most people with more education. On average, people with less education have made less.

It’s just that the economic impact of that split has grown harsher.

Many jobs that used to provide decent incomes to low-educated workers have been eliminated. At the same time, hiring in the past several years has been anemic, so many people with college education have been applying for jobs that in the past did not require a degree.

That only pushes other workers farther down the economic ladder. And that outcome is worst for those who do not finish high school.

As a political issue, inequality is controversial, raising the question of whether government policy is partly responsible and whether policy changes should address it. There have been arguments as well, about the causes of inequality.

Liberals have often blamed tax policies and CEO pay. In contrast, Stephen Moore of the conservative Heritage Foundation, argued recently that rising inequality was caused by policies in more liberal states.

But as an economic issue, the existence of greater inequality is supported by substantial evidence, write Hotchkiss and Rios-Avila. “There is little debate about whether income inequality has been rising in the United States for some time, and more dramatically recently.”

Inequality has been growing steadily greater since the late 1970s, according to the most-cited measure, which is known as the Gini Coefficient. But only in the last few years has concern about inequality grown, perhaps fueled in by the struggles of many Americans to get ahead – even before the vicious recession of 2007-09 and the tepid recovery since.

Many economists have argued that “real” American wages, that is, wages adjusted for inflation, have been largely stagnant since the early 1970s, except for several years starting with the boom of the late 1990s.

A separate study by Rios-Avila and Hotchkiss — done recently for the Levy Institute – concluded that it has become even worse than that: Inflation-adjusted wages since the recession of 2001 have actually declined.

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