Thursday, October 19, 2006

Income inequality by education

Here it is, broken down by level of education. Note that even the PhD income increase from 2000-2005 is only slightly positive in real terms. Also, it significantly lags the increase for professionals. See here for previous posts on income inequality.

WSJ: The wage gap between those with business, law, medical or other postgraduate degrees has widened a lot more than the gap between college and high-school graduates. Even excluding capital gains, tax-return data crunched by Emmanuel Saez of the University of California at Berkeley show that the top 1% in the U.S. got 16% of all income in 2004, compared with 9% in 1984.

Before nitpicking emails arrive: No single set of numbers gives a complete picture. The data in this chart cover only cash wages -- not health benefits or pensions. If they were included, most of those inflation-adjusted minuses would turn to pluses. But inequality wouldn't disappear. The best-paid 20% of workers on private payrolls are three times as likely to have health insurance as those in the bottom 20%, and this tally doesn't count stock options and the like -- and you know who gets the bulk of those.

The question isn't whether the gap between winners and losers in the labor market is widening; it's why. And it's no longer as simple as saying: The more education one gets, the more one earns. Something more complicated is driving up pay at the top.

Explanations come in three strains, all of which have some merit. One, it's more socially acceptable than it was a generation ago for the top-tier chief executive, hedge-fund manager or baseball players to make an enormous amount of money. Two, the world has changed in ways that make the No. 1 or No. 2 -- whether a trial lawyer or a rock star -- much more valuable than No. 19 and 20. As technology has helped create superstars, the gap between Oprah's paycheck and those of local talk-show hosts is larger than ever.

And, three, there's the influence on supply and demand of globalization and technology. At the high end, sharply rising wages suggest demand for the most-educated workers is growing faster than the supply. "The very top is doing very well," says Harvard University labor economist Lawrence Katz. "It's changes in demand, combined with the fact that it's very hard to replicate a lot of that talent... and we haven't expanded the ranks of those professions as fast as we could."

At the bottom, where the supply is influenced by the ranks of unskilled immigrants and laid-off workers falling out of the middle class, demand for hotel workers, nursing aides, security guards and the like may be helping to prop up wages even though the minimum wage hasn't kept up with inflation.

It is in the middle -- where many four-year college graduates work -- that imports, overseas outsourcing and technology seems to be reducing U.S. employer demand most significantly, and thus restraining wages.

That is the kind of shift in the tectonic plates of the economy that produces political earthquakes.


Anonymous said...

"In the middle" are a lot of useless basket weaving degrees in addition to hard science and business bachelors degrees. Weed out the nonsense and I'll bet the progression gets more linear.

rz said...

I wonder if the number of Math/Physics PhDs that go work in Wall Street will start affecting the way these numbers look in the nearish future. Or maybe we can credit them with the slight increase of the PhD income? Hope not! Maybe it is time to rethink my going into Physics for the money... :-)

Steve Hsu said...

Something to emphasize about the data is that from 2000-2005 the bulk of the US population (i.e., people without PhDs or professional degrees) saw *no* average increase in income, despite the fact that GDP growth has been positive. Essentially all the gains went to a small fraction of the population.

If you look at my earlier post on the geographical distribution of gains, much of it is centered in tech hotbeds like Silicon Valley, and the finance capital, NYC.

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