Inequality

Roger Lowenstein had a very nice article in yesterday's New York Times Magazine entitled "The Inequality Conundrum." Here is a particularly interesting passage with a lot of implications:

In 1979, the upper 1 percent of the United States collected 9 percent of total income. Now they get 16 percent. That’s an enormous increase. But beneath the very top, the trend toward inequality has been less marked. For instance, those in the middle of the income spectrum used to earn 3.2 times as much as those at the bottom; that ratio has widened, but only to 3.65 times as much. The real action has occurred between folks in the top percentile — those who, in 2004, earned an average of $1.3 million — and everyone else.

Since much of the increase in inequality has been concentrated at the very top of the income distribution, this basically means that those factors that have been emphasized by hundreds of studies--such as skill-biased technological change, immigration, international trade, the decline of unions, and a stagnant minimum wage--can't really be the "smoking gun." To me, this implies that the usual policy prescription--improve training opportunities so that the disadvantaged increase their schooling or vocational skills--can only solve part of the underlying problem. And yet, many observers still fall into the trap. For instance, here's the conclusion to the Lowenstein article:

To get more Americans to enroll in and complete college, the theory goes, you can either fix the schools (more teachers, longer school years, more student loans) or fix the students (more nurturing of kids from disadvantaged homes). Both approaches would cost a lot. But if you’re worried about inequality, it’s hard to see any alternative. Hamburger flippers simply don’t command a high wage. We can pass laws to change that — a minimum price for cheeseburgers, maybe — or we can, finally, invest in teaching the flippers to do something else.

Am I missing the point? Isn't it perfectly obvious that teaching the  "flippers to do something else" will barely make a dent in their economic status relative to that of the top 1% of the income distribution?

Comments

[Paul]

Not to mention, if we teach all the burger flippers to do other things, who's going to flip the burgers? The illegal immigrants I guess...

[pwyll]

The author scratches his head at the end of the article and wonders why more of the lower classes aren't getting more education. But their behaviour seems rational to me - if they wouldn't get anything out of more education, why should they get more education? Sadly I think this can be filed as item #45293 on the list of "Regrssions whose results would be markedly improved by adding IQ to the list of independant variables".

[Luke Lea]

There is a way to educate the working class to flourish in the new global economy. Explain that free trade and mass immigration reward capital at the expense of labor (at least in the developed countries it does) and that the answer, therefore, is to redistibute income from capital to labor.

Of course how to do this in a way that is both fair and efficient is the problem. I think we should take another look at wage subsidies -- call it "wage compensation" -- to be financed by a graduated consumption tax along the lines proposed by Senators Nunn and Domenici in their 1996 USA Tax. Be happy to point people to the literature on the latter, which is long and distinguished. luke.lea@gmail.com