Economist: labor market, education to blame for inequality

Princeton economist Alan Kreuger delivered the third lecture in the College’s “Does Equality Matter?” series to a packed audience last week. Krueger focused most of his talk on so-called “positive” economics, the study of how markets work.

He also touched on “normative” economics, giving his take on why inequality matters for economics and how economic inequality can be reduced.

Krueger’s presentation, “Inequality, Too Much of a Good Thing,” focused on both the benefits and disadvantages associated with inequality.

With a slew of graphs and charts, Krueger laid out just how unequal the distribution of wealth is in America.

Krueger showed, for example, the “sagging middle,” of wealth increase in America. From 1947-73, the bottom 20 percent of earners saw real wages rise 3 percent while the top 20 percent only rose 2.4 percent.

On the other hand, from 1973-2000, the bottom 20 percent rose 0.7 percent while the top 20 percent rose 3 percent, showing unequal growth in wealth distribution. Krueger attributed these differences to the labor market, namely to an increase in the demand for better-educated workers.

“It’s education that’s contributing to the difference in income,” he said.

To support this, Krueger pointed to studies that showed how identical twins with different levels of education had disparate incomes, even if they were similar in all other ways.

He pointed to the emergence of skill-based technology fields, global off-shoring and outsourcing and institutional changes, especially the decline of organized labor. From a high of 35 percent in the 1950s, union membership has fallen to only 7.9 percent of all private sector workforces.

“Unions level wages,” Krueger said. “Unions are a lower-middle class phenomenon” that bring democracy to the workplace in the form of grievance procedures and collective bargaining.

But it’s the increase in demand for skilled workers while the supply of them has tapered that really increased the premium paid to workers with advanced degrees, Krueger said.

“Employers have long demanded skilled workers, but the supply has slowed,” he said.

For example, while 21.6 percent of Americans had at least a bachelor’s degree in 1980, that number only increased to 30.2 percent in 2000, and the Department of Labor estimates that number will grow to only 33.6 percent in 2020, a dramatic slow-down.

In addition to providing statistics, Krueger argued that inequality in economic opportunity should concern students.

For example, some rewards of wealth aren’t connected to the merit of the individual. An employee who is promoted due to racism has earned something that he or she doesn’t deserve.

In addition, Krueger argued that with wealth goes political power. Those with money can influence the government to pursue policies helpful to them at the expense of those who don’t have money.

Moreover, Krueger said that inequality in wealth is just unfair. Forty-three percent of all income in America went to the top 10 percent of wage earners in 2002. And, he said, it’s not like most Americans can join that top 10 percent.

“The idea of mobility in income is largely a myth,” Krueger said.

He pointed to studies that showed that 67 percent of individuals who were born to families in the bottom 20 percent of earners remained in the bottom 20 percent or only progressed into the bottom 40 percent bracket.

To start fixing some of these problems, Krueger has some ideas. He explained that supporting early education, especially preschool, pays large dividends in the long run, with benefits that are seven or eight times the cost. He also said a lengthened school year would help American students keep up with foreign students.

He suggested that job training and the use of military resources to train a new generation of skilled workers may be beneficial. Also, he said that the labor laws on the books need to be used to protect workers.

“We need to do a better job enforcing labor laws,” he said.

The College’s “Does Equality Matter?” program has been supported by the Center for the Study of Social Justice, a Washington, D.C.-based non-profit, the Schools of Business and Culture and Society, as well as the departments of political science and philosophy and religion.

The program includes four lectures and two classes at the College, which are Civil Liberties, taught by Daryl Fair, professor of political science, and Equality in Ethics and the Law, taught by Melinda Roberts, professor of philosophy and religion and coordinator of the program.