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The Missing I-Word In The Inequality Mystery
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November 13, 2013, 02:27 PM
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From the NYT:

Rethinking the Income Gap and a College Education 

By EDUARDO PORTER 

... Still, the growing skepticism about the value of a [college] degree has fed into a deeper unease among some economists about the ironclad trust that policy makers, alongside many academics, have vested in higher education as the weapon of choice to battle widening income disparities and improve the prospects of the middle class. 

It has given new vigor to a critique, mostly by thinkers on the left of the political spectrum, that challenges the idea that educational disparities are a main driver of economic inequality. 

“It is absolutely clear that educational wage differentials have not driven wage inequality over the last 15 years,” said Lawrence Mishel, who heads the Economic Policy Institute, a liberal-leaning center for economic policy analysis. “Wage inequality has grown a lot over the last 15 years and the educational wage premium has changed little.” 

The standard analysis of the interplay between technology and education, developed by economists like Lawrence Katz and Claudia Goldin of Harvard, and David Autor of the Massachusetts Institute of Technology, is based on a simple proposition: technological progress increased the demand for highly educated workers who could deploy it profitably, increasing their incomes. Like trade, it rendered many less-skilled occupations obsolete, eliminating what used to be solid, middle-class jobs. 

This rendition of history suggests that improvements in technology from the PC to the Internet — coupled with a college graduation rate that slowed sharply in the 1980s — have been principal drivers of the nation’s widening income gap, leaving workers with less education behind. 

But critics like Mr. Mishel point out that this theory has important blind spots.

For instance, why have wages for college graduates stagnated over the last decade, even as innovation continues at a breathtaking pace? Between 2000 and 2008 the typical earnings of men with at least a bachelor’s degree fell by more than $2,000, after inflation, to $70,332 a year. Between 2008 and last year they fell a further $3,500. Though somewhat less pronounced, the pattern is similar for women. 

Both sides agree that the overall weakness of the job market since the turn of the millennium is a prime culprit. As Professor Katz noted: “The only moments we’ve had of broadly shared prosperity have been in tight labor markets.” 

Still, the sluggish job growth of the last decade – following the rapid expansion during the second half of the 1990s — demands an explanation, which the interplay between technology and skill does not provide. 

“We have no handle on what happened in the 2000s,” Professor Autor told me. 

“That is a mystery that nobody I know understands, and I can’t point to a single policy lever or a single external force that would explain it.”

Try to guess what word is completely missing from this article and from almost all respectable thinking about this mystery.