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Volumn 344, Issue 6186, 2014, Pages 843-851

Skills, education, and the rise of earnings inequality among the "other 99 percent"

Author keywords

[No Author keywords available]

Indexed keywords

ECONOMIC POLICY; EDUCATIONAL ATTAINMENT; INCOME DISTRIBUTION; INDUSTRIALIZATION; SKILLED LABOR; SOCIAL POLICY; SOCIOECONOMIC CONDITIONS; WAGE;

EID: 84901236364     PISSN: 00368075     EISSN: 10959203     Source Type: Journal    
DOI: 10.1126/science.1251868     Document Type: Review
Times cited : (710)

References (54)
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    • note
    • Goldin and Katz (1) found that the increase in the education wage premium, particularly the college premium, explains about 60 to 70% of the rise in wage inequality (variance) between 1980 and 2005.
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    • These calculations use data from (8), with data updated to 2012 available at Average U.S. household incomes, including the top 1%, rose by 20.2%, while the average household income of the bottom 99% of households rose by only 3.5%
    • These calculations use data from (8), with data updated to 2012 available at http://elsa.berkeley.edu/saez/~Tab-Fig.2012prel.xls. Average U.S. household incomes, including the top 1%, rose by 20.2%, while the average household income of the bottom 99% of households rose by only 3.5%.
  • 10
    • 84901203491 scopus 로고    scopus 로고
    • note
    • Thus, the top 1% maintains its share of household income at a constant 10.0% while average household incomes rise by 20.2%, as actually occurred.
  • 11
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    • note
    • This point is due to Lawrence Katz of Harvard University, who offers these calculations in his graduate labor economics lecture notes.
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    • See for more information. The PIAAC program will encompass 33 countries, but data for only 22 were available at this writing
    • See www.oecd.org/site/piaac/surveyofadultskills.htm for more information. The PIAAC program will encompass 33 countries, but data for only 22 were available at this writing.
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    • note
    • Hanushek et al. (15) also found that the correlation between numeracy skills and years of schooling is 0.45. When including both numeracy skills and years of schooling in an earnings regression, they found that both are substantial and significant predictors of earnings, although each is attenuated relative to a model where only one factor is included at a time. This pattern of results suggests, logically, that neither test scores nor years of schooling is a complete measure of labor market skills.
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    • note
    • These comparisons hold labor market experience and gender constant. This doubling of the college premium very likely understates the magnitude of the increase in inequality between college-educated and non-college-educated workers. Alongside higher hourly earnings, college-educated workers enjoy greater job stability, lower rates of unemployment, more generous fringe benefits, and better working conditions; Pierce (21) found that these differentials have generally increased in the same time period.
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    • note
    • Extensive recent literature, commencing with Autor et al. (23) and summarized in Acemoglu and Autor (24), considers the role of technological change in displacing workers performing routine tasks and complementing workers performing nonroutine tasks. An additional implication of this framework is that an increasing share of employment will be found in comparatively low-skill nonroutine manual tasks that require situational adaptability, visual and language recognition, and in-person interactions but limited formal education (e.g., janitors and cleaners, home health aides, construction laborers, and security personnel). See Autor and Dorn (25) and Goos et al. (26) for evidence that employment in the U.S. and among OECD member countries has increasingly polarized into high-paid, abstract-intensive occupations and low-paid, manual-intensive occupations.
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    • Details of this model are given in the online supplement.
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    • note
    • Summarizing evidence on the college premium in 12 European countries between 1994 and 1999, Crivellaro (35) found a pattern of increasing skill differentials except in countries that have had a large increase in the relative supply of college graduates, a pattern consistent with the conceptual model laid out below.
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    • Although this deceleration is not evident from Fig. 3, it is detected by the regression equation, as discussed in the online supplement.
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    • Three sources of uncertainty should be kept in mind when interpreting these estimates. First, they encompass substantial heterogeneity. Although the average college graduate earns substantially more than the average high school graduate, the least successful college graduates may earn substantially less than the median among high school graduates, and the most successful high school graduates may earn substantially more than the median among college graduates. Second, for students who acquire substantial student debt but do not complete the college degree, it is far from certain that college will prove a good investment. Finally, these calculations assume that the lifetime profile of earnings observed in the year of college graduation will persist throughout the career. As Fig. 3 indicates, this premium has changed substantially over time, so this assumption is only a rough approximation. However, the college premium is so high at present that even with a substantial decline, college would remain an attractive financial proposition on average from a lifetime earnings perspective.
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    • As with cross-sectional inequality, there is no economically "ideal" level of intergenerational mobility. Even in a society with perfect equality of opportunity, one would expect children of successful parents to have above-average success as adults, simply because many attributes that contribute to success (appearance, intellect, athleticism) are partly heritable.
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    • note
    • Between 2002-2003 and 2012-2013, the sum of federal Pell Grants and loans for higher education increased by 105%, from $83 billion to $170 billion in constant 2012 dollars [(38), table 1].
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    • note
    • The extensive involvement of state and federal government in education at all levels also underscores the fact that the distribution of education and skills today is in no sense a "free market" outcome; it is a consequence of both individual and public choices.


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