Austan Goolsbee is an economist employed at the University of Chicago. He suggests that the stagnation of middle- and working-class incomes is a most pressing problem, and Goolsbee says its root cause is "radically increased returns to skill."
In 1980, people with college degrees made on average 30 percent more than those with only high school diplomas. That disparity has widened to 70 percent. In the same year, the average earnings of people with advanced degrees were 50 percent more than those with only high school diplomas; today, it is more than 100 percent.....Goolsbee says
The solution is to invest more in education, which will raise wages, reduce inequality and move toward equilibrium. The GI Bill was, he says, so prolific in stimulating investment in "human capital" -- particularly, college education -- that for a while the return on it went down relative to high school.
globalization is responsible for "a small fraction" of today's income disparities. He says that "60 to 70 percent of the economy faces virtually no international competition." America's 18.5 million government employees have little to fear from free trade; so do auto mechanics, dentists and many others.Comment: I am not enough of an economist to have my opinions count as compared to those of a professor at the University of Chicago. It does seem to me that policy and institutions must count, and that better policies and stronger institutions would have mitigated the worsening of income distribution. Still, I like the policy recommendation of more education. JAD
Goolsbee's rough estimate is that technology -- meaning all that the phrase "information economy" denotes -- accounts for more than 80 percent of the increase in earnings disparities, whereas trade accounts for much less than 20 percent.
2 comments:
http://www.ifpri.org/2020Chinaconference/pdf/beijingbrief_ravallion.pdf
SPEAKing of inequality, this is a good piece explaining why economic growth does so little to address poverty in many countries....
This policy brief by Martin Ravallion from the International Food Policy Research Institute (IFPRI) is indeed interesting. Analysis of 290 observations of the relation between economic growth and distribution of income is presented, suggesting that as many countries see an increase in income inequality as see a decrease at the same growth rate.
The brief points out that, assuming inequality does not change, if there is very great inequality, most of the increase in GDP goes to those who already get the most. On the other hand, if income distribution is made more equal during economic growth, even a modest rate of growth results in rapid income improvements for the poor.
The article points out that the growth path is important. "Growth in aggregate farm output has had about four times greater impact on aggregate poverty in China than has growth in the manufacturing or services sectors. In other countries, however, including Brazil and India, the services sector has proved to be an important source of poverty-reducing growth."
The brief suggests that the relationship between inequality and growth is complex. Growth results from innovation, and some inequality and some approaches to improvement of equity can militate against innovation; some approaches to increasing the rate of innovation can lead to more inequality.
It seems likely that the increasing returns to education in the United States, emphasized by goolsbee is related to the experience of ICT lead growth in the American economy.
Post a Comment