Increasing Education: What it will and will not do for earnings inequality

March 31st, 2015

In a paper published by the Hamilton Project on March 30, 2015, Brad Hershbein, Melissa S. Kearney, and Lawrence H. Summers analyzed what increasing education will and will not do for earnings and earnings inequality. Mainstream labor economists as well as several public commentators have argued that trends in the economy over recent decades—including technological developments, globalization, and trade, among others—have weakened the relative earnings power of those with lower levels of skills, especially those without a college degree.In recent decades, the earnings of those with a college degree or more have risen steadily, while the wages of those with lower levels of education have stagnated or fallen. Furthermore, lifetime earnings of workers with a college degree are nearly twice as high as those without one, a point made by a number of previous Hamilton Project analyses, including one from this past year.

This line of reasoning leads to the view that to further the goal of widespread economic prosperity, it will be imperative to increase the skill level of many in the population, a position that a subset of us (Hershbein and Kearney) took in a recent Hamilton Project framing paper. Other commentators have objected that education is not the answer to the nation’s inequality challenge. Following up on remarks made at a recent Hamilton Project event, one of us (Summers) noted in a Washington Post interview that “to suggest that improving education is the solution to inequality is, I think, an evasion.” In this essay we clarify the different elements of the public debate and note explicitly that these positions are not necessarily at odds.

We have empirically simulated what would happen to the distribution of earnings if one out of every ten men aged 25–64 who did not have a bachelor’s degree were to instantly obtain one—a sizeable increase in college attainment. We focus on men not because women are unimportant—they clearly are important to the workforce—but because low-skilled men have seen the largest drops in employment and earnings over the past few decades, and are now considerably less likely to attend and graduate from college. We focus on college attainment because the data are readily available, but we acknowledge that it is an imperfect measure of skills, perhaps increasingly so. Despite these caveats, this empirical exercise is illuminating and sheds much needed light on an often-muddled public debate. Our analysis leads to three main takeaway points:

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