Inequality and the New Aristocracy

Running into this article the other day, I was startled to find how many of my own intellectual hobby horses it touched upon. Arnold Kling and Nich Schulz are economists, and their topic is in equality in the modern economy. They cite Google co-founder (and billionaire) Sergey Brin as an example of many of the forces they believe are driving inequality and list the following major forces:

Technology: Brin’s wealth comes from the famous search engine he pioneered with cofounder Larry Page. Their company is a mere ten years old. And yet in the blink of an eye, he has become one of the richest men in the world.

Winners-take-most markets: Certain mass-market fields tend to simulate tournaments in that they produce just a few big winners along with many losers. These include technology/software, as in the case of Google, but also entertainment (Céline Dion), book publishing (Stephen King), athletics (Tiger Woods), and even some parts of academia, finance, law, and politics (as the impressive post-presidential earnings of George H. W. Bush and Bill Clinton demonstrate).

Family structure: Both of Brin’s parents were highly educated mathematicians. This increased the likelihood that Brin, too, would be well educated. He studied computer science at the University of Maryland and was in graduate school at Stanford when the Internet business he had built lured him away.

Immigration: Brin was born in Russia, and his family moved to the United States when he was six. He and other foreign-born executives such as Andy Grove of Intel have built wealth at the top of the income distribution. At the same time, a large influx of hard-working but low-skilled immigrants has enlarged the bottom of the income distribution, at least until they achieve the assimilation that historically has required a couple of generations.

There are, I think, a pretty good list of the factors that lead to inequality in the modern economy. Particularly incisive too, I thought, was a distinction they make between kinds of inequality:

Income inequality in the United States consists of two gaps. The first gap is an upper-lower gap, between those with a college education and those without. The second is an upper-upper gap, between those with high incomes and those with extraordinarily high incomes.

The upper-lower gap reflects changes in the structure of the economy. New technologies place a premium on cognitive ability. Harvard University economists Claudia Goldin and Lawrence Katz have dubbed this “skill-biased technological change.” In today’s economy, more value added comes from knowledge work, and relatively less comes from unskilled labor.

The widening gap between the incomes for college graduates and those for workers who never attend college raises a question. Why doesn’t the supply of college graduates increase? Indeed, despite the benefits that come with higher education, the rate of high school graduation is actually falling, according to the American Bar Foundation’s Paul A. LaFontaine and Nobel laureate James Heckman of the University of Chicago.

It's a little simplistic to use college education as a stand-in for skilled versus unskilled workers, but you get the point. What I do think is quite important, though, is the three-way distinction drawn between lower, upper and upper-upper. The upper-upper group is honestly very, very small. And since one only gets that rich by owning or running companies (directly or via investments) the fact that the upper-upper group is so rich doesn't strike me as worrisome. They may make a good bloody shirt to wave for those wanting to stir up class envy, but they are not "keeping us down" in any economic sense.

The upper group is not keeping the lower one down either, but it is a more troubling barrier because it is in some ways less porous. There are still plenty of jobs to be had that rely primarily on direct manual labor (skilled or unskilled) but as productivity increases, the number of people required to do the work goes down. This has been happening in the manufacturing sector over the last half century:

And happened in agriculture in the first half:

[Source]

Compounding this is the danger for those going into highly manual work of this kind, is the danger that if one's industry dries up when one is middle aged, it is a lot more difficult to switch to one of the more productive "knowledge worker" industries in middle age. One is more likely to be sucked down into low wage service industry work, which is less amenable to being eliminated through productivity gains -- but tends not to be valued very highly.

The predictor of where one will fall in this income spectrum is, they write, family structure much more than class, ethnicity or nation of origin:

The Manhattan Institute’s Kay Hymowitz, in her book Marriage and Caste in America, has documented that for upper-income Americans marital stability has recovered from the disruptions of the 1970s. But for lower-income Americans the problem remains. Since 1980, the proportion of never-married mothers among college graduates has stabilized near 3 percent, while the proportion among high school graduates has risen from 3 percent to 10 percent, and the proportion among high school dropouts has doubled to nearly 15 percent. These figures are important because, as Hymowitz points out, “Virtually all—92 percent—of children whose families make over $75,000 are living with both parents. On the other end of the income scale, the situation is reversed: only about 20 percent of kids in families earning under $15,000 live with both parents.”

Their next argument is, however, a bit of a reach:

A trend is underway in America for marriage to be increasingly “assortative.” That means children of well-educated parents tend to marry one another and the children of less educated parents tend to marry one another. This was less the case a few generations ago. For example, sociologists Christine Schwartz of the University of Wisconsin and Robert Mare of UCLA found that beginning in the early 1970s there was a striking “decline in the odds that those with very low levels of education marry up.” And they found that between 1940 and the late 1970s the likelihood that someone with only a high-school diploma would marry someone with a college degree dropped by over 40 percent.

What they're not taking into account here, I think, is that there was a major change in social conventions between the 40s and the 70s. In 1940, it was not at all required that an upper class young woman go to college, though she certainly might. By 1970, it was an absolute assumption that members of the upper class would send their daughters to college. So I doubt that we're seeing increased like-to-like marriage here so much as that a college education has become more universally the marker of a certain social and economic class.

It's true that once a family tree moves into the upper tiers they are unlikely to send many members back down again, but the reason is, I think, cultural rather than class-based in the sense in which "class" was used in the past. As the society of the US and other developed nations becomes ever more affluent, it becomes necessary to work in very high productivity, high skilled occupations in order to "keep up". And as research increasingly shows, one of the determining factors for education and the ability to deal with knowledge intensive work is the extent to which one is read to and otherwise placed in a learning-friendly environment during one's first four years of life. Thus, people who do "knowledge work" have a much increased propensity to raise children capable of doing the same.

The good news in regards to this kind of class barrier is that it's eminently bridgeable. Any parent with the determination to do so can raise his or her children to be readers and learners (and workers of sums and figures). But it's a much more difficult task for those who lack that background themselves, and thus come to it late. In that sense, the truism that education is today's civil rights issues is... true.