Different Types of Inequality

There’s an NBER paper by Bailey and Dynarski, via Mark Thoma, about the inequality of education, specifically post-secondary education entry and completion. The main takeaway seems to be that while upper-income boys are entering and finishing college a bit more than they had been compared to lower income boys (the paper compares 1980s cohorts with 1960s cohorts), upper-income girls are quickly outpacing their lower-income counterparts.

Sex differences in educational attainment, which were small or nonexistent thirty years ago, are now substantial, with women outpacing men in every demographic group. The female advantage in educational attainment is largest in the top quartile of the income distribution. These sex differences present a formidable challenge to standard explanations for rising inequality in educational attainment.

While I’m not sure what they mean by the last sentence, except that much of the current work has ignored the differences in sexes, I think this finding supports the idea of increasing returns to education.

From my vantage point, this paper shows a couple of things. One, is how important, but uneven, the women’s movement has been. There’s much bigger difference for girls being born in the top 20% of the income distribution as compared to the bottom 20%. While my girls will have the same (if not more) opportunities as my nephews, the same cannot be said for lower income girls and boys.

The second is that this illustrates what I generally think of as the increase in the 90-10 level of inequality. That is, there has been a steady, but not overwhelming, increase in the level of inequality between the 90th percentile and the 10th percentile (or 80th and 20th). I think economists have a fairly good understanding of the causes and consequences of this as exemplified by the Goldin and Katz book which talks about returns to education and its relationship to technology over the last 50 years.

But there’s another level of inequality, say the 99-50, that is really about the outsized incomes of the very top (1%, 0.1%, 0.01%). This is the type of inequality that is really undermining our democracy as those at the top seek to stay at the top using their money to gain political influence and favorable laws and regulations. While the 90-10 inequality is important, and should be reversed if possible (my favorite idea is simply increasing the EITC), the 99-50 inequality is what could destroy our democracy.

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