The Economic Inequality Lurking Among The 99 Percent


Debates on economic inequality over the past few years have focused on the growing divide between the top 1 percent of Americans and everyone else. Recent graphs even show that it’s the top 0.01 percent making the biggest income gains.

But a new paper looks at a larger divide, this time among the 99 percent: the education gap. “An exclusive focus on the concentration of top incomes ignores the component of rising inequality that is arguably even more consequential for the ‘other 99 percent’,” said David Autor, author of the study and an economist at MIT.

Autor found dramatic growth in the earning potential of people who get a college degree, which rose 20 to 56 percent in the last 35 years, accompanied by a large decline in the value of a high school diploma, which fell 11 percent. The result is an earnings gap between the two groups that has grown four times greater than the income shift to the top 1 percent since the 1980s.

If the wealth gained by the top 1 percent between 1979 and 2012 was divided equally among the total population, each household would get around $7,100 each. But the gap in median earnings between households with high-school educated workers and college-educated ones has grown by $28,000 in the same period.

The earnings gap has increased for households among the 99 percent by around $28,000 between 1979 and 2012. CREDIT: DAVID AUTOR, SCIENCE JOURNAL
The earnings gap has increased for households among the 99 percent by around $28,000 between 1979 and 2012. CREDIT: DAVID AUTOR, SCIENCE JOURNAL

Coming at a time when many ask whether the benefits of going to college are worth the high tuition costs, the survey shows that the “education premium” is still alive and well. “College has gotten more expensive, but relative to the lifetime earnings differential, it’s still quite an attractive investment proposition,” Autor said in an interview with MIT News.

What’s behind the increasing wage inequality? Autor points to decreasing power among workers to bargain for better wages and changes in the type of skills demanded in the country had a big role. In 1900, four in ten U.S. jobs were in agriculture and many required hard physical labor. The average American went to school up until 8th grade. But now, the economy revolves around high-skill sectors like information technology and healthcare.

Autor added that other factors besides skill sets and education contribute to inequality, including the decline in the purchasing power of the minimum wage.

With substantial and constant economic immobility in the United States, children born to low-income families have seen a huge decrease in financial opportunity compared to children of high-income families. “The rungs of the economic ladder have pulled apart but the chance of ascending the ladder has not improved,” the study states.

Autor provides some solutions for the education gap: progressive tax policies to fund investments in education, wage subsidies like the Earned Income Tax Credit to increase the payoff to employment, minimum wage rules, and social insurance policies.