Rising Inequality Explained By....Educational Slowdown?

Mankiw has an AEI short publication out called The Wealth Trajectory: Rewards for the Few. It's interesting reading. He summarizes some recent results that have found quantitative support for the belief that economic inequality has risen (but interestingly, also show that it was also steadily rising in the 80s and 90s) -- not too many would find this all that controversial.

The interesting part is the thesis of Claudia Goldin and Lawrence Katz: that basically people have slowed down the rate of increase of years of schooling, leading to more scarcity of the most qualified people. They assert that the latest crop of highest end jobs are -- like most 'new' jobs in recent decades -- knoweldge worker jobs, and that people have not ramped their education as fast as the switch-to-knowledge move in jobs has occurred.

Female Inequality -> High Performing Kids

This post over at MR is interesting. He's summarizing the analysis of a final version of a paper that came out in an earlier form in 2004: that male inequality lends support to polygamy, but female inequality girds monogamy...with the conclusion hat female inequality seems to be the more powerful factor in the West:

Economic growth means that some women have higher human capital than others and thus they are better suited at producing and rearing high quality children. Wealthy men with lots of human capital will start to bid for these women and they will have to offer them exclusive status; these men also wish to invest in a smaller number of higher quality children.

In other words, male inequality encourages polygamy while female inequality discourages it. Apparently female inequality has been winning that race.

The hypothesis also helps explain why polygamy unravels so decisively at some point. Since monogamy itself encourages children (including daughters) with higher human capital, initial tendencies toward monogamy are self-reinforcing.

Overblown Income Instability?

Much has been made in recent years of two trends: rising income inequality and rising income volatility. These two are generally mentioned as part of arguments for more progressive taxation, taxing of carried interest as if it were regular income (preventing private equity types from taking the bulk of their compensation at capital gains rates), the sunsetting of the 2001 Bush tax cuts, reversal of the slide in union power, increases in the minimum wage, or anything else the author can think of to take the sharp edges off of capitalism.

This route has been taken by books from academics, like Jacob Hacker at Yale, and also by social critics like Barbara Ehrenreich. Hacker's latest book argues that the top of the economic food chain is shifting all the risk onto the lower rungs of the latter, screwing the middle and lower classes. Ehrenreich is probably most well known for Nickled and Dimed, in which she takes a few bottom of the food chain jobs and then tries to get by (rather unsuccessfully). The income volatility aspect is considered particularly serious, as they write of hordes of Americans struggling to get by, with little to no safety net...so that when they experience a sharp dip in income, they have nothing to cushion the blow (leading to all sorts of bad physical and mental end states).

The interesting bit: the CBO is reporting findings that income volatility has apparently been relatively constant since the early 1980s:

...CBO has now examined the volatility of household income (rather than workers’ earnings volatility, the subject of our study in 2007). The preliminary results suggest that household income is much less volatile than individual worker’s earnings, and that household income volatility has not increased over time — and perhaps even declined slightly. Some other recent studies relying on other data sources have suggested increases in household and family income volatility, but various problems in the surveys used in those studies may be contaminating those results.