Opinion and Economic Analysis

HICKS: Middle class, education and income inequality

January 26, 2013

The United States has always had something like a middle class, but for most of our history it has been a distinction not necessarily dependent on income or wealth.

In that sense, we have been unusual among nations in allowing a Ben Franklin, Abe Lincoln or Harry Truman to do the same jobs as a Washington or Roosevelt. Class mobility remained a constant feature of our republic for most of its history.

In the last century, however, the middle class became defined by something different: household earnings. The truth is that this economic definition of the middle class was built upon an abundance of well-paying but relatively low-skilled jobs.

These jobs have been in retreat for almost 50 years, while at the same time our educational attainment has stagnated. The link between education and earnings is so strong that we have seen a widening income gap between those with and without college degrees.

While income inequality remains far smaller than the mainstream alarmists would have us believe, it also shows few signs of slowing. That should give us all pause to consider what it might mean, and what it will not mean for our nation.

We must start by acknowledging that the cause of inequality is not policy-driven. It was not brought about by anti-union efforts, or unions, or NAFTA or anything in the tax code. It is simply a reflection of the slow, but inexorable economic changes that have rewarded those with specific skills more handsomely than in the past.

So any effort to address income inequality will have to begin with the underlying economic factors. This is a far more difficult challenge than adjusting a policy mistake.

Moreover, income inequality at a single point in time may be less an issue than it seems. While earnings in a given year may be increasingly unequal, earnings over a lifetime are far less so.

High-income occupations require much human-capital investment, which is costly in both time and money. For example, the average physician’s lifetime earnings, minus college debt, will not have equaled that of the average plumber until they are both in their mid-40s. And the physician is likely to have met the definition of poverty for the better part of a decade of adulthood, only to find herself a much maligned “one-percenter” a year or two after completing residency.

Indeed, the intellectual father of inequality research, Simon Kuznets, argued that the concept of income inequality would lose meaning if households saw big income shifts over their lifetimes.

All the focus on potentially meaningless income inequality data leads us to ignore the greater problem of inter-generational inequality. If, as it appears, earnings will be increasingly linked to human capital, and human capital is inherited—either through parenting or genetics—then we have cause for worry.

So the question might well be, “How do we sustain a free society when, as it may turn out, the parent lottery determines income and class?”•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.
 

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