Income Inequality and the Earnings Gap
between Educated and Non-Educated Workers
Kunsoo Paul Choi, PhD
Introduction
Income inequality exists in every society or country
due to the differences in education, gender, race, region, and/or other
factors. Income inequality may impact a society in several different areas,
including the economy, education, crime and other environments, and health and
life expectancy, etc.
Education is arguably one of the primary factors that
cause income inequality. Recent studies show that the earnings gap between
workers with a bachelor’s or more advanced degree and workers with a high
school diploma has been widening. And this widening of income inequality is
said to negatively affect higher education. As those non-educated workers
become poorer, they have a difficulty in sending their children to a college.
Some economists claim that if our society can produce
more college-graduating workers, income inequality between educated workers and
non-educated workers may be reduced. How can it be possible?
How
Does Income Inequality Affect the Economy?
According to the OECD report, income inequality has
been increasing in most OECD countries during the past 30 years (OECD, 2014).
The Gini coefficient, a measure of income inequality (0 means perfect income
equality and 1 means perfect income inequality), was 0.29 in OECD countries in
the middle of 1980s but went up to 0.32 in 2011/2012 (OECD, 2014). The Gini
coefficient for the United States was 0.403 in 1980 and 0.468 in 2011, which
were higher than the other OECD countries. The OECD analysis shows that income
inequality has “a negative and statistically significant impact on medium-term
growth” (2014, p. 2).
Several economists claim that income inequality hurts
economic growth, economic and financial stability, and productivity and
economic efficiency, etc. (Fletcher, 2014; Sherman, 2014). A Nobel-prize winner
Joseph Stiglitz states that “We are paying a high price for the inequality that
is increasingly scarring our economy — lower productivity, lower efficiency,
lower growth…” (2012, p. 177).
As Catherine Bond Hill states properly, getting a
bachelor’s degree will give you “higher incomes, greater job choice,
satisfaction, and security, as well as other outcomes” (2015, para. 2).
However, income inequality may affect higher education. Those poorer workers
who do not have a bachelor’s degree will experience a difficulty in sending their
children to a college as education expenses continue to go up significantly.
What
Is the Gap between Those Who Hold Degrees and Those Who Don’t?
Jonathan Rothwell reports that “full-time workers
between the ages of 25 and 64 with at least a bachelor’s degree earn an average
of $84,000 per year, compared to $42,000 for those with only a high school
diploma” (2015, para. 1).
Steven Strauss states that people with professional
degrees earned 6 times as much as people without high school diploma in 2009:
$128,000 versus $20,000 (2012, para. 2). According to Strauss, the mean
earnings of workers in 2009 were $103,000 with a doctorate degree, $128,000
with a professional degree, $74,000 with a master’s degree, $57,000 with a
bachelor’s degree, $40,000 with an associate’s degree, $32,000 with some
college but no degree, $31,000 with a high school diploma, and $20,000 without
a high school diploma (2012, Table 1). Strauss also presents that the
unemployment rates were much lower for workers with a college degree or above
(2.3% in 2001 and 4.3% in 2011) than for workers with less-than high school
diploma (7.2% in 2001 and 14.3% in 21-011) during the period of 2001-2011.
Why Has the Income Inequality Gap
between Educated and Non-Educated Workers Been Widening?
The income or earnings inequality gap between the
bachelor’s or higher degree workers and the non-degree workers has been
widening since the late 1970s. This can be explained by the basic supply-demand
relationship. Some economists claim that as the society has been advanced in
technology, firms’ demand for more educated and skilled workers has increased
whereas the supply of more educated workers has stagnated or even reduced.
Thus, there is a shortage of educated workers and the earnings gap between
educated and non-educated workers has been widening.
Anthony Carnevale and Stephen Rose state that the United
States has been underproducing college-going or graduating workers since 1980 (2011,
p. 3). Thus, the supply of college-graduating workers has been decreasing or
stagnating whereas the demand for college-graduating workers has been
increasing. According to them, the
bachelor’s degree workers’ earnings were 40% larger than the high school
diploma workers’ earnings in 1980, 74% larger in 2010, and will be 96% larger
in 2025 (2011, p. 7).
However, there are some other economists who state
that income inequality has little or nothing to do with education. Elise Gould
argues that even bachelor’s- and advanced-degree workers are not in high demand
(2015). He presents that the cumulative percentage change in real average
hourly wages during 2007-2014 was -5.9% for some-college workers, -5.2% for
less-than-high school workers, -3.7% for high-school workers, -2.0% for
college-degree workers, and 0.0% for advanced-degree workers (2015). Paul Krugman
also argues that the inflation-adjusted earnings of the educated U.S. workers
have not gone up since the late 1990s, showing that the median earnings of men
with bachelor’s degree or more have been decreasing (2015).
As Gould and Krugman argue, it may be true that the
college-degree and more advanced-degree workers’ real wages after adjusting
inflation have not increased or even decreased since 2007. However, it is also
true that their real wage decreases were smaller than the real wage decreases
of less-than-college degree workers. It means that the earnings gap between the
educated workers and non-educated workers have been still widening. In
addition, studies show that educated workers have been less laid off or
unemployed than non-educated workers.
Can More or Better Education
Reduce Income Inequality?
As we see clearly, the earnings gap between bachelor’s
or higher degree workers and high school diploma workers has been widening
since the late 1970s. Some economists claim that if our society produce more
college-graduating workers, income inequality can be reduced. According to
Carnevale and Rose, the income inequality would decline if 20 million
postsecondary-educated workers were added to the workforce (p. 8).
When there is an increase in college-educated workers,
the supply curve of the college-workers will shift to the right (more
college-educated workers are supplied) and the supply curve of the high school
diploma workers will shift to the left (fewer non-educated workers are
supplied). Then, the earnings gap between them may be reduced.
Hershbein, Kearney, and Summers simulated the effects
of increasing the college attainment of working-age men. Their simulation
results show a positive effect on average earnings and chances of being
employed but no significant effect on overall earnings inequality (2015). Yet,
their results demonstrate that an increase in educational attainment will
reduce inequality in the bottom half of the earnings distribution (2015).
Conclusion
Income inequality has been a hot issue among many
countries whether they are developed or developing countries. Our discussion
presents that education also has been contributing to income inequality and
that the gap has been widening between the educated and non-educated workers as
the society has been advanced in technology and thus employers want to hire
more educated workers. Yet, the supply of educated workers has not been meeting
the demand for them.
Income inequality that has been caused by differences
in education may be reduced when more college-degree or more advanced-degree workers
can be supplied throughout traditional and online higher education
institutions. One issue still remains – How can our society reduce education
expenses including tuition to produce more college-degree workers?
References
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