|
Thursday, May 31, 2007
OECD Report: Inequality Threat to Propsperity
The Organisation for Economic Co-operation and Development released its biannual Economic Survey of the United States this week. The report itself will make for good summertime reading on the beach, but it's mention of income inequality makes it especially exciting.
Policies and global trends that have made the economy more open, flexible and dynamic — thereby boosting productivity and overall prosperity —
may have increased inequality. If unaddressed, concerns about inequality have the potential for eroding support for such policies.
Recognizing the trend in rising inequality is the first step to solving the problem. However, the report manages to indicate that rising inequality is not good, but only insofar as rising inequality will undermine support for the very policies that have created it. Rather than attempt to draw attention to skyrocketing CEO pay and the de-unionization of the workforce (two substantial factors of growing income inequality), the report tells pleasing stories about the "skill premium."
To a considerable extent, the rise in inequality reflects an increase in returns to investing in skills (Council of Economic Advisers, 2006). In the United States wages of workers with more years of formal education have increased much more than those of workers with fewer years of formal education. For instance, over the last quarter century, the hourly earnings of college-educated workers have grown by more than a fifth, while those of high school drop-outs have actually declined somewhat.
If you read that carefully, you will see that workers with "more years of formal education" have seen their wages grow by 20 percent over the past 25 years. In other words, a college degree gets you less than 1 percent income growth per year.
One percent is chump change compared to what those in the 99.9th percentile saw - a 181 percent increase over the same time, or more than 7 percent per year. For those in the 99.99th percentile, they saw a massive 437 percent increase (17 percent annual increases). Somehow I don't think easy street begins with a college degree, but I can see where CEOs and the economic power elite might get nervous if we quit blaming the victim and started looking at compensation structure of firms to begin solving the inequality crisis.
Posted by Craig Jennings
|