In an interview on Inequality

Let’s go through your books. Your first choice is The Race between Education and Technology, published by Harvard University Press. You mentioned in an earlier email to me that it is “a must-read for anyone interested in inequality”. Tell me more.

This is a really wonderful book. It gives a masterful outline of the standard economic model, where earnings are proportional to contribution, or to productivity. It highlights in a very clear manner what determines the productivities of different individuals and different groups. It takes its cue from a phrase that the famous Dutch economist, Jan Tinbergen coined. The key idea is that technological changes often increase the demand for more skilled workers, so in order to keep inequality in check you need to have a steady increase in the supply of skilled workers in the economy. He called this “the race between education and technology”. If the race is won by technology, inequality tends to increase, if the race is won by education, inequality tends to decrease.

The authors, Claudia Goldin and Larry Katz, show that this is actually a pretty good model in terms of explaining the last 100 years or so of US history. They give an excellent historical account of how the US education system was formed and why it was very progressive, leading to a very large increase in the supply of educated workers, in the first half of the century. This created greater equality in the US than in many other parts of the world.

They also point to three things that have changed that picture over the last 30 to 40 years. One is that technology has become even more biased towards more skilled, higher earning workers than before. So, all else being equal, that will tend to increase inequality. Secondly, we’ve been going through a phase of globalisation. Things such as trading with China – where low-skill labour is much cheaper – are putting pressure on low wages. Third, and possibly most important, is that the US education system has been failing terribly at some level. We haven’t been able to increase the share of our youth that completes college or high school. It’s really remarkable, and most people wouldn’t actually guess this, but in the US, the cohorts that had the highest high-school graduation rates were the ones that were graduating in the middle of the 1960s. Our high-school graduation rate has actually been declining since then. If you look at college, it’s the same thing. This is hugely important, and it’s really quite shocking. It has a major effect on inequality, because it is making skills much more scarce then they should be.

Do Goldin and Katz go into the reasons why education is failing in the US?

They do discuss it, but nobody knows. It’s not a monocausal, simple story. It’s not that we’re spending less. In fact, we are spending more. It’s certainly not that college is not valued, it’s valued a lot. The college premium – what college graduates earn relative to high-school graduates – has been increasing rapidly. It’s not that the US is not investing enough in low-income schools. There has been a lot of investment in low-income schools. Not just free lunches, but lots of grants and other forms of spending from both states and the federal government.

So there’s no easy solution?

No, there is no easy solution. But it is important that this becomes a top priority. There are many things that can be done. Reforming schools and spending more on schools are not silver bullets, but they will certainly help.

It’s ironic, when the US has the best universities in the world. You’re Turkish, but you’re here. Lots of foreigners have ended up here precisely because of the education system.

Yes, but it cuts both ways. The US has been a land of opportunity, so it has attracted skilled engineers, scientists, and PhDs. On the other hand, one of the contributors to low high-school and college completion rates is that the US is open to immigrants of all sorts, and the integration process is often slow. If you look at high-school and college completion rates of immigrants, especially Hispanic immigrants, they are much lower that those of non-immigrants.