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Policymakers Should Heed Condoleeza Rice’s Warnings

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November 30, 2011 09:40 pm

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policymakersSpeaking on “Meet the Press” about the nation’s education challenges, former U.S. Secretary of State Condoleezza Rice noted, “I think it’s gonna drive us into class warfare like we’ve never seen, because education, even in the segregated South, was always the way that you got out.”

Dr. Rice’s comments are an important addition to the national discussion on income equality that’s been happening over the last few weeks. This isn’t a matter of simple Thanksgiving guilt, but based on real analyses on the economy and what inequality means for the nation’s future. Recently, the Congressional Budget Office (CBO) published a report showing that income inequality grew significantly in the last three decades. While the income of the top 1 percent and top 20 percent in the nation grew by 275 percent and 65 percent, respectively, between 1979 and 2007, the income of the nation’s lowest income quartile grew by only 18 percent. As the chart to above shows, when factoring in inflation, the actual disparity is even greater. This report was followed up by a 15-page response by House Budget Committee Chairman Paul Ryan (R-WI), which highlights that decreasing inequality should be driven by reducing the inequality of government transfer payments rather than taxes.

Putting aside that kind of political rhetoric, we should be clear about why the discussion about income inequality is important. Some believe that one of the core principles of this country is that everybody should have the opportunity to succeed regardless of what lot they were born into and, along those lines, argue that the large levels of inequality shown by the CBO report points to failure on that principle.

That said, while claims on fairness should not be discounted, inequality is not just a moral imperative, it’s an economic growth imperative as well. Higher income inequality often translates to crime, political instability, and a lower supply of skilled labor-all of which can dampen growth. Beyond these risks, there are also challenges that inequality poses for countries working to sustain growth. For example, a recent paper by Andrew Berg and Jonathan Ostry of the International Monetary Fund shows that inequality may deepen economic shocks and has a negative impact on sustained economic growth.

So if we agree that income inequality is not only bad for many of our youth but could also be bad for our economy, the next challenge is to identify what its underlying causes are and how we address those causes. This is obviously not a simple answer and has roots in a variety of areas that include access to health, housing, credit, and a variety of other factors.

An analysis by Martha Bailey, an assistant economics professor at the University of Michigan, shows that while income inequality has increased so dramatically, there has been a similar dramatic increase in the college completion gap nationwide. Bailey’s study shows that between 1979 and 1997 alone, the college completion gap between high-income and low-income students increased from 31 percentage points to 45 percentage points (that by itself represents a 45 percent increase in the gap).

Whether lower income drives lower college completion rates or vice versa is not completely clear. Chances are that the two factors are driving each other. What is clear, however, is that youth who fail to complete high school and attain some sort of postsecondary degree are at a huge disadvantage in the economy. Labor market analyses by the Georgetown Center for Education and Workforce and the Bureau of Labor Statistics show that the percentage of jobs in the economy by level of education needed has dramatically shifted over the last 40 years. As shown in the graphic below, 72 percent of jobs in 1973 only needed a high school degree or lower versus 28 percent of jobs that did not. By 2007 that breakdown had almost flipped; projections shows these trends will only continue in the coming years.

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Source: A. Carnevale, N. Smith, and J. Strohl, Help Wanted: Projections of Jobs and Economic Requirements Through 2018 (Washington, DC: Georgetown University Center on Education and the Workforce, 2010).

What’s more, previously high-paying jobs that did not need postsecondary education such as farmers, machinists, and industrial production manager are either on the decline or requiring higher levels of education. Overall, individuals with lower levels of education are more susceptible to unemployment and lower wages as the Bureau of Labor Statistics graphic below demonstrates.

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The combination of greater susceptibility to unemployment and lower-paying occupations for lower-educated individuals, the increase in educational demands of higher paying occupations, and the increase in the postsecondary attainment gap among income groups all contribute to the rising income inequality we have seen in the last forty years.

What’s more, the consequence of a skill gap between the skills companies need and the education and the skills the labor force possesses is a challenge being faced even in the present economy. Indeed, perhaps the most tragic part of double-digit unemployment rates that many states and communities face is the fact that there are jobs that are available that can’t be filled. If the college completion trends Bailey finds go unaddressed, it is likely that these trends will only continue and widen. And even more, the greater risk to the economy may not be the jobs we anticipate not being able to fill, but that a new sector or innovation remains uncreated because the nation failed to unleash the potential of a low-income youth sitting in a failing classroom today. Along these lines, the 2006 World Development Report by the World Bank concluded that, “Inequality of opportunity, both within and among nations, sustains extreme deprivation, results in wasted human potential and often weakens prospects for overall prosperity and economic growth.”

So the moral of all this is that inequality is real and has real consequences for the future of our country and its economy. Whether Dr. Rice’s warnings of class warfare become reality or not, it is clear that rising inequality can only weigh down our economy. What’s also clear is that the magnitude of the problem Mr. Ryan and his CBO counterparts’ successors will have to deal with in the future will in large part be affected by the decisions the Congress and state legislatures make today on how to invest in the education of all students in this country. Failure to provide all students with an education that prepares them for college and career success not only short changes those students, but employers and the economy as well.

Ace Parsi is a policy and advocacy associate at the Alliance for Excellent Education.

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