In a large corporation I was employed by (in San Francisco) the annual salary reviews were done in the context of a 'budget' that had been preestablished by financial planning - the budget being the overall corporate-wide percentage of increase set as a limit. The limit applied to non-managerical employees only.

Presumably there were budgets for managerial and executive positions as well but since I was a manager this info was a 'secret' I never learned about.

The existance of this budget was 'secret' to non-managerial employees as well as the precise percentage allowed each year. So employees were allowed/encouraged to believe that merit alone determined the amount of the wage increase.

Prior experiences in other corporations were very similar but not quite so explicit.

What seems to have happened in our overall economy is that salary budgets have been frozen for workers, gained some for managers/supervisors, gained a lot for executives and increased exponentially for the inner executive/ruling class of people. All in 'secret'. And then, add to this the prevalence of various forms of pushing out the oldest/longest employed/highest paid mid-level people, and also simultaneously demanding more work/higher productivity from everyone while ignoring the positive profitability impacts of higher productivity and stagnant wages and there you have it: a more class-based distribution of wealth. The Ownership Economy in Bush's words.

Greed comes in various forms. Executive greed for salary, bonuses and options. Investor greed for ever-greater profits and higher stock prices. Worker greed for a better living style and family development. Only one of these has been ignored in our post-Reagan era: The workers. They have been ignored because the 'budget' for distributing business net income as compensation gains only has room for those at the top.

The college graduate is today's steelworker or automobile assembly-line worker. "Take what ya get or we'll export your job. And work harder/longer too. You're so lucky to have gone into years/decades of student loan debt to get where you are. Others aren't so 'fortunate' [sly grin]."

Income inequality and wealth inequality are two issues that get mixed up in casual conversation.

Income inequality is drastically increasing, while wealth inequality is somewhat stable. Bottom line is there is nothing drastically different today in terms of rich people earning vast capital gains. They always have. But there is something unique in the income inequality trend, and Ezra just showed it is difficult to make a good argument that it is not based on education/creativity.

Quite right, and well researched post. The key bit refuting Yglesias is here:

our own research shows that half of the growth in wage inequality over the 1980s, and most of the growth in the 2000s, occurred within education groups, meaning that inequality’s growth is currently being driven by the gains of some college graduates relative to others with the same education credentials.

There's some real structural problems in our tax code, trading regimes, and labor markets, in addition to education gaps.

"As I put it in the post kicking off this exchange, "we've built an economy where the riches go not to those with the most knowledge, but the most money.""

Important topic. Love the picture. And, yes, there is a pre-set budget for salary increases and a ready fiction about our relative lack of merit, which has the added benefit of keeping us in fear.

I think we need to start taking on this lack of education nonsense. The supply of not-educated people is simply endless, so they get to think they've hit on some eternal verity to which no one can possibly respond.

But *liberals* are themselves all too prone to falling into the education trap. We need to make a real concerted effort to climb back out. Using education as a convenient excuse is not something we're interested in.

Ezra - please clarify whether the widening of the college education wage gap is due to rising wages for the college educated or to declining wages for those with less education (relative to inflation).

Never mind, I found the other posting.

College graduates get higher wages because they've demonstrated that they are docile and willing to sit passively for hours, and spend more hours doing pointless tasks whose purpose (if any) is never made clear to them. Business majors get relatively more because they've burned their bridges; they declared their fealty to corporations when they 11th graders, and forthwith they'll have relatively fewer choices.

It really doesn't matter what they actually learned, or if they learned anything at all. Good thing, because college faculties have given up trying to teach at anything like a college level. Maybe that's not true at Oberlin or Williams or someplace, but it's true everywhere I've been.

Also, this increase within education level makes no sense. A bachelors degree in english at Oklahoma State is different from a mechanical engineering degree from Cal Tech. It is likely the statistical technique used made them equal. Only a very complete analysis would be able to control for all different degrees from all different universities.

My point is that it makes no sense to look at all people with a B.A and group them together, as if they have the same skills. The results are meaningless, if you are inferring that the increasing returns to education argument is bogus.

The only way to come to a conclusion is to use your instincts. Do you really think that returns to education aren't increasing? Does the number of unemployed with college degrees tell you something about employers or something about the unemployed? It's hard to believe we have a bunch of brilliant people sitting around idle. Software companies would rather pass up a potential Sergei Brin than pay them $50,000 a year?

I'm sorry, but I cannot comprehend the argument that there are not increasing returns to education. Ezra's post relies on ex post data likely gathered and analyzed using sloppy statistical techniques, and attempts to defy what your logic might tell you.

Isn't a key point in this debate the fact that inequality and skills/education are highly coupled? Simply put: if you're parents are in the lower deciles of a highly unequal society, the social and educational gap you'll experience from day one mean that it becomes much more unlikely that you'll ever match the cognitive skills or substantive educational attainments of those higher up in the earnings/wealth ranking (not impossible, but very unlikely). Put another way: there's no way to close the skills gap between the middle and the poor *without* reducing inequality.

As for the income gap between the middle class and the super-rich, I'd agree with most of the posters here that it's mostly a matter of er... rent-seeking.

Sam.

There's a huge difference between a degree from, say, Harvard and a degree from, say, St. Cloud State University.

Have the spots available at elite schools kept pace with population? I have no idea.

A regular college grad with no "connections" (like through their family) ends up applying for entry level jobs like everyone else. We hire college grads and our starting pay has barely budged in 5 years. It comes to around $16 per hour not including benefits. At corporate HQ the Princeton/Yale crowd get put in special fast-track management programs. It's curious how many of the names sound familiar...almost as if they are related to top execs or something...

Regards.

What on earth is the point of getting more people through college when there aren't enough good jobs to go around? If you manage to get more people through college a larger percentage of college graduates will be doing lousy drudge work--clerical work, service sector work, etc. Someone's got to do those jobs, but why college graduates? Why stick individuals who are going to end up doing miserable boring jobs with student loans to pay off and expectations that they can't satisfy?

Good jobs, interesting jobs, are scarce resources. If you have more people with BAs then people will need additional credentials to bag the interesting jobs, and education-inflation will just increase: more competition for elite schools and advanced degrees.

What the heck is the point? To keep kids in school until their 30 to get PhDs that will qualify them for generic entry level sales or management trainee positions?

"Good jobs, interesting jobs, are scarce resources."

Because there is only a finite lump of work to go around, and its distribution remains constant, and there are no ways to reorganize any kind of work that might make it any more or less rewarding than it currently is.

Well that's the point, i'n'it? Reorganizing work rather than seeing to it that everyone spends more years in "higher education" given the current system

Going to college can be viewed as an investment in future earnings. Of course it has other benefits, too, but most people would not bother going if there was no earning advantage.

But notice that to do that investment the prospective student must both spend a lot of money to buy the degree and to spend time on that education, time, which would earn a salary if it was spent in the labor market.

The real costs of a college degree have increased over the last decade or two. That the ratio of college pay to hs pay is not rising gives one explanation for why the numbers entering college might not rise. It simply isn't as good an investment, though of course the overall evaluation also depends on what other investments the student might be able to make.

All we have been discussing here is the pitfalls of capitalism, while ignoring the fundamental issues here. To quote a Devotchka song,

"If you win the rat race,
If you come in first place,
then a rat is all you will be."

Find a way to get paid a decend amount of money doing something you love, AND that GIVES to other people. Create right. If your creating something that gives to others, they are willing to pay for it.

This isn't the fundamental issue, however. The issue is that healthcare and energy are becoming so expensive that it's driving up the price of everything, meanwhile wages are stagnant. If your populice is taken care of, if they have their physical needs taken care of, while still having some money to splurge on an MP3 player or, GOD FORBID! a hobby and a vacation twice a year, then the country is productive. When people start losing faith in the fairness and the certianty of their financial well being, we call that a recession.

Alas, it's human to constantly want more than is given to us. It's what has inspired so much creativity as well as destruction. It's what happens when your given a limited time span for life and a finite universe. We've created a culture of more is better, and if I have more, I'm better than you. Some people have bought into this so much that it's easy for them to say that if you can't afford healthcare or gas to get to your 2 jobs, than you just don't deserve it. It's wrong, and we have to change it twenty-somethings!

PS The usual disclaimer about being at work and not really having time to proof read this :)