March 24, 2023

Today’s Economist: Laura D’Andrea Tyson: Income Inequality and Educational Opportunity


Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.

A core American value is that each individual should have the opportunity to realize his or her potential. Birth needn’t dictate destiny. Education has been the traditional American pathway to opportunity and upward mobility, but this pathway is closing for a growing number of Americans in low- and middle-income families.

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And the failure to provide all Americans with the educational opportunities to realize their potential not only harms them; it harms the nation.

Educational attainment levels rose rapidly throughout much of the 20th century, with the college completion rate quadrupling for those born between 1915 and 1975. But it has been largely stagnant since.

The slowdown in college attainment levels has been most pronounced for individuals from low-income families. At the same time, the economic benefits of higher education have risen. In 1979, the average college graduate made 38 percent more than the average high school graduate. The comparable figure today is more than 75 percent.

During the last three decades the gap between the educational attainments of children raised in rich and poor families has widened dramatically, and it reveals itself remarkably early in children’s lives.

According to the most recent census report, about one-quarter of children under the age of 6 live in poverty. Recent research shows that early childhood poverty has negative effects on brain development. At the age of 3, children in poverty have smaller vocabularies than their peers and a harder time sorting and organizing information and planning ahead.

Children in poor families are also less likely to have access to early-childhood education programs. Such programs have a proven record of raising future educational attainment levels, especially for poor children. Sadly, many states are slashing such programs, despite the fact that the funds dedicated to them earn an annual real rate of return of 10 percent or higher.

Disparities in educational achievement among children from different income groups increase with age. Such gaps are larger in fifth grade than they are in kindergarten, and they continue to grow as children move through primary and secondary school.

As a result of residential segregation, children from low-income families are more likely to have classmates with low achievement levels and behavioral problems than children from affluent families. Poor children are also disproportionately situated in schools that often find it difficult to attract and retain skilled teachers. And as the Chicago teachers’ strike reminds us, poor children are often hungry, depending on their schools rather than their homes for breakfast and lunch.

The United States is caught in a vicious cycle largely of its own making. Rising income inequality is breeding more inequality in educational opportunity, which results in greater inequality in educational attainment. That, in turn, undermines the intergenerational mobility upon which Americans have always prided themselves and perpetuates income inequality from generation to generation.

This dynamic all but guarantees a permanent underclass. Indeed, the process is already under way: An American child’s future income is already more dependent on his or her parents’ income than a child born in most other developed countries.

Demographic trends are aggravating this vicious cycle. More than half of all births in the United States now occur out of marriage, and incomes for single-parent families are lower than for married families. That’s one reason that family incomes have been declining for more than 50 percent of all children during the last 40 years.

Poverty rates are much higher in single-parent households than in married households. According to the most recent census numbers, 11.8 percent of all families, 6.2 percent of married families, 31.7 percent of single-parent families headed by a female and 15.8 percent of single-parent families headed by a male were living in poverty in 2011. About 48 percent of children in single-parent households headed by women were living in poverty, compared with about 11 percent of children in married households. And poverty claimed a staggering 57 percent of all children under the age of 6 in female-headed households.

Researchers at the Hamilton Project have found a strong correlation between earnings and marriage rates. While marriage rates have declined across the board, the drop has been larger for middle- and low-income groups, especially for men with a high school degree or less. This group has experienced a large secular decline in real earnings during the last 30 years. A provocative new book posits that women are increasingly dominant in work and education and celebrates the growth of female-headed households as a sign that patriarchy is giving way to matriarchy.

But there is another, less sanguine way to regard these trends. The rise of single-parent households headed by women may reflect the fact that women do not want to get married or stay married to such men or that men with weak earning prospects would rather drop out of the labor force altogether and avoid marital responsibilities. In either case, the news is not good for children and their educational opportunities and attainments.

Meanwhile, college-educated men and women are more likely to marry – most often to people with similar education levels – less likely to divorce and less likely to have children outside of marriage. Marriage and stable two-parent households are becoming marks of prosperity. These trends spell even greater income inequality and even greater inequality of opportunity for children in the future.

What can the federal government do to mitigate these trends? First, the progressivity of the federal tax and transfer system should be strengthened. The United States has one of the most unequal income distributions in the developed world, but its tax and transfer system is among the least progressive.

Tax expenditures that disproportionately benefit high-income families should be limited, while the earned-income tax credit that benefits working families should be expanded. The tax rates on capital gains, dividends and carried interest, most of which go to top income earners, should be increased as part of a multiyear deficit reduction plan.

Such a plan should also include more means-testing of entitlement programs and adequate funds for programs like food stamps, Head Start and Medicaid that address the needs of low-income families.

Second, the investments championed by President Obama to enhance educational opportunities – the $4 billion Race to the Top program to reward states for school reforms; the increase in the number and size of Pell grants; the tuition tax credit; the reformed student loan program; federal support for partnerships with community colleges – must be sustained. Deficit reduction must not be at the expense of these investments. Because they are investments, not handouts, they will end up paying for themselves.

Providing all Americans with the opportunity to realize their potential, regardless of their origins, is a core value. It is also a wise down payment on the nation’s future prosperity. ”A mind is a terrible thing to waste” is more than a clever slogan.

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