The Occupy Wall Street Movement-Becker | E-Axes

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The Occupy Wall Street Movement-Becker

From the Becker-Posner Blog:

Will the “Occupy” movement develop into a significant political force? I am doubtful: the movement is already losing supporters in most places where it has been active. Cold weather will accelerate the decline. The movement is losing ground not because the issues it raises are unimportant, but rather because the great majority of Americans and those in other countries with Occupy groups do not sympathize with most of the people doing the occupying.

We discussed the unemployment situation in the US last week, and reform of banks in several previous posts, so I concentrate my comments on the inequality issues raised by occupiers. American inequality in the distribution of incomes, and inequality in many other Western nations, has grown a lot since the late 1970s. This growth can be separated into the growth in earnings inequality across education and other skill classes, and the growth in income at the very top of the income distribution. I start with the inequality by skill since that is what most closely affects the vast majority of people.

Many of the Occupy Wall Street participants are college students- it is easy to miss classes at most colleges for a few days and even much longer- and other young persons who had gone to college. They have complained about the ”high” unemployment of college-educated persons, and also about the burden of college loans. Yet the large increase in earnings inequality during past 30 years has mainly taken the form of a growth in the earnings of college graduates and that of others with high levels of skills relative to earnings of high school dropouts, high school graduates, and others with lower skills. Although unemployment grows for all education groups grow during recessions, it has not grown any faster during the Great Recession for college-educated persons than for persons without college, and is still much lower for the college educated. For example, in October of 2011 the unemployment rate for college graduates was under 5% compared to an unemployment rate of almost 14% for high school dropouts.

Nor are the complaints by occupiers about the burden of student loans much better founded for the great majority of graduates. The typical rate of return to a college graduate, especially those with post-graduate degrees, has risen greatly since the late 1970s, certainly high enough to support even sizable student loans with interest payments that are heavily subsidized by the federal government. The real ones with a gripe are high school dropouts who not only have high unemployment rates, but also low real earnings that may have fallen for dropouts during past 30 years, poorer health than others, bad marital prospects, and weak access to home ownership and other consumer luxuries.

The Occupy Movement and everyone else worried about earnings inequality should be emphasizing the need to find ways to encourage more high school dropouts and high school graduates to get the required background and study habits so that they can, and want to, continue on for a college education. A daunting task, but a necessary one in order to respond in an effective way to the anatomy of the large growth in earnings inequality.

The income share of the top 1% in the United States has declined a lot since the onset of the Great Recession, but it is still much higher than it was in the 1970s. Earnings are also an important component of these very high incomes, but these are earnings of top management and executives, including the top earners in banking, and in hedge funds and other managers of money, and including also the top earners in medicine, law, consulting, and some other fields. According to a November 2010 study by Bakija, Cole, and Heim (I am indebted to Steve Kaplan for referring me to this study), more than 60% of the persons in the top 1% of the income distribution in 2005 consisted of (non-finance) executives, managers, and supervisors, medical personnel, lawyers, and non-finance persons doing computing, math, or engineering.

Although, on the whole, I believe that most members of the top 1% provide useful services to society, I share the concern of “occupiers” and Tea Party members about many of the bailouts. The rich bankers and others who took large risks should have taken much larger haircuts. I have also supported from the beginning of the recession higher capital requirements for banks, especially for the large “too big to fail banks” that will be bailed out if they get into financial difficulties. 

Nevertheless, the overall earnings inequality has far greater relevance for the vast majority of occupiers and Tea Party supporters than do the earnings of men and women at the very top of the financial sector. The most effective way for the US to reduce overall inequality that will help the largest number of young persons is by finding ways to bring American high school and college graduation rates up to the levels achieved by the other nations, such as South Korea and some European nations, that have replace the US as worldwide leaders in education achievements.

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