Dangerous Talk on Education and Economic Mobility

Beyond the College Admissions Bribery Scandal

BY JOHN MILLER | July/August 2019

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org

This article is from the
July/August 2019 issue.

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It turns out everybody knew the fix was in when it comes to college admissions, even before Operation Varsity Blues, the FBI investigation that exposed a $25 million cash-for-admissions scandal. As Richard Reeves, the Brookings Institution researcher, put it: “Shock, horror! Wealthy Americans are using their money to buy their children places at elite colleges.” But that didn’t stop many from composing paeans to the power of education as an engine of social mobility, such as Dan Greenstein and Jamie Merisotis’ 2015 Wall Street Journal opinion piece. This is “dangerous talk” indeed—the phrase that the writer James Agee used to describe comfortable solutions based on misdiagnosing a problem, and that John Marsh applied to the claims that education by itself will undo inequality in his book Class Dismissed.

The truth of the matter is that the interaction of class differences, education, and economic conditions has created an unstable mix of effects on social mobility. Those effects, however, can only be discerned once we discard the ideological assumption that social and economic advancement follows educational attainment. Nothing has made that more clear than the recent college admissions scandal.

Opportunity-Hoarding and College Admissions

Even without well-to-do parents resorting to illegal acts—from paying for bogus athletics scholarships for their children to rigging SAT exam scores—there are still plenty of perfectly legal ways in which parents work the system to their advantage. In fact, the class barriers to college admission are numerous and substantial.

Donations and legacy admissions are the legal exercises of economic privilege that come the closest to the illegalities exposed by Operation Varsity Blues. Donations that influence admissions differ from bribes only in that they are paid directly to colleges instead of their employees. The admission of Jared Kushner, President Donald Trump’s son-in-law, to Harvard makes that clear. In his book The Price of Admission, Daniel Golden reports that Charles Kushner, Jared’s father, pledged to donate $2.5 million to Harvard in 1998, the year before Kushner was admitted. An official at Kushner’s secondary school told Golden: “There was no way anybody in the administrative office of the school thought he would, on the merits, get into Harvard.”

Legacy admissions are another blatant exercise of class privilege. In this case, family connections open doors into colleges, especially elite schools, for the children of graduates of those colleges. Education researcher Michael Hurwitz found that the probability of an applicant being accepted at 30 highly selective colleges, holding all other things equal, increased by 45 percentage points when a parent had attended the college as an undergraduate. In his book Dream Hoarders, Richard Reeves reports that the legacy admission rate at Princeton and Harvard was three times that of their general admission rate.

Donations and legacy admissions aren’t the only things that preordain who gets admitted to college. To begin with, a study by education professors Greg Duncan and Richard Murnane revealed that in 2005 and 2006, high-income families in the top quartile spent seven times as much on enrichment activities for their children (such as recreational lessons and purchasing books, magazines, and computers) as did low-income families in the bottom quartile. In addition, students in high-income families were also more likely to take classes or receive individual tutoring to prepare for their SAT exams than students in lower-income families. On top of that, a Wall Street Journal analysis found that students who attended public schools in wealthy areas were also two-and-a-half times more likely to receive special allowances for extra time on exams, including the SATs, than students who attended public schools in poorer neighborhoods. What’s more, nearly 40% of families in the top quintile of income earners live in areas with public schools ranked in the top fifth of their state in terms of test scores, and almost one in four are near a public school in the top 10%, according to Richard Reeves’ calculations. His corresponding figures for families in the bottom two-fifths of income earners are 14% and 7%, respectively.

Taken together, these class barriers have prevented many well-qualified students from being admitted to college, especially to elite colleges, and assured that those opportunities would go to students from well-to-do families instead. College enrollments confirm as much. The Equality of Opportunity Project, headed by Harvard economist Raj Chetty, conducted a comprehensive study of the economic diversity of the student bodies at U.S. colleges and universities. Their investigation showed that one-quarter of students from the richest 0.1% of families attended elite colleges. At the same time, one-half of students from the poorest 20% of families were not in college by age 22. Beginning with the class of 2002, the rising share of students from the richest 1% of families attending 80 of the most selective colleges surpassed the share of students from the bottom 40% of families at those colleges. More recently, the project found that 38 elite colleges (including five Ivy League schools) enrolled more students from the richest 1% of families than students from families in the bottom 60% of the distribution of income. Finally, admissions data show that legacy students at Harvard and Princeton make up a larger share of students. Legacy students were 14% of Princeton’s class of 2020 and African-American students just 8%. At Harvard, 14.5% of the class of 2022 were the children of Harvard graduates while only 11% of the class were African Americans.

Inequality and the Education Premium

But is a college degree, even when if it can be obtained, the bridge to economic opportunity and social mobility that the U.S. public discourse promises?

According to Dan Greenstein and Jamie Merisotis, it is. In their Wall Street Journal opinion piece these two educational philanthropists argue that education not only can be, but also has been, a great social equalizer “that promotes economic and social mobility for poor and disadvantaged citizens.” Greenstein is in charge of work on postsecondary education at the Bill & Melinda Gates Foundation, which holds as one of its goals helping the next generation access “great education,” and Merisotis is the president of the Lumina Foundation, a charitable organization dedicated to expanding “student access and success in education beyond high school.”

To suggest otherwise, as even pro-market economist Martin Wolf did in his recent column in the Financial Times, is in their estimation “nonsense.” At least that was Greenstein and Merisotis’ response in 2015 when economist Paul Krugman devoted his New York Times column to making the argument that “soaring inequality isn’t about education; it’s about power.”

Greenstein and Meristois find the evidence to support their position in a study conducted by economists Claudia Goldin and Lawrence Katz. These two well-respected labor economists found that the difference in the earnings of college and high school graduates explains between 60% and 70% of the rising wage inequality between 1980 and 2005.

Wages are the largest source of household income. But differences in nonwage income (profits, interest payments, and rents), which are quite pronounced, also contribute to today’s soaring inequality in total household income.

Nonetheless, the difference between the wages of college and high school graduates is quite substantial and has persisted over time. For instance, San Francisco Federal Reserve Board economist Robert Valletta found that the difference in earnings between the real hourly wages of college and high school graduates, also known as the “education premium,” was 40% in 1980 and had reached 70% by 2000. Such a large increase in the premium comports with the Goldin and Katz study (which Greenstein and Meristois rely upon to make their case).

But Valletta also found that there has been a “flattening” of the education wage premium since 2000. The education wage premium was 72% in both 2010 and 2015, barely higher than in 2000. College graduates were unable to escape the wage stagnation of the last two decades. From 2000 to 2015, the hourly wages of college graduates corrected for inflation increased just 0.4% a year, about one-third the rate (1.2% per year) they had increased from 1980 to 2000, and barely faster than the increase in wages for high school graduates (0.3% per year) from 2000 to 2015. These figures make clear that the punishment for not attending college persists, but the rewards for having graduated from college are ever more attenuated.

The flattening of the education premium also calls into question the claim that the education premium is the chief source of today’s rising inequality. Economist Jared Bernstein of the Economic Policy Institute insists that claims like “‘if only everyone got a college degree, these wage problem would go away’ are simply not supported by the post-2000 data.” His calculations show that the education premium was able to explain the increasing wage inequality in the period from 1979 to 2000, but that the education premium could only explain a small portion (16%) of the continued increase in wage inequality from 2000 to 2017.

Inequality and Social Mobility Today

What, then, lies behind the rising inequality since 2000? It is not just, or even primarily, the education premium, but the loss of bargaining power of wage workers as union membership has plummeted and anti-worker labor relations and public policies have become commonplace. This is not a new point. For instance, even a 2012 report in the Economist identified the two drivers of worsening inequality in the United States as: “college and/or bust” and “Main Street vs. Wall Street,” without assigning a degree of importance to each factor. As the Economist sees it, the education premium captures the college and/or bust driver of inequality but it misses the widening difference in the fortunes of the investing class at the very top of the distribution of income and that of most wage-workers—including plenty with college degrees—in the last two decades. That widening chasm is clear in the declining share of GDP that goes to labor. A recent study by the McKinsey Global Institute found that the labor share, measured as the ratio of employee compensation, was nearly unchanged from 1980 to 2000, falling just 0.3 percentage points of GDP. After that, however, the labor share of GDP fell by 5.3 percentage points of GDP, from 62.0% in 2000 to 56.7% in 2017. That sharp decline in the labor share makes attributing the rising inequality of the last two decades primarily to the education premium especially problematic.

Nonetheless, Greenstein and Merisotis continue to assert that education is the key to unlocking social mobility and reducing inequality. Merisotis’ Lumina Foundation has even set as its goal, “to increase the proportion of Americans with high-quality degrees and credentials [from 39% in 2011] to 60% by the year 2025.” (Confusingly, according to Lumina’s website, they define “high-quality degrees” as those that meet their “degree qualification profile.”)

Reaching that goal might increase the income of the poor and disadvantaged, but it will not by itself either reduce today’s inequality or improve social mobility. To begin with, the proportion of workers with at least a four-year college degree rose dramatically from 23% in 1979 to 40% in 2016, but the U.S economy became less equal, not more equal. Beyond that, the argument that increased years of schooling by itself enhances social mobility is confused. For upward mobility to occur, as the Financial Times columnist Martin Wolf emphasizes, it must be accompanied by downward mobility. As he puts it in British parlance “someone from a working-class background” can move up the social and economic ladder only “if someone from a professional background” moves downward. Without a change in the class structure of the economy, what matters for social mobility is “relative education,” not a college degree per se, as Wolf argues.

As educational attainment improved in the last four decades, relative intergenerational social mobility (measured by how closely a child’s income is correlated with that of her or his parents) has shown no such improvement. Estimates vary, but they seem to agree about two points. First, relative social mobility was greater for the cohort that entered the labor force before the rapid increase in inequality beginning in 1980 than for those who entered the labor force after that. And second, relative social mobility slowed and inequality worsened in the U.S economy after 2000. In addition, absolute upper mobility (measured by whether children at age 30 are better off than their parents were at that age) has clearly declined with worsening inequality, even though the proportion of the labor force with a college degree has increased. In 1975, fully 90% of 30-year-olds earned more than their parents had at the same age, while just over half of 30-year-olds in 2015 had an income greater than that of their parents at the same age.

However, a college degree does enhance the relative social mobility of the poorest students. During the last decade, students born into families in the bottom 20% of the income distribution who obtained a college degree were three times more likely to move out of the bottom quintile of income distribution than those without a college degree. In their 2015 article for the Brookings Institution, economists Larry Summers, Melissa Kearney, and Brad Hershbein found that, while “increasing educational attainment will not significantly change overall earnings inequality,” it “will, however, reduce inequality in the bottom half of the earnings distribution.” (Emphasis in the original.)

Increasing Access to Higher Education and Lessening the Class Divide

Enacting the Lumina program to increase the proportion of the population with a college degree would be a tall order, as Greenstein and Melitosis recognize.

Obstacles abound for students from poor families graduating from college. First there is getting admitted to college, especially elite colleges. Then there is graduating. The Pell Institute for the Study of Opportunity in Higher Education found that in 2013, 99% of students from families in the richest quarter of the income distribution who had entered college had attained a bachelor’s degree by the time they were 24 years old. The corresponding figure for students from families in the poorest quartile was just 21%. Finances have long been the number one reason why students drop out of college. A 2018 survey of students at 66 colleges and universities conducted by the Wisconsin Hope Lab found that at four-year institutions, 36% of students were food insecure (worried that their food would run out before they got money to buy more) and 36% were housing insecure in the past year (encountered difficulties paying rent or utilities). The numbers were yet higher for students at two-year institutions.

Beyond finances being an obstacle to graduation, there is also the burden of college debt. By 2010, student loan debt surpassed credit card debt and auto loans, and has increased dramatically since then. The New York Federal Reserve board reported that by the end of 2018, student loan debt had reached $1.46 trillion, which was considerably more than the $1.04 trillion of credit card debt reported in the same year, but still well below mortgage debt. The burden of ever-greater levels of student loan debt falls disproportionately on students from low-income families. In 2010, the average debt burden for students from the poorest fifth of households was 24% of household income, while for students from the richest quintile the average debt burden was just 4.5% of their household income. Presidential candidates Sen. Bernie Sanders (I-Vt.) and Sen. Elizabeth Warren (D-Mass.) have proposals that would give students the opportunity to attend a two-year or four-year public college without paying tuition or fees and would provide massive student debt relief. The Warren plan would cancel up to $50,000 in student loan debt. She would pay for her higher education plan by levying a 2% tax on the wealthiest 75,000 families with household assets above $50 million, and an additional 1% tax on households with a net worth exceeding $1 billion. Sanders would finance his higher education plan through a Wall Street anti-speculation tax that would collect fees on the buying and selling of stocks, bonds, and derivatives.

Still, student debt relief and taxing the wealthy is not enough to counteract the opportunity-hoarding of the well-to-do that makes it harder for others to advance and improve their social mobility. Funding for public school students must be equalized and not determined by revenues that can be collected from the housing wealth of a school district. In addition, preferences for legacy admissions to colleges need to come to an end.

But the economy itself also needs to become more equal. We need public policies that strengthen workers’ bargaining power, facilitate unionization, enforce labor standards, and bring about genuine full employment if we are to overcome the worsening inequality that has concentrated income at the top and eroded workers’ share of the nation’s income. The rungs of the socioeconomic ladder are too far apart, and the occupants of the upper rungs build safety nets for themselves that double as barriers for those trying to climb. In such a setting, education by itself can’t open doors to economic opportunity—but a more equal economy could. Then future college admissions scandals would actually thwart social mobility instead of just being the latest evidence of a rigged system.

JOHN MILLER is a professor of economics at Wheaton College and a member of the Dollars & Sense collective.

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