No College Degree Will Buy Your Way Into The Top 1%

Posted by: Mark Gimein on November 23, 2011 at 3:55 PM

One common perception about the widening income gap is that it’s driven by social and economic trends that have put a higher value on education. That idea has been reinforced by some recent studies. On Monday Jason R. Aibel and Richard Deitz of the New York Federal Reserve Bank charted changes in salary levels among occupations over the last three years. As you can see below, at the bottom level of the low skilled categories like building and maintenance, incomes have barely budged, while in areas like science and engineering they’ve increased meaningfully.

Aibel and Deitz emphasize the higher levels of skill and education needed for the better performing occupational categories. Another way of looking at it, though, is to think less in terms of the amount of education needed and more in terms of the market value of the educational background. The Wall Street Journal earlier this month ran a long list of college majors have fared in the job market. Unsurprisingly, folks who majored in Petroleum Engineering (median income $127,000) and Electrical Engineering ($86,000) are near the top of the income distribution. But the people who graduated with some of the lowest paying majors—say, Botany or Archaeology, both with a median income of $40,000—are not low skilled. It’s just that their skills are in much lower demand.

The deeper question, however, is whether changes in education and technology can account for the really big rise in income at the very top of the economic ladder. The quick answer is no. In Bloomberg View, Peter Orszag wrote this month about how the college degree that has shielded the middle class from the pressure of wages is losing its effectiveness.

Orszag makes several related points. One is that the jobs of those in the top 10 percent—could not be outsourced as easily as lower skilled work. A second is that in the future this will change. The third, which Orszag makes with an assist from Princeton’s Alan Blinder is that even if degrees and credentials do account for the difference between the top tenth and the average, they fail to to account for the rising gap between that top tenth and the even smaller slice (top 1% or top 1/10%) above them.

You can see that clearly looking at the data on incomes for those with engineering degrees—the educational category with the highest earnings. Back in 1990, according to a Census Bureau report titled “Education: The Ticket To Higher Earnings” the average monthly wages of those with bachelor’s degrees in engineering were $2,953—or $4,863 in 2010 dollars. In 2004, according to the Census Bureau’s data, that number had risen to $4,796. In 2010 dollars, that’s $5,489.

So in real dollar terms, in the 14 years from 1990 to 2004, the income of those with the most valuable degrees rose just under 13 percent. In the same period, the threshold income needed to get into the top percentile (that “Top 1%” that gets talked about so much now) rose 34 percent, according to the authoritative data collected by economists Emmanuel Saez and Thomas Picketty. And the average income of those in that top slice rose 51 percent.* Even those with the most valuable college degrees, by far, have not come close to keeping up with that increase.

There are objections to be made here. Yes, this counts only those with a bachelor’s degree. Those with higher level degrees have certainly done better. And there’s a time lag in the data—I haven’t seen more recent Census Bureau data that would allow a direct comparison with 1990. As more data comes in, we’ll get a more precise sense of these numbers. But the basic picture won’t change.

*If you want to double check those numbers, you can see the income inequality paper on Saez’s website, and take a look at table B3. Or you can also use the World Top Incomes Database.