Sunday, June 20, 2010

Progessive Income Tax = Tax on Going to College


"In 1980, an American with a college degree earned about 30 percent more than an American who stopped education at high school.  But, in recent years, a person with a college education earned roughly 70 percent more (see chart above).  Meanwhile, the premium for having a graduate degree increased from roughly 50 percent in 1980 to well over 100 percent today.  The labor market is placing a greater emphasis on education, dispensing rapidly rising rewards to those who stay in school the longest. 

For many, the solution to an increase in inequality is to make the tax structure more progressive - raise taxes on high-income households and reduce taxes on low-income households.  While this may sound sensible, it is not.  Would these same individuals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education?  We think not.  Yet shifting the tax structure has exactly this effect."

~Gary Becker and Keven Murphy, "The Upside of Income Inequality," from The American, May/June 2007.   

18 Comments:

At 6/20/2010 11:42 PM, Blogger sethstorm said...

How about removing the use of educational requirements for work? Then make it so that said risk cannot be offloaded.

 
At 6/21/2010 1:21 AM, Anonymous unemployment sherrif said...

employment sherrif,
I have an excellent position available for you would you please turn up at my office at the unemployment office tomorrow so I can accompany you to your interview and make any commitments necessary on your behalf to make sure you are placed. until 8.30 am. be there

 
At 6/21/2010 4:10 AM, Blogger randian said...

How about removing the use of educational requirements for work?

Great idea. Make it so I can't be sued into bankruptcy by applicants claiming my employment tests are discriminatory and I'll go along with it. In the mean time, I'll let colleges be my testing proxy.

 
At 6/21/2010 7:54 AM, Blogger juandos said...

In another fit of cluelessness sethstorm says: "How about removing the use of educational requirements for work?"...

Yeah and after that we can remove any requirments about not having a felony record too...

Yeah! That's the ticket!

 
At 6/21/2010 8:03 AM, Blogger juandos said...

Apparently not all college education is worth having and not everyone that has a college degree shows they've actually learned something...

Do we need a White House literacy program?

 
At 6/21/2010 8:35 AM, Blogger Jet Beagle said...

This appears to be a long term trend, with the period immediately before and after 1980 an exception to the trend line.

Why would that period be an exception? Could it be that we Boomers flooded the marketplace with job-seeking degree holders? If the supply of degree holders suddenly increases, then the price for their services should have dropped, right?

 
At 6/21/2010 10:22 AM, Blogger Walt G. said...

Jet Beagle said: "If the supply of degree holders suddenly increases, then the price for their services should have dropped, right?"

Not really. We are not cutting the pie differently--we changed it to cake. The labor market shifted with the low-skilled jobs (low value-added work) moving overseas and those types of jobs that stayed here have to compete with the developing countries that pay lower wages. The jobs in the 21st century U.S. labor market predominantly now require more skill, and with more skill demanded, more pay is correspondingly required.

There's a message above for people who are waiting for "the good ole days" to come back. They aren’t. They are here now once we build after the recession. Most labor market forecasters expect a labor shortage in the near future due to the demographics of an aging U.S. population. Get a marketable skill and/or a college degree, and you will have a chance at a good-paying job.

 
At 6/21/2010 11:23 AM, Blogger Jet Beagle said...

Walt G,

I argee with everything you wrote except for the first sentence - "Not really".

I suggested that the sudden increase in supply of degreed job-seekers caused the dip in the trendline in the chart Mark provided. I was referring to only the period immediately prior to 1980, when the premium for a college education declined from 50% to 30%.

 
At 6/21/2010 2:50 PM, Anonymous doubleBubble tripleDip said...

"
30 percent more than an American who stopped education at h
"

is this yet another retrospective study having no controls ?

Please -- gimme a break

 
At 6/21/2010 5:29 PM, Blogger sethstorm said...


Great idea. Make it so I can't be sued into bankruptcy by applicants claiming my employment tests are discriminatory and I'll go along with it. In the mean time, I'll let colleges be my testing proxy.

I presume you're aware of the Supreme Court case that touched that very subject. Griggs vs. Duke Power? Not entirely the best call, but that seems like they were trying to use the test to get around a law.

Yes, I'm also aware of the value of an education. However, the logic supporting the concept of "not having a degree means you deserve every bit of drudgery so that you get a degree" is its own logical fallacy. It implies that you're supposed to get it because X, Y, Z and the thousands of others did it that way.

The question is how does retraining (and a lesser extent, advanced education) fail on the large scale?

Juandos, you're trying to mix in something a bit unrelated.

 
At 6/21/2010 9:46 PM, Blogger juandos said...

"Juandos, you're trying to mix in something a bit unrelated"...

Hardly sethstorm...

Overly expensive college graduates who can't seem to proof read their blog postings and we get to pay for those fools through taxes extorted from us...

The real tax hosing goes to those who are successful and make lots of money and this is what they've paid for...

 
At 6/22/2010 12:16 AM, Anonymous sprewell said...

Highly flawed article by Becker and Murphy, as are all posts that use such aggregated statistics while the authors are clueless about the job market. The truth is that the bachelors, masters, and PhD degrees have become filtering mechanisms, where many employers simply throw out resumes if they don't have a bachelors listed. It doesn't matter what GPA you got or what school you went to, that's a basic filter employers use to throw out resumes: I've even heard of warehouse manager positions requiring a bachelors degree. Many research positions will require a PhD, even though 99% of the time the PhD research done has almost no relationship to the position and the work itself doesn't require a PhD, ie bachelors or masters degree holders would suffice. So of course there will be higher returns to education, employers are filtering for professional positions based on whether you have a college degree. The key is to look into what is actually taught during those degrees and that's where the scam is laid bare: most curricula are fairly useless for the employee's future productivity. Of course, as college professors, Becker and Murphy then argue implicitly for further subsidies for their useless educational institutions. Online learning is about to destroy this scam in the next decade, it will be funny to see teachers and professors at all levels given the boot after years of leeching off the populace. :)

 
At 6/22/2010 1:53 AM, Blogger Jet Beagle said...

sprewell:" I've even heard of warehouse manager positions requiring a bachelors degree."

That makes sense to me. Modern warehouse management requires knowledge of accounting, computerized inventory management systems, business communications, human resources management, labor law, etc. Why hire someone who must be trained in those areas when the applicant pool includes thousands who possess business degrees?

 
At 6/22/2010 2:30 AM, Blogger PeakTrader said...

About the only thing preventing California from becoming a Third World state is its high-quality university system.

 
At 6/22/2010 8:23 AM, Anonymous Lyle said...

My suspicion that a lot of the requirements come from showing that you can learn something. Almost every job will require some learning to do and higher skilled jobs will require more learning by the time you get to a PhD, you have demonstrated the ability to teach yourself without spoon feeding of the material. The willingness to continue to learn not thinking that when you leave school you know everything you need to know for the rest of your life is necessary to survive in todays economy.

 
At 6/22/2010 8:36 AM, Blogger sethstorm said...


That makes sense to me. Modern warehouse management requires knowledge of accounting, computerized inventory management systems, business communications, human resources management, labor law, etc.

At this point you're just trying to blow smoke where the sun doesn't shine.

To answer the employment testing - kill it, and the staffing agency/contract worker workaround that might be used to get there.

You're just trying to invent excuses, not solve problems.

 
At 6/22/2010 11:42 AM, Anonymous sprewell said...

Jet Beagle, perhaps that might make sense if they required a business degree, but my understanding is that they required just a bachelors, of any kind.

PeakTrader, don't make me laugh, the university system filled with rabid leftists is precisely what likes it like a Third World state. ;) In fact, for all the hand-wringing about California's deficits, their total debt to gdp ratio is fairly small, 6-7%,, nothing compared to the outsized debts of our federal govt, 80-90%, or Greece, almost 200%.

Lyle, the problem is that the college degree doesn't show that you can learn something, it shows that you can memorize whatever crap they put in front of you to pass the test and are willing to endure through 4-5 years of such shoddy stuff in order to graduate. The truth is that education has become a highly wasteful signaling mechanism, as Bryan Caplan notes, it's not about learning at all. However, any wasteful cargo cult system like this cannot endure, it will be killed off by online learning soon enough, just as the internet has killed off the bloated and wasteful information businesses of music and newspapers so far. :)

 
At 7/01/2010 9:17 PM, Anonymous Grant Musgrove said...

writing form Australia, there is a wonderful system called the higher eduction constibution scheme, whereby students payer higher taxes, linked to the cost of their degree/s, contingent on the income they earn after university. This provides for access to the most expensive of degrees, for the poorest of students and recurrent revenue for government to reinvest in mass higher education.

 

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