Education as a Way of Poverty Reduction

This is the first of two essays on the topic of education and inequality. The second is available here1.

Many economists have expressed support for education as a way to improve incomes of the middle class. That is a fairly contentious assertion. I’ll try to outline why in two essays.

Education has been seen for a long time as a sure-fire way to get to better paying jobs and getting access to better opportunities. It is reflected in the people’s approach to education and what is the expected outcome of education for most of the people. The expectation is so ingrained in the social psyche that seeing someone choose a different career track (one that may have a lower pay but allows the person more time for other things, as an example) causes a lot of people to raise their eyebrows and express surprise, or even shock, at such a prospect. For example, a graduate of computer science with extraordinary programming skills choosing to become a high school teacher.

That’s tangential to the point here though.

A lot of people automatically imagine education as the way to moving on to a better paying job. That’s not a complete view of what education does. It is the beginning to the impact education can have on lifetime earnings. In general, education does have a positive effect on lifetime earnings, a relationship that has been found to hold in multiple studies accounting for different factors2, 3, 4 (three links to give an idea about the effect of education on earnings).

Most jobs that pay a higher salary are often ones requiring higher degrees so it is not surprising that economists have promoted getting more education as a way to tackle income inequality. However, it should be borne in mind that education improves income relative to the base income, the income earned by a high school graduate. The income of a high school graduate is quite low when the living costs of today are factored in. Check Business Insider5 for an idea on how much a person has to be earning in the United States to be middle class. Strictly speaking, “middle class” is a label with a rather fluid interpretation based on the factors considered to decide who is in which class. Let’s settle at earning enough to be properly fed, clothed and housed to qualify as middle class and set that debate aside for this essay.

First, a better perspective on where the baseline comparison, wages earned by a high school graduate, happens to be. You may wish to read this article6 on the Bangor Daily News. An image from the article to explain better.

Hours of work per week needed to pay for college tuition at different pay rates.
Hours of work per week needed to pay for college tuition at different pay rates.

This attn website article7 gives the picture in better clarity by comparing the earnings of pre-1980s and the post-1980s. The summer vacation holidays pre-1980s could have covered tuition for a full year but the current scenario is that a person needs to be working for a full year to afford college education for a year.

There are two points here:

  1. The minimum wage was high enough at one point that someone could make a reasonable attempt at trying to work while at college.
  2. The current minimum wage is so low so as to exclude any reasonable attempt at trying to work while at college.

It is the current minimum wage that is the standard for other wages. Hence, the remaining wages receive a mark down because the base is set very low.

The fact that education is an option to find a way out of poverty should not be beyond doubt (leave aside the matter of taking on a massive student debt load) but whether it automatically should lead to a solution for growing income inequality is a questionable assertion that will be dealt with in the next essay.


References:

1 http://awlmajid.net/2016/09/16/education-as-a-way-of-reducing-inequality/

2 http://latimesblogs.latimes.com/money_co/2011/08/college-gradutates-pay.html

3 https://trends.collegeboard.org/education-pays/figures-tables/lifetime-earnings-education-level

4 http://www.bbc.com/news/magazine-22000973

5 http://www.businessinsider.com/middle-class-in-every-us-state-2015-4

6 http://bangordailynews.com/2015/11/16/the-point/how-much-youd-need-to-earn-in-wages-to-work-your-way-through-college-in-each-state-mapped/

7 http://www.attn.com/stories/197/how-much-you-need-work-cover-tuition-1978-vs-2014

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