Posts Tagged ‘education’

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Young Americans are caught between two contradictory messages. On one hand, they’re told to go to college, to maintain pace with new technologies and job requirements. On the other hand, they’re told to “get out”—because, for most, a college education is simply unaffordable.

The American Dream, for them, looks more and more like “the sunken place.”

The Institute for Higher Education Policy [ht: mfa] is the latest group to document the unaffordability of a college education. While students from the highest income quintile (from families earning around $160 thousand or more) can afford most of the more than 2,000 colleges studied, low- and moderate-income students (bringing in around $69 thousand or less) can only afford to attend a tiny percentage of those colleges.

The Institute bases its conclusion on an “affordability benchmark” (the so-called Rule of 10, the idea that 10-year savings plus part-time earnings should cover the entire cost of a four-year degree) compared to the net price of a college education (equal to the cost of attendance minus grant aid). They then illustrate their findings with ten student profiles: five dependent students representing a different income quintile, and possessing attributes based on national averages for students in their quintile (Sonja, Hakim, Ava, Sergio, and Maria), and five independent students characterizing the diverse array of personal and family circumstances among independent students (Anthony, Traval, Aneesa, Jon Sook, and Mohammed).

As readers can see from the figure at the top of the post, while the student from the highest income bracket could afford to attend 90 percent of colleges in the sample, the low- and moderate-income students with fewer financial resources could only afford 1 to 5 percent of colleges.

Colleges were most dramatically unaffordable for students near the bottom of the income distribution, including all five of the independent students. Out of more than 2,000 colleges, nearly half (48 percent) were affordable for only the wealthiest student (with a family income over $160,000) and more than one-third (35 percent) were affordable only for that student and the next wealthiest (with a family income over $100,000).

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Not only do working-class students face financial barriers in attempting to enroll in most colleges, which they can only afford by burying themselves and their families under mountains of debt. They’re also far less likely to complete their students, often because working long hours to finance their education gets in the way of their studies (not to mention all the other activities traditionally associated with being in college).

As the authors of the report conclude,

This inability for low-earners to afford an education or improve their station erodes belief in a nation founded on the rejection of entrenched social stratification.

The only question for the nation is, will this educational horror film have a happy ending?

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Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

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And, as it turns out, both of us have invoked Arthur Lewis’s “dual economy” model to make sense of that growing gap. However, we present very different interpretations of the Lewis model and how it might help to shed light on what is wrong in the U.S. economy—with, of course, radically different policy implications.

It is ironic that both Temin and I have turned to the Lewis model, which was originally intended to make sense of “dual economies” in the Third World, in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force—and where much of agriculture, like the manufacturing and service sectors, is organized along capitalist lines. But Lewis, like Adam Smith before him, did worry about the parasitical role of the landlord class and the way it might serve, via increasing rents, to drag down the rest of the economy—much as today we refer to finance and the above-normal profits captured by oligopolies.

So, our returning to Lewis may not be so far-fetched. But there the similarity ends.

Temin (in a 2015 paper, before his current book was published) divided the economy into two sectors: a high-wage finance, technology, and electronics sector, which includes about thirty percent of the population, and a low-wage sector, which contains the other seventy percent. In his view, the only link between the two sectors is education, which “provides a possible path that the children of low-wage workers can take to move into the FTE sector.”

The reinterpretation of the Lewis model I presented back in 2014 is quite different:

What I have in mind is redefining the subsistence wage as the federally mandated minimum wage, which regulates compensation to workers in the so-called service sector (especially retail and food services). That low wage-rate serves a couple of different functions: it’s a condition of high profitability in the service sector while keeping service-sector prices low, thereby cheapening both the value of labor power (for all workers who rely on the consumption of those goods and services) and making it possible for those at the top of the distribution of income to engage in conspicuous consumption (in the restaurants where they dine as well as in their homes). In turn, the higher average wage-rate of nonsupervisory workers is regulated in part by the minimum wage and in part by the Reserve Army of unemployed and underemployed workers. The threat to currently employed workers is that they might find themselves unemployed, underemployed, or working at a minimum-wage job.

In addition, the profits captured from both groups of workers are distributed to a wide variety of other activities, not just capital accumulation as presumed by Lewis. These include high CEO salaries, stock buybacks, idle cash, and financial-sector profits (with a declining share going to taxes). And, if the remaining portion that does flow into capital accumulation takes the form of labor-saving investments, we can have an economic recovery based on private investment and production with high unemployment, stagnant wages, and rising corporate profits.

For Temin, the goal of economic policy is to reduce the barriers (conditioned and created by an increasingly segregated educational system) so that low-wage workers can adopt to the forces of technological change and globalization, which can eventually “reunify the American economy.”

My view is radically different: the “normal” operation of the contemporary version of the dual economy is precisely what is keeping workers’ wages low and profits high across the U.S. economy. The problem does not stem from the high educational barrier between the two sectors, as Temin would have it, but from the control exercised by the small group that appropriates and distributes the surplus within both sectors.

And the only way to solve that problem is by eliminating the barriers that prevent workers as a class—both black and white, in finance, technology, and electronics as well as retail and food services, regardless of educational level—from participating in the appropriation and distribution of the surplus they create.

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