What Education Can and Can't Do for Economic Inequality

A new study looks at whether or not a college degree can chip away at income disparities.

Would better education significantly reduce income inequality in America? No, says a recent study from the Brookings Institution.

But that doesn't mean that better education wouldn't help the overall economic picture.

The study suggests that improving education does in fact help the economic situations of poorer Americans, even though it does little to whittle away at overall inequality in the country.

According to Melissa Kearney, a senior fellow at the Brookings Institution, "Increasing education isn't going to do anything to bring down the wages of the real top—or address rising inequality focused on the 1 percent—but it is what's needed to increase the position of those at the bottom. Those are two different problems."

To illustrate this point, Kearney, along with Brad Hershbein and Lawrence Summers, took a look at what a boost in education would and would not do when it came to improving incomes and the widening income gap. The study simulated what would happen to earnings and inequality if 10 percent of non-college educated, working-age men ages 25 to 64 were to obtain a bachelor's degree. They chose to focus on men because male workers with low-skill levels have suffered a more severe downturn in employment and earnings during recent decades, according to the report. They also obtain college degrees at a lower rate than their female counterparts.

"If we were to increase B.A. attainment by 10 percent, that would almost entirely wipe out the reduction in median wages that has been experience from 1979 to 2013."

With the simulated increase in educational attainment, the report found that awarding a bachelor's degree to one in 10 men between the ages of 25 through 64, who did not previously have one, would in fact increase their likelihood of being employed and boost their earnings. The increase in education resulted in significant changes for those at bottom half of the earnings spectrum, with inequality relative to those who fall into the 25th percentile of earners dropping by about one-third. "If we were to increase B.A. attainment by 10 percent, that would almost entirely wipe out the reduction in median wages that has been experienced from 1979 to 2013," says Kearney. "That's tremendous."

But it did not significantly change overall earnings inequality. That's because improved prospects for low and median earners doesn't erase the existence of runaway income growth for the very wealthiest. In fact the inequality between median earners and top earners fell by less than 10 percent.

The conclusion, Kearney says, is that for less-skilled workers and those who earn a lower wage, additional education can still be especially important. In this particular simulation, increasing the rate of B.A. attainment had the effect of reducing income inequality among median- and low-wage earners, boosting the lower end of the earnings distribution toward median incomes. But it's not just about sending people to college. "More education could also mean that people graduating with a high-school degree have better skills, and that requires improvements in our K-to-12 system," says Kearney. Greater availability of apprenticeships or job-training programs could also help enhance labor market outcomes for those who find themselves on the lower rungs of the skills and wage scale. Kearney cautions that looking at education in limited terms can be problematic when it comes to implementing solutions that really work. "We didn't want to cede the view that when people say we need more education that necessarily means a four-year bachelor's degree," she says.