Research desk investigates: How does college explain unemployment numbers, but not inequality?

By Dylan Matthews

jkrantz1 asks:

[Ezra] had a post yesterday, "The benefits of a college degree in one graph", saying that the recession isn't being felt among the college educated. But the anecdotal stories of the PhD's who can't find jobs in this climate aside, economists documenting the growing income gap (Saez, Krugman) have shown that the College-High School wage ratio doesn't do much to explain inequality. So how would you reconcile the fact that, while rising numbers of college graduates can't explain systemic income inequality, it can create a divide between those who feel the recession and those who don't.

The chart Ezra put up shows that college graduates have an unemployment rate of 4.5 percent, far below the 10.1 percent rate for high school graduates, or the 13.8 percent rate for high school dropouts. This seems to suggest that educational attainment contributes to economic inequality.

To be sure, it does. Indeed, some economists, such as Greg Mankiw, Edward Lazear and Daron Acemoglu, credit the increasing wage premium that comes with greater education with most of the increase in economic inequality in recent decades. However, this ignores that income inequality has risen not just because upper -and upper-middle-class people have pulled further ahead, but because the super-rich have pulled ahead of everybody. Here's the median income of each level of educational attainment in 2007:

Now, $100,000, the highest figure here, is a very high annual income, but according to data (Excel file) from Berkeley economist Emmanuel Saez, it is not enough to reach the top 10 percent of earners. It's within that 10 percent, and specifically its higher reaches, that income differentials become really dramatic:

The top 5 percent make over $161,328, the top 1 percent over $414,225, the top 0.5 percent over $656,367, the top 0.1 percent over $2,131,875, and the top 0.01 percent over $11,917,298. While these earners are more likely to have advanced degrees than the average head of household, an increased number of professional degree holders making an average of $100,000 cannot explain these kinds of income concentrations. When the differentials are this large between people who are all very highly educated, some other factor is needed.