The Meritocracy Trap

by Daniel Markovits

  FIGURE 2

  Income Poverty, Consumption Poverty, and the Income Share of the Top 1 Percent (Five-Year Moving Averages)

  FIGURE 2 shows trends in income poverty and consumption poverty (on the left axis) and the income share of the top 1 percent (on the right axis) from 1960, at the center of the Great Compression, through the new millennium. The two solid gray lines that concern poverty both slope down. Although precise trends depend on how one counts, poverty has fallen to between about one-half and one-sixth of its 1960 levels. Income poverty rates have decreased from about 22.5 percent to about 12 percent. Consumption poverty rates have decreased from about 31 percent to less than 5 percent. By contrast, the dashed black line that concerns wealth slopes steeply up: the best-off 1 percent have roughly doubled their share of economic advantage since 1960—reflecting an absolute increase in the top 1 percent’s income share from about 10 percent to about 20 percent.

  FIGURE 3

  Ratios of Representative High, Middle, and Low Incomes over Time (Five-Year Moving Averages)

  FIGURE 3 displays trends in the ratios of post-tax incomes at key points in the overall income distribution. The dark dashed line that slopes upward reports that the ratio of the average income of the top 1 percent to the income of the middle class (defined as the 50th percentile) has risen. The rich, that is, are getting richer relative to the middle class—they are leaving the middle class behind—and the average one-percenter today captures more than twenty times the median income, or nearly twice the multiple of his counterpart in the 1960s and 1970s. The light solid line reports the ratio of the median income to the average income of the poorest 20 percent. The line’s slight downward slope overall reveals that the median earner captures a little less income relative to the poor today than at midcentury—that the poor and the middle class are converging.

  FIGURE 4

  U.S. Top-End, Bottom-End, and Full Gini Coefficients over Time (Five-Year Moving Averages)

  FIGURE 4 shows the Gini coefficients of the United States, calculated in three ways. The upward-sloping dark gray line displays the Gini for the entire U.S. economy. Its steep rise reflects the commonplace sense that inequality has shown a stark increase, from levels that resembled Norway in 1964 to levels that resemble India today. The light gray line is less familiar. It displays the Gini index for the bottom 70 percent of the U.S. income distribution, constructed not by redistributing any income but simply by discarding all income from the top 30 percent of households. The figure reveals that this bottom-end Gini has fallen (by about 10 percent) since midcentury, so that there has been a modest decrease in inequality across the bottom seven-tenths of the U.S. income distribution. Finally, the dashed black line with the steepest upward slope represents the Gini for the top 5 percent of the income distribution, now constructed by discarding all the income from the bottom 95 percent. This line shows that inequality within the rich has skyrocketed. Moreover, the difference between inequality within the large bottom and within the narrow top—the gap between black dashed and light gray lines—remained roughly steady between 1964 and 1984 but increased sharply beginning in 1984. Economic inequality’s center of gravity is moving up the income distribution. Indeed, the black dashed and the dark gray lines have recently crossed: inequality within the rich now exceeds inequality in the overall economy, a result that would have been unimaginable at midcentury, when the central economic divide separated the poor from the middle class.

  FIGURE 5

  Ratios of Education Expenditures by Income and Education (Five-Year Moving Averages)

  FIGURE 5 displays trends in the ratios of consumption expenditures specifically on education between rich and middle-class households on the one hand and between middle-class and poor households on the other. The figure reveals a massive increase in the investments that rich households make in children’s education, relative to the investments made by the middle class. At the same time, investments made by middle-income households have not increased relative to investments made by poor households. A second, much briefer series—which reports ratios of education expenditures between super-educated and ordinarily educated households and between ordinarily educated and uneducated households—confirms the lesson of the first. The education series also selects out a narrower elite than the income series and, strikingly, reveals still more disproportionate educational investment, compared to the middle class.

  Note the close correspondence between the expenditure ratios and the income ratios reported in Figure 3. In each case, a relatively stable midcentury order, in which the principal inequalities concerned differences between the middle class and the poor, gives way (beginning sometime in the 1980s) to a new order, in which the top separates itself from the middle, even as the middle and the bottom slowly converge.

  FIGURE 6

  90/50 and 50/10 Income Achievement Gaps for Reading and Math

  FIGURE 6 (Top and Bottom), constructed by the sociologist Sean Reardon, reports the school achievement gaps for reading (top) and math (bottom) between the 90th and 50th percentiles of the income distribution on the one hand, and between the 50th and 10th percentiles on the other. This exercise reveals that the 90/50 gaps have been rising since midcentury and have been rising increasingly steeply since the early 1970s. The 50/10 gaps, by contrast, have been rising much more slowly and (for reading) have even begun to decline. The combined effect of the two trends entails that while at midcentury the 50/10 gaps roughly doubled the 90/50 gaps in reading and were about a third greater in math, by the mid-1990s the 90/50 gaps had caught up. Moreover, the 90/50 gaps have continued growing since, even as the 50/10 gaps have leveled off and even begun to fall. Today the school achievement gaps between rich and middle-class children are between a quarter and a third greater than the gaps between the middle class and the poor.

  Note again the close correspondence between the achievement gaps and the income ratios reported in Figure 3. In each case, a relatively stable midcentury order, in which the principal inequalities concern differences between the middle class and the poor, gives way (beginning sometime in the 1980s) to a new order, in which the top separates itself from the middle, even as the middle and the bottom slowly converge.

  FIGURE 7

  GDP Share, Employment Share, and Relative Income and Education for Finance, 1947–2005 (Five-Year Moving Averages)

  FIGURE 7 shows two pairs of trends—output and employment on the left axis and relative income and education on the right—in the finance sector over the past seventy years. From the end of the Second World War through the end of the 1970s, finance was a mid-skilled industry that grew by hiring more workers. Finance’s shares of GDP and total employment grew together during this period. Moreover, and in line with their average productivity, finance-sector workers in this period were not appreciably better educated or paid than their private-sector counterparts. Then, from the 1980s onward, finance’s share of GDP accelerated its growth, even as finance’s employment share flattened and indeed began gently to decline. Furthermore, finance workers’ rising relative productivity (as relatively fewer workers accounted for relatively more GDP) was unsurprisingly accompanied by their increasing relative education and relative income. Note, although the series is not included in the figure, that finance’s share of total compensation paid rose steadily alongside its GDP share throughout both periods. Finance workers, in other words, did not take a bigger cut of their product. Instead, they became increasingly highly paid because they divided a stable slice of a growing pie among relatively fewer increasingly elite workers.

  FIGURE 8

  Percent Changes in Employment Shares for Routine and Fluid Skills

  FIGURE 8, constructed by the economists Nir Jaimovich and Henry Siu, shows that each of the past three decades has seen a flight from mid-skilled routine-intensive work combined with a modest increase in manual, largely low-skilled fluid work and a massive increase in cognitive, high-skilled fluid work. Altogethe
r, almost a quarter of the economy’s mid-skilled jobs have disappeared since 1980, and the share of jobs allocated specifically and exclusively to high-skilled workers has increased by nearly a third.

  FIGURE 9

  Earnings Segmentation by Education Level (Smoothed)

  FIGURE 9 shows the segmentation of income according to education. The completeness of the segmentation amazes. Only 7.3 percent of workers without a high school degree and only 14.3 percent of workers with a high school degree only earn as much as the median college graduate. Just 1.3 percent of high school dropouts, just 2.4 percent of high-school-only workers, and just 17.2 percent of workers with a BA only earn as much as the median professional school graduate. These numbers reveal that uneducated and educated workers live in almost entirely separate worlds, which effectively never overlap. The least educated face a constant, demoralizing struggle to find work at all, while (contrary to popular stories of college graduates living in their parents’ basements) the most educated enjoy full employment. And when they do find jobs, only about one worker in fifty from the bottom half of the educational distribution earns as much as the median worker from the top twentieth.

  FIGURE 10

  Incomes of the Bottom 90 Percent and Per Capita Consumption and Debt over Time (Ten-Year Moving Averages)

  FIGURE 10 shows per capita consumption, household debt, and mean income for households in the bottom 90 percent of the income distribution, from 1947 through 2010. Consumption increased remarkably steadily over the seven decades depicted. The trends for income and borrowing, by contrast, each display a marked kink, and the kinks form a sort of mirror image. Mean income among the bottom 90 percent rose steadily (more or less in tandem with consumption) between 1947 and roughly 1975, at which point income stopped rising almost completely, even as consumption continued its smooth growth. Mean debt, by contrast, rose more slowly than rising incomes between 1947 and roughly 1975 and then, just a few years after incomes stopped growing, began a steep rise (more or less in tandem with still-rising consumption). The pattern is unmistakable: rising middle-class standards of living were once financed by growing middle-class incomes; then, beginning about 1975 and running through the present day, income stagnated and borrowing rose sharply. In the face of rising market inequality, the United States financed the lifestyle of its middle class not through redistribution, but rather through debt. Borrowing propped up consumption as income fell short. Credit issued to middle-class households is increasingly a thrift good, provided in the shadow of economic inequality and on the same basic model as payday lending.

  FIGURE 11

  The Returns to Skill and Unequal Investments in Education

  FIGURE 11 reports the relationship between the returns to skill and the inequality of educational investments across the OECD. The vertical axis displays the college wage premium, a straightforward measure of the economic returns to worker skill as measured by the ratio of the median hourly wages of workers with and without college degrees. The horizontal axis displays the effect of parents’ status on children’s skill (measured by an international test of facility in “understanding, using, reflecting on and engaging with written texts, in order to achieve one’s goals, develop one’s knowledge and potential, and participate in society”). Because parents’ education correlates highly with investment in children’s education, this is an excellent proxy for the degree of training concentration that a society produces. The striking correlation between the tertiary wage premium and the effect of parents’ education on children’s skill reveals that skill fetishism and training concentration vary across countries, not separately but together.

  FIGURE 12

  Children’s Changing Odds of Earning More Than Their Parents

  FIGURE 12 displays the percentage of children who earn more than their parents at midcentury and today, according to parents’ income ranks. The dashed light gray line tracks this measure of social mobility at midcentury, for children born in 1940. Strikingly, virtually all of these children—right across the income distribution—came to earn more than their parents, with the only exception being children of the very top earners, for whom this test inevitably established a high bar. The dashed dark gray line tracks the same measure for children born in 1980. It is lower everywhere, simply on account of slower economic growth in recent decades. But it also has a very different shape. For children born in 1980, the odds of earning more than their parents fall swiftly as parental income ranks rise to escape poverty and then more or less plateau, until they fall swiftly again for children of the very richest parents (again on account of the high earnings bar that these parents set). Finally, the solid black line casts meritocratic inequality’s effect on absolute mobility into sharp relief. The line reports the decline in absolute mobility across the two cohorts, again for every parental income rank. The decline is by far biggest for children whose parents’ incomes fell between roughly the 20th and roughly the 95th percentiles of the income distribution—that is, for the (very) broad middle class whom wage stagnation has hit hardest.

  TABLE 1

  Elites and Median Investments in Children’s Education by Age

  Phase of life

  Elite investment

  Median investment

  Investment gap

  preschool

  2 years of preschool at $15,000 per year

  1 year of preschool at $5,000 per year

  $15,000 at age 3

  $10,000 at age 4

  school years

  7 years of elementary school (K–6) at $25,000 per year

  7 years of elementary school (K–6) at $10,000 per year

  $15,000 per year from ages 5–11

  6 years of middle and high school at $60,000 per year

  6 years of middle and high school at $10,000 per year

  $50,000 per year from ages 12–17

  13 years of enrichment expenditures at $9,000 per year

  13 years of enrichment expenditures at $1,500 per year

  $7,500 per year from ages 5–17

  college

  4 years at $90,000 per year

  $0

  The median American does not attend college.

  $90,000 per year from ages 18–21

  graduate and professional school

  2 to 7 years at $90,000 per year

  $0

  The median American does not attend graduate or professional school.

  $90,000 per year between ages 22 and 28

  TABLE 1 rehearses, in rough numbers and counting conservatively, the difference between typical one-percenter and typical middle-class investments in human capital in each year of a child’s life. The sums in the table surely understate the true difference between elite and ordinary educations. They capture only in-cash rather than in-kind contributions and measure only quantity and not quality. They do not allocate dollar values to the lower neonatal stress or safer neighborhoods or additional parental time and education that rich parents provide their children, for example, or to the peer effects of being surrounded by other elaborately trained children, or to the distinctive skill and effectiveness that rich and well-educated parents can bring to educating their children. But as long as the amounts are understood to represent rough quantities rather than a precise accounting, they vividly summarize the exceptional investments that the modern elite devo
tes to reproducing itself.