The Meritocracy Trap

by Daniel Markovits

  the right side of the meritocratic divide: The returns to education have increased principally because education genuinely teaches real skills, and the transformation of the labor market has made the skills that education provides increasingly productive. Superordinate workers, that is, get their enormous pay mostly in exchange for providing enormous economic value, rather than by theft, fraud, or other unmeritocratic means.

  This is a controversial claim. Critics of inequality commonly attribute rising top incomes to personal vices rather than to economic structures, and to too little meritocracy rather than too much, arguing that superordinate workers get their extravagant incomes through nepotism and class snobbery, rent seeking that exploits economic power, or even outright fraud. These arguments resemble suggestions, discussed earlier, that top incomes must come from capital rather than labor.

  Like those suggestions, these charges have a point. Meritocrats retain all the familiar vices, and class snobbery, rent seeking, and fraud contribute—including outrageously—to the advantages that superordinate workers enjoy. But once again, the scale of the moral vices does not match (or even approach) the scale of the rise in elite incomes. Structural arguments are needed to account for rising inequality, and meritocracy provides the required arguments.

  of the education distribution: Reeves, Dream Hoarders, 61–64, using data from R. Chetty et al., “Where Is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States,” Quarterly Journal of Economics 129, no. 4 (November 2014): 1553–1623; Fabian T. Pfeffer and Alexandra Achen Killewald, “How Rigid Is the Wealth Structure and Why? Inter- and Multigenerational Associations in Family Wealth,” PSC Research Report No. 15-845 (September 2015), 30; PSID data tabulated in Richard V. Reeves and Joanna Venator, “The Inheritance of Education,” Brookings Institution, October 27, 2014, www.brookings.edu/blog/social-mobility-memos/2014/10/27/the-inheritance-of-education/.

  Fully one in three children from households in the top 1 percent of the income distribution captures an annual income of at least $100,000 by age thirty, compared to only one out of twenty-five children born into the bottom half of the distribution. See Raj Chetty, John Friedman, and Nathaniel Hedren, “The Equality of Opportunity Project,” www.equality-of-opportunity.org/documents/. See also David Leonhardt, “In Climbing Income Ladder, Location Matters,” New York Times, July 22, 2013, accessed November 18, 2018, www.nytimes.com/2013/07/22/business/in-climbing-income-ladder-location-matters.html?pagewanted=all.

  one and the same: Unemployment rates redouble the segmentation of workers by wages, as college graduates (and especially graduate and professional degree holders) are only about half as likely to be unemployed as workers with just a high school education and only about a third as likely to be unemployed as workers without a high school degree. In 2016, the average unemployment rate among workers aged twenty-five and older without a high school degree was 7.5 percent, the average for those with high school education only was 5.2 percent, the average for those with a BA only was 2.7 percent, and the average for those with a graduate or professional degree was 2.1 percent. Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, Series LNU04027659Q, LNU04027660Q, LNU04092221Q, LNU04091113Q, accessed April 10, 2017. The BLS has separated out workers with advanced degrees and with BAs only since 2014, and it has not released seasonally adjusted numbers. Nevertheless, averaging quarterly data across 2016 produces numbers that are roughly in line with the seasonally adjusted data presented by the BLS for its more traditional categories—less than high school, high school only, and BA and above. See Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, Series LNU04027659Q, LNU04027660Q, LNU04092221Q, LNU04091113Q, accessed April 10, 2017. See Bureau of Labor Statistics, “Household Data: Annual Averages,” last modified January 18, 2019, www.bls.gov/cps/cpsaat07.htm.

  Unemployment, moreover, understates the effects of education on work, as trends in the labor force participation rate reveal that, on top of facing higher unemployment, less educated workers increasingly abandon the labor market entirely and, because they no longer seek work, are not counted toward the unemployment rate. 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. Changes in the labor force participation rate have many causes, including an aging population, changing gender norms, and the impacts of cyclical patterns in the business cycle. Nevertheless, the data clearly show a falling labor force participation rate even among prime-aged men and, more recently and after a decades-long rise, among prime-aged women also. The decline is especially prominent among less educated, lower-paid workers, and this reinforces the effects of education on work revealed in the unemployment statistics. The 2016 American Community Survey reports that just 78 percent of prime-aged men who have never attended college (roughly the bottom two-thirds of the educational distribution) were employed, compared to 90 percent of those with at least one year of college. In the 1950s, the two rates were virtually identical. See U.S. Census Bureau, “American Community Survey (ACS),” www.census.gov/programs-surveys/acs/.

  Both trends are predicted to continue. See Bureau of Labor Statistics, “Labor Force Projections to 2022: The Labor Force Participation Rate Continues to Fall,” Monthly Labor Review (December 2013), www.bls.gov/opub/mlr/2013/article/labor-force-projections-to-2022-the-labor-force-participation-rate-continues-to-fall.htm; Bureau of Labor Statistics, The Recession of 2007–2009 (February 2012), www.bls.gov/spotlight/2012/recession/; and Executive Office of the President of the United States, The Labor Force Participation Rate Since 2007: Causes and Policy Implications (July 2014), https://scholar.harvard.edu/files/stock/files/labor_force_participation.pdf.

  with a BA only: Carnevale, Rose, and Cheah, “The College Payoff,” 6. Joan Williams, using less comprehensive data, reports slightly different shares: 19.4 percent of male college grads and 14 percent of female college grads earn less than the average high school grad. See Williams, White Working Class, 49. A few pages later, Williams reports that “a quarter of college grads and advanced degree holders will work for a lower median wage than associate degree holders.” See Williams, White Working Class, 86. See also Rework America, America’s Moment: Creating Opportunity in a Connected Age (New York: W. W. Norton, 2015), 200; John Schmitt and Heather Boushey, The College Conundrum: Why the Benefits of a College Education May Not Be So Clear, Especially to Men (Washington, DC: Center for American Progress, 2010), 3, 8, 9.

  from the top tenth: Slightly under half of the U.S. population over twenty-five has no education at all beyond high school (roughly 70 percent do not have a BA), and slightly over 10 percent hold a post-BA degree. See Camille L. Ryan and Kurt Bauman, Educational Attainment in the United States: 2015, U.S. Census Bureau, Current Population Reports no. P20-578 (March 2016), www.census.gov/content/dam/Census/library/publications/2016/demo/p20-578.pdf. See also Carnevale, Rose, and Cheah, “The College Payoff,” 6 (citing 2007–9 American Community Survey, U.S. Census Bureau, “American Community Survey (ACS),” www.census.gov/programs-surveys/acs/).

  over a lifetime: See Carnevale, Rose, and Cheah, “The College Payoff,” 10, Figure 5. Slightly different figures appear in Christopher R. Tamborini, Chang Hwan Kim, and Arthur Sakamoto, “Education and Lifetime Earnings in the United States,” Demography 52, no. 4 (2015): 1383–1407.

  as it was in 1980: See R. G. Valletta, “Recent Flattening in the Higher Education Wage Premium: Polarization, Skill Downgrading, or Both?,” NBER Working Paper No. 22935 (2016), www.nber.org/papers/w22935 (using Current Population Survey data to estimate the returns to college graduates over the period 1980–2015. In 1980, a college graduate earned 34 percent more than a high school graduate. By 1990, this premium had i
ncreased to 57 percent, and by 2000 it had increased to 71 percent. After 2000, the premium slowed, and it hit a plateau of roughly 78 percent from 2010 through 2015); see also Goldin and Katz, The Race Between Education and Technology (noting that “starting in the early 1980s the labor market premium to skill rose sharply and by 2005 the college wage premium was back at its 1915 level,” and using CPS data to estimate the college wage premium as 36 percent in 1980 and 60 percent in 2005); Philippon and Reshef, “Wages and Human Capital” (finding the college premium to increase from 38 percent in 1970 to 58 percent in 2005); David H. Autor, “Skills, Education, and the Rise of Earnings Inequality Among the ‘Other 99 Percent,’” Science 344, no. 6186 (May 2014): 843–51 (finding a wage premium between college graduates and non–college graduates of roughly 46 percent in 1980 and 96 percent in 2012).

  than it was in 1965: See Christopher Avery and Sarah Turner, “Student Loans: Do College Students Borrow Too Much—or Not Enough?,” Journal of Economic Perspectives 26, no. 1 (2012): 175, www.jstor.org/stable/41348811. Avery and Turner use data from the Bureau of Labor Statistics’ March Current Population Survey files for “full-time, full-year workers using sample weights, assuming 42 years of work experience per person. Results for college-educated workers are net of four years of tuition and fees associated with appropriate year-specific values for public universities.” While the study subtracts the cost of a public university education from overall earnings of BA holders, these earning reflect the average incomes of all BA holders, whether educated at public or private colleges.

  provided by the stock market: Estimating the economic return of a college education requires judgment, and estimates unsurprisingly vary. See “Is College Worth It?,” The Economist, April 5, 2014, accessed November 18, 2018, www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better. The figures reported reflect the implicit twenty-year return on tuition net of financial aid, using data from PayScale. Rankings of colleges by implicit rate of return closely track rankings by academic reputation (with some additions for specialist technical colleges and unusually cheap state schools). See also Highlights from Rewarding Strivers. A more conservative estimate appears in Hoxby, “Changing Selectivity,” 115. Even this estimate concludes that the returns on education match the returns on the stock market.

  Note that most estimates understate the true earnings boost afforded by the most elite schools, both because their broad approach to selectivity dilutes the earnings boosts provided by the super-elite universities and because they suppress a substantial difference between graduation rates at elite (88 percent) and noncompetitive (35 percent) schools. See Stephanie Owen and Isabel Sawhill, Should Everyone Go to College?, Brookings Institution, CCF Brief no. 50 (May 2013): 1–9, 6, www.brookings.edu/wp-content/uploads/2016/06/08-should-everyone-go-to-college-owen-sawhill.pdf. Hereafter cited as Owen and Sawhill, Should Everyone Go to College?

  The average rate of return of a diversified stock portfolio over the past decades is under 7 percent. The average annual return over the last ten years for the Vanguard Balanced Composite Index, for example, is 6.83 percent. See “Benchmark Returns,” Vanguard, last modified September 30, 2018, https://personal.vanguard.com/us/funds/tools/benchmarkreturns. See Goldin and Katz, The Race Between Education and Technology, 336. See also David Card, “The Causal Effect of Education on Earnings,” in Handbook of Labor Economics, vol. 3A, ed. Orley C. Ashenfelter and David Card (Amsterdam: Elsevier, 1999): 1801–63; David Card, “Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems,” Econometrica 69 (September 2001): 1127–60.

  bigger than in Sweden: U.S. college graduates make 68 percent more than workers with just a high school degree, compared to 48 percent more in Britain, 41 percent more in France, and just 23 more percent in Sweden. See OECD, “Education and Earnings, OECD Dataset,” https://stats.oecd.org/Index.aspx?DataSetCode=EAG_EARNINGS (figures range from 2012 to 2014, and are the most recent figures as of April 2017). See also “Wealth by Degrees,” The Economist, June 28, 2014, www.economist.com/finance-and-economics/2014/06/28/wealth-by-degrees, citing OECD data. See also “Healthy, Wealthy and Wise,” The Economist, September 11, 2012, accessed November 18, 2018, www.economist.com/graphic-detail/2012/09/11/healthy-wealthy-and-wise.

  amplifies this pattern: The very weakest colleges, by contrast, generate no income boost at all, and a broad basket of nonselective colleges generates only one-third the lifetime earnings increase of a broad basket of selective schools. See Owen and Sawhill, Should Everyone Go to College? Study and statistic cited in Walter Hamilton, “College Is a Bad Financial Bet for Some, Study Says,” Los Angeles Times, May 8, 2013, accessed November 18, 2018, http://articles.latimes.com/2013/may/08/business/la-fi-mo-college-is-a-bad-financial-bet-for-some-study-says-20130508. The same basic result, achieved through a slightly different calculation, appears in Mark Schneider, How Much Is That Bachelor’s Degree Really Worth? The Million Dollar Misunderstanding (Washington, DC: American Enterprise Institute, 2009), Figure 1, www.aei.org/publication/how-much-is-that-bachelors-degree-really-worth/. The thirty-year return on a degree at Valley Forge Christian College is $−148,000. “Wealth by Degrees,” The Economist, June 28, 2014, www.economist.com/finance-and-economics/2014/06/28/wealth-by-degrees, reporting on data collected by PayScale.com.

  more than BAs from lower-ranked schools: See, e.g., Jere R. Behrman, Mark R. Rosenzweig, and Paul Taubman, “College Choice and Wages: Estimates Using Data on Female Twins,” Review of Economics and Statistics 78 (1996): 672–85. The research shows that attending private, PhD-granting, smaller-enrollment, and higher-faculty-salary universities leads to 10–25 percent higher earnings. “The [statistically preferred] BRT estimates of the school characteristics effects indicate that, controlling for family and individual endowments, attendees at colleges that grant Ph.D.s, that are private, that have small enrollments, and that have well-paid professors earn significantly higher wages later in life.” Jere R. Behrman, Mark R. Rosenzweig, and Paul Taubman, “College Choice and Wages: Estimates Using Data on Female Twins,” Review of Economics and Statistics 78 (1996), 681, 682, Table 4; Dominic Brewer, Eric Eide, and Ronald Ehrenberg, “Does It Pay to Attend an Elite Private College? Cross-Cohort Evidence on the Effects of College Type on Earnings,” Journal of Human Resources 34, no. 1 (Winter 1999): 114 (39 percent premium for attending elite schools versus low-ranked public schools ten years out for the 1982 cohort and 19 percent fourteen years out for the 1972 cohort; the study also compares 1980 and 1972 cohort premiums six years post–high school graduation, at 20 percent and 9 percent respectively; note that the premiums for the 1982 cohort are greater than for the 1972 cohort).

  double the rate of return on the tuition: Selective private and selective public colleges produce 11 and 13 percent rates of return on tuition paid, while noncompetitive private and public colleges produce rates of return of 6 and 9 percent respectively. See Owen and Sawhill, Should Everyone Go to College? The study cites to another that uses PayScale return on investment data and Barron’s index of school selectivity. The same basic result, achieved through a slightly different calculation, appears in Mark Schneider, How Much Is That Bachelor’s Degree Really Worth? The Million Dollar Misunderstanding (Washington, DC: American Enterprise Institute, 2009), 1–7, 4, Figures 2 and 3, www.aei.org/publication/how-much-is-that-bachelors-degree-really-worth/.

  doubling the gains produced by an average BA: A degree from MIT or Caltech, for example yields a thirty-year income increase of $2 million. See “Wealth by Degrees,” The Economist, June 28, 2014, www.economist.com/finance-and-economics/2014/06/28/wealth-by-degrees, reporting on data collected by PayScale.com.

  top earners with average BAs: Ten years after getting to college, the highest-paid 10 percent of graduates of the ten colleges whose graduates are paid most had median salaries of $220,000, while the highest-paid 10 percent of graduates across all college
s had median salaries of $68,000. Note also that the highest-paid 10 percent from the next thirty highest-income colleges make $157,000. See Matthew Stewart, “The 9.9 Percent Is the New American Aristocracy,” Atlantic, June 2018 accessed November 18, 2018, www.theatlantic.com/magazine/archive/2018/06/the-birth-of-a-new-american-aristocracy/559130/. Hereafter cited as Stewart, “The 9.9 Percent.” Stewart cites data from the U.S. Department of Education, College Scorecard Data, last updated September 28, 2018, https://collegescorecard.ed.gov/data/.

  just six years after graduation: See Stewart, “The 9.9 Percent.”

  only twelve universities: See Thomas R. Dye, Who’s Running America? The Obama Reign, 8th ed. (New York: Routledge, 2014), 180 (48.5 percent “corporate,” 60.6 percent “financial,” 50 percent “government,” and 66 percent “other,” including media, law, civic organizations); Thomas R. Dye and John W. Pickering, “Governmental and Corporate Elites: Convergence and Differentiation,” Journal of Politics 36, no. 4 (November 1974), 914, Table 4 (55 percent “corporate,” 43.9 percent “governmental,” 78.8 percent “public interest”). Hereafter cited as Dye and Pickering, “Governmental and Corporate Elites.” An excerpt from Thomas R. Dye, Who’s Running America? The Bush Restoration, 7th ed. (New York: Pearson, 2002), gives a brief overview of where the data originate: “Who’s Running America? has not been supported by any grant or contract from any institution, public or private. It grew out of a graduate seminar ‘Research on Power and Elites’ at Florida State University. Initially, biographical data for over 5,000 members of various institutional elites were collected and coded by students. These computerized biographies constituted the original database for the continuing project Who’s Running America? The database has been revised periodically, and data on over 7,000 institutional elites have been collected and coded.” See also Thomas R. Dye, Eugene R. DeGlercq, and John W. Pickering, “Concentration, Specialization and Interlocking Among Institutional Elites,” Social Science Quarterly 54, no. 1 (June 1973), 8–28; Dye and Pickering, “Governmental and Corporate Elites,” 900–925. A report of the study appears also in Elizabeth Stoker and Matthew Bruenig, “The 1 Percent’s Ivy League Loophole,” Salon, September 9, 2013, accessed November 18, 2018, www.salon.com/2013/09/09/the_1_percents_ivy_league_loophole/.