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Goodbye, Horatio Alger | The Nation

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Goodbye, Horatio Alger

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No doubt, government programs by the 1970s and '80s required reform, pruning and some serious rethinking. But the government activism that started with Teddy Roosevelt did not dampen prosperity, and effective and concerned government policy would not have done so in the past quarter-century either. To the contrary, during the progressive first three-quarters of the twentieth century, the nation grew faster than it has since the Reagan revolution. Americans swallowed such laissez-faire illusions before, notably in the late 1800s and the 1920s, and the promises turned out as empty then as they are today.

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Jeff Madrick
Jeff Madrick is Senior Fellow at the Roosevelt Institute. He is also editor of Challenge magazine and a senior fellow...

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As the 2012 elections approach, renewed faith will be critical to combating Republicans’ slash-and-burn rhetoric.

Addressing wage stagnation should be the country's top priority.

Today the United States is two nations, but not so much divided between rich and poor, as former Senator John Edwards puts it, as between the well-educated and the rest. A college degree is not a guarantee of a middle-class life, but it has become pretty close to a necessity. And a college degree is expensive, even for those who attend public institutions. The demand for ever more education is not new in our history. But when Americans first needed a good primary education in the mid-1800s, state and local governments provided it, and made sure it was also available in poorer communities. Along with the distribution of land, free primary schooling was among the first income redistribution programs in the nation. In the early 1900s, when Americans needed high schools, state and local governments built thousands across the land, and graduation rates soared. In the second half of the nineteenth century, the federal government also actively supported new land-grant colleges, which became the basis of a state university system. The federal and state governments never went as far as they did with high school, however, and today the nation still treats higher education as if it is a privilege. There is federal and state aid, but increasingly it comes in the form of loans, leaving graduates even of state and community institutions burdened with record levels of debt. And tuition and room and board at private universities has risen considerably faster than has aid, even in the form of loans.

Economists Timothy Smeeding and Robert Haveman report in an essay in The Future of Children that the median income of workers with a bachelor's degree or higher is about double the income for those with only a high school diploma, and that more than 40 percent of all new jobs now require a college degree. The Census Bureau figures college graduates will earn about $2.5 million over their lifetimes in today's dollars, compared with $1.5 million for high school graduates. Those with advanced degrees will earn a lot more.

The differences are especially stark for men. Male high school graduates have weathered a sharp fall of about 15 percent in their median wages since the 1970s. Median wages of men with college degrees have risen some 14 percent--nothing to crow about, frankly, but nevertheless leaving a wide gap between them and their high school graduate peers.

It would be comforting if economists fully understood why this is happening, because it might help us understand what social policies to adopt. One of the obvious causes is deindustrialization--the loss of manufacturing jobs in particular, which once paid high school graduates well, provided good benefits and pensions, and often turned out to be jobs for life. But why has deindustrialization occurred? Globalization, including foreign competition from low-wage nations like China, the offshoring of good jobs to nations like India and the rapid flow of capital to good investment opportunities in foreign lands, certainly contributes to the education wage gap. But the loss of middle-class jobs for high school graduates started long before trade and offshoring became so influential.

Most economists, in fact, ascribe the shift in the demand for college graduates to changing technologies, as Information Age businesses require sophisticated workers with better educations. But the case for "skill bias technology" is suspiciously fashionable and oversimplified. A more mundane and convincing variant of the hypothesis is that America has become an office economy of white-collar workers, whose growth industries include finance, marketing, consulting, public relations, healthcare and the media, all of which generally require workers with college educations, and the social skills often acquired there (or required to gain admission). A final argument too often neglected is also credible: Federal policies have restrained growth and kept unemployment too high on average for a generation, resulting in an excess supply of labor that has enabled employers to pick and choose workers with the best qualifications, even when workers with those qualifications are not needed. High rates of unemployment also helped business and its allies in the government win the battle against union power. Meanwhile, those without a college degree are often consigned to low-wage jobs, especially punishing over a generation in which the government refused to raise the minimum wage to keep up with inflation.

Whatever the reasons, some could argue that this transformation to a college-based labor market is in fact pretty terrific. College can indeed be the great equalizer: Be disciplined, study and go to college, and you will be just fine. And Americans did respond. About 26 percent of all Americans over 25 have a bachelor's or more today, compared to 14 percent in 1975. About 40 percent of all those between 25 and 34 have a college degree or higher.

But because of high expenses and inadequate aid, among other causes, the march toward ever higher college graduation rates has stalled in America over the past two decades, and other nations are catching up or even surpassing American levels. Among those aged 25 to 34, Canada, Japan, Finland and Korea boast higher college graduation rates, with another handful of nations just behind the United States and gaining fast.

More important, fewer middle-income and poor kids go to college, get into a good college or finish college than better-off kids. To put it simply, going to college also depends on who your parents are. Had the nation adequately enrolled its lower-income students in solid four-year programs, the nation's college graduation rate would still lead the world by a handsome margin. But to the contrary, college attendance has not enabled lower-income Americans to escape their class in the way promised. Rather, the process reinforces class disparities.

For example, four out of five high school graduates from the top-income quintile enroll in college after they graduate from high school, compared with only two in five from the bottom quintile. Even when lower-income children have the same test scores, go to similar schools and have the same class rankings, they are significantly less likely to go to college. Poorer students tend to cluster in two-year community colleges, and when they do go to four-year colleges, they finish less frequently than better-off students.

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