by Arthur Rothkopf

Lot's of good stuff in this piece from Greg Mankiw, but let's just look at the answer to: "Why is Inequality Growing?"

The best diagnosis so far comes from Goldin and Katz in their recent book The Race Between Education and Technology. Their bottom line is that “the sharp rise in inequality was largely due to an educational slowdown.” According to Goldin and Katz, for the past century technological progress has been a steady force not only increasing average living standards, but also increasing the demand for skilled workers relative to unskilled workers. Skilled workers are needed to apply and manage new technologies, while less skilled workers are more likely to become obsolete. For much of the 20th century, however, skill-biased technological change was outpaced by advances in educational attainment. In other words, while technological progress increased the demand for skilled workers, our educational system increased the supply of them even faster. As a result, skilled workers did not benefit disproportionately from economic growth.
 
But recently things have changed. Over the last several decades, technological advance has kept up its pace, while educational advancement has slowed down. The cohort of workers born in 1950 averaged 4.67 more years of schooling than the cohort born in 1900, representing an increase of 0.93 years of schooling in each decade. By contrast, the cohort born in 1975 had only 0.74 more years of schooling than that born in 1950, an increase of only 0.30 years per decade. That is, the pace of educational advance has fallen by 68 percent.
 
Because growth in the supply of skilled workers has slowed, their wages have grown relative to those of the unskilled. This is evident in Goldin and Katz’s estimates of the financial return to education. In 1980, each year of college raised a person’s wage by 7.6 percent. In 2005, each year of college yielded an additional 12.9 percent. Over this time period, the rate of return from each year of graduate school has risen even more — from 7.3 to 14.2 percent.

And let's not forget technical education. No wonder then that President Obama reinforced this idea today, speaking at the Chamber:

Now, it's fitting that we're talking about education here at the Chamber of Commerce. After all, for America to compete and to win in the 21st century, we know that we will need a highly educated workforce that is second to none. And we know that the success of every American will be tied more closely than ever before to the level of education that they achieve. The jobs will go to the people with the knowledge and the skills to do them -- it's that simple. In this kind of knowledge economy, giving up on your education and dropping out of school means not only giving up on your future, but it's also giving up on your family's future and giving up on your country's future.