Why people are wrong to think that inequality is all about education

The Herald has an opinion piece from Auckland Council’s chief economist, Geoff Cooper, about inequality and why education offers the best route to tackling it.

Now, it’s great to see an economist, and one working for an increasingly influential body, talking about income gaps.

But, just like the Treasury, he’s arguing for a very limited – and, I think, flawed – view of what inequality is and how it can be reduced.

He rightly identifies that higher skills are needed to get people into better jobs and help the economy hum along smoothly. In the upcoming book that I’ve edited, Inequality: a New Zealand Crisis, we have two chapters on education and improving skills training.

But Cooper and others tend to stop there. Only things like education, they argue, can reduce inequality while imposing no overall cost on the economy; other measures are too redistributive, too costly, too old-school.

But I think they’re wrong in a number of crucial ways.

First, education doesn’t explain that much about inequality. It’s very often a story of the top 1% pulling away from the rest, and the top 1% aren’t that much better educated than anyone else. In any case, New Zealand has had the western world’s largest increase in inequality, but our ‘degree premium’ – the extra income you get for being educated – is one of the lowest, so that can’t be the explanation.

Second, increasing educational levels does nothing for people in low-skilled jobs who work incredibly hard but don’t earn enough to get by. Cleaners, for instance, will be left to struggle on $14.10 an hour, regardless of investment in skills, so an emphasis on education alone is an argument for leaving those people in desperate circumstances.

Third, and most important, Cooper and others are wrong to think that other pro-equality measures will harm the economy. Ideas like wage-led growth makes the obvious point that if you pay people better, as long as other structures are set up properly, then people work harder – because they feel more valued – and so you generate more income.

There is no good evidence linking higher pay for the general workforce with lower economic growth.

So, arguments like Cooper’s are a good start – but far from enough.