The Breakdown

Explaining Southern California's economy

Inequality in America: The 'Great Divergence' explained

Sometimes, it's just so simple. What is the Occupy Movement protesting? That income and wealth gains have gone disproportionately to the top 1 percent. And how did this come about? Well, according to this recent paper from the San Francisco Fed, you can blame the "Great Divergence," which took place after the Great Convergence of the war years. And what caused the divergence? A failure of education:

Economists Lawrence Katz and Claudia Goldin argue that the educational system has failed to produce an adequate supply of skilled labor to keep up with the pace of technological change over the past 30 years. In contrast, remember that the Great Compression that took place in the early 1940s was essentially a reversal of this situation, where skilled labor was plentiful at a time when unskilled labor was in demand, flattening wages across the labor market. Today, employers are competing to hire highly skilled workers from a limited pool, creating a wage premium for those with better training and education; the result is the widening income gap across education groups. In addition, consider the impact of educational attainment on employability; in September 2011, the unemployment rate for those without a high school degree was 13 percent, but for those with a bachelor’s degree, the unemployment rate was 4.2 percent.

We have a couple of options here. In the short term, we should probably figure out what to do with our unskilled, unemployed workforce. Massive infrastructure improvements, such as roads, bridges, and rail lines, would make sense and would represent a good investment in the country's future — as well as a way to transition these unskilled workers to retirement.

Long term, we have to invest heavily in education. Very heavily. And it isn't going to be cheap. Education is getting more expensive every day, outpacing the rate of inflation by a wide margin. But until we reduce the wage premium that the most skilled workers can command, inequality will only worsen. And even those rich, educated, skilled workers may begin to feel like an uncomfortably entitled overclass.

Follow Matthew DeBord and the DeBord Report on Twitter.

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