Tuesday, April 25, 2006

Becker on Rising Inequality

Economist Gary Becker opines on the increase in economic inequality the United States has experienced over the past few decades:

Should not an increase in earnings inequality due primarily to higher rates of return on education and other skills be considered a favorable rather than unfavorable development? Higher rates of return on capital are a sign of greater productivity in the economy, and that inference is fully applicable to human capital as well as to physical capital. The initial impact of higher returns to human capital is wider inequality in earnings (just as the initial effect of higher returns on physical capital is widen income inequality), but that impact becomes more muted and may be reversed over time as young men and women invest more in their human capital.

I conclude that the forces raising earnings inequality in the United States is on the whole beneficial because they were reflected higher returns to investments in education and other human capital.