Although the unemployment rate is 9.2% for the entire labor force, it is 4.4% for college grads (and 10% for high school graduates, no college).
But which college graduates earn more? It depends on your undergraduate major. Counseling psychology or petroleum engineering? The difference is $91,000 a year. The median income for a counseling psychologist is $29,000 while for a petroleum engineer, $120,000. Divided by group, engineering, computers and mathematics are at the top while education, psychology and social work are at the bottom.
And finally, will more money make you happy? At the Aspen Institute, where happiness researchers have gathered, the money can make us happy group seems to have the most convincing research. (Here, you can watch the debate.)
The Economic Lesson
Happiness researchers frequently cite the Easterlin Paradox which implies that once we reach a certain level of wealth, more wealth does not lead to more happiness because of our quest to outdo our neighbors. On the other hand, economist Justin Wolfers used data to prove that people in rich countries are happier than those in poor countries and the rich are happier than the poor.
An Economic Question: Do you believe that “happiness” or “satisfaction” research is valid? Explain.
Did you know that Academy Award winners live longer than losers? Much more than a trivia fact, Academy Award winner longevity provided researchers with data about inequality.
As reported in the May 15, 2001 issue of The Annals of Internal Medicine, researchers gathered mortality statistics for 1649 people. They looked at all “actors and actresses ever nominated for a leading or supporting role…For each, another cast member of the same sex who was in the same film and was born in the same era was identified…” Their goal was to determine whether relative success correlated with a person’s lifespan. Their answer was, “Yes.” They concluded that winners had approximately 4 extra years of life and that “…movie stars who have won multiple Academy Awards have a survival advantage of 6.0 years over performers with multiple films but no victories.”
I know that you might have many questions. The researchers did also. But our key here is to think about whether inequality among all of us in the U.S. warrants remedial action from our government.
This takes me to a recent NY Times column from economist Robert Frank. Comparing 1976 and 2007, he tells us that the top 1% of earners moved from an 8.9% share of total income to 23.5%. Then, he also points out that counties with rising income inequality experience higher divorce rates, more bankruptcies, and longer commute time. His point? Because “…greater inequality causes real harm…” more income equality through higher taxes is a valid goal for our leaders.
During an Econtalk podcast, George Mason University economist Russ Roberts disagreed with Dr. Frank’s conclusions. Dr. Roberts said that economic growth was constrained by income redistribution and a “bigger pie” will help everyone.
The Economic Lesson
Taxes are all about income redistribution. If we promote equality, we will have more income redistribution through taxes, more fairness, and a common living standard. However, economic efficiency will suffer and our economic pie will grow more slowly. By contrast, economic competition leads to more efficiency, more entrepreneurial energy, more economic growth and a bigger pie. And, is it fairer to be able to keep more of what you earn?
You might want to look at economist Arthur Okun’s Equality and Efficiency: The Big Tradeoff.