The emphasized is of real importance considering the falling labor position of America’s uneducated youth to international and technological competition. (Indeed this might fall more acutely on the “middle-skilled” rather than blue-collar labor, but mechanics and technicians have always been better options than retail or sales). See below:

Contrary to what Cowen’s analogy with “tenured professors” and other insiders would suggest, the weight of the “bond share” in human capital decreases by age (until social security). The comparison is quite self-evident. Indeed, as a tenured professor himself, Cowen’s “human capital” is like a very valuable perpetuity. The risk is negligible, yields are (relatively but deservedly) lavish and predictable. Indeed for a tenured professor, the bond component is far higher than the above graph suggests. An important critique to the study is the rapid structural change the American economy has experienced over the past 40 years (note the entrance of robots and China). The comparison between t = 30 and t = 60 is not ceteris paribus.

The story with a high-class escort and street prostitute is the same. But unlike the unionized world of yore, job security is no sure thing, and the college premium might be increasing on the mean, but a surprising number of graduates will likely fall closer in bond component to earlier high school graduates than the mean college graduate. (Indeed the mean-median gap is likely to increase).

And one dynamic, noted in the Huggett-Kaplan paper, is also liable to change: “mean human capital returns exceed stock returns early in life and decline with age”. If labor share of income continues to fall at its current rate – though I doubt it will – the inequality implied by the above statement (note the work the word “mean” is doing) would be improbable.

The remedy here is something both far from ideal and practical: international capital endowments. (Note, I take the importance of improving education, not necessarily spending more money thereof, for poor youth as a self-evident necessity and as a given in any proposed solution).

Let’s call this a conditional capital transfer. Those who graduate high school will be given a lump-sum Vanguard Exchange Traded Fund, or something of that sort. Once you graduate college you’ll be given a little less. If you dropout, periodic such lump-sums can be granted by entry into vocational training programs and as an incentive to remain in the labor force. This can be a strong countervailing force to the increasing number of people living on disability benefits after cyclical downturns.

Liberals are often worried about job security and inequality thereof. Cowen is right, we need to spend more time understanding the mean-median spread in bond and stock returns to human capital as a life-cycle force rather than pure income itself. I am curious to see how a similar decomposition would fit Germany. I expect the secular change to be dampened relative to cyclical events.