Cute is All For One and One For All

Here’s a problem. The average European graduate is reckoned to earn €123,000 more over a typical working life than the non-graduate. The degree costs €35,000 so over say a 35 year working life (age 27 to 62), that works out at €1600 a year in today’s money if we assume an inflation rate of two percent. At a four percent inflation rate, the real value of extra earnings is down to approximately €1000 a year. Doesn’t sound a lot for four or more years at University. And if you consider that, since we are talking averages, some people will do much better but many will do much worse, then for many graduates that degree is just not worth it. I speak economically but admit there may be superior qualitative benefits to earning a degree. Speaking economically, it is more useful to know the distribution of earnings but on this cute point the common average is silent.

Here’s a problem. Nine of ten citizens in Country A earn €10,000 a year and the tenth €1m (don’t think how). The average is €109,000. Meanwhile, all ten citizens in Country B earn €90,000 a year so the average is €90,000, that is, almost 18% lower than Country A. Which country would you rather work in given exposure to the same global market of goods and services? That cute question is rather a doddle to answer.

Here’s the rub: people err when, in isolation, they compare one country’s GDP per capita (e.g. the US) to another country’s (e.g. Sweden or Germany). This information is, not quite but almost, useless unless we know the distribution of incomes and productivity. Yes, the concept of distribution is more difficult for most people to understand but so are the rules of love and that hasn’t stopped people chasing cute people.

Here’s another rub. The linked article above makes a seriously good point about providing the young (and I suppose any other willing person) with skills training. So even if extra education may not pay off in a better paying job for one individual, for the country, skilled labour is a boon for productivity and competitiveness. This is only one example when individuals acting in their own perceived best interests do worse than working together. Working to a common good is not communism. It’s cute.

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