Don’t you guys ( I assume your from Finland) have a national healthcare policy that covers all your citizens, no matter what their income level. Aren’t there some rather clear labor income equality laws in your country? Sounds like a heck-of-a-lot of “social programs.” I believe the success of the EU is due to the wedding of social programs WITH Friedman-style market economies.

Arguably, the tax savings of a mortgage deduction also entices people to use their (big as possible) homes as investments, which probably contributed heavily to the subprime crisis.

Instead, you should eliminate the mortgage interest deduction and replace it with a large general exclusion that everyone can claim, regardless of whether or not they own a house. It might encourage buying a slightly smaller house, but free-up funds for starting business, paying for education, etc. The new ‘stimulus payment’ plan is also a good step. You know, it’s Milton Friedman idea

http://economistsview.typepad.com/economistsview/2006/11/milton_friedman_1.html

On the other side of the subprime mess is the bank bailout situation. Essentially you are ‘printing’ extra money to fund the bailout. There’s nothing that hurts inequality more than inflating the value of a low-earning person’s currency in order to, let’s see…. bail out banks, fund wars, channel profits to the war industry. Did I miss anything?

You might take note that the EU is following a rather strict form of Monetarism (formulated by none other than Milt himself ) as specified in the Maastricht Treaty. Hence, inflation has been kept low in the EU. Perhaps the United States could follow suit and reform its own monetary system?

So you see, you don’t need a bunch of socialistic-style social progams to enhance equality or mobility. Even the EU is moving away from that direction and toward a more market oriented approach. But the EU isn’t doing it in the American neoliberal fashion- You Americans can do much better than what you’ve got, but don’t change the wonderful foundation.

It could be the case that early in careers the experience effect outweighs the human capital effect. In other words, people trade off income early in their careers for higher incomes later and more and more people are making this trade-off over time.

So, the story here is the value of the education premium. It should also be pointed out that work experience has declined in value as well. I think Katz also has data on this. The declining premium to work experience and high school diplomas would easily bring down the median income for male heads in their thirties, given that the experience of such a worker would be at least 10-15 years or so, since they would not have gone to college, but graduated from high school at around 18.

Productivity probably is not a culprit here. Productivity was better from 1964 to 1974 than afterwards, but the same applies for 1994 to 2004, so it cancels out, I think.

This would mean the older generation had a third more experience in the labor market by the time they were in there 30′s and more experienced people get paid more.

Of course, this effect has to reverse some time latter in the career or it wouldn’t have been profitable for people to get so much education. This is the case. As that chart shows, folks later in the careers saw much higher increases in their incomes (about a 5x increase) than folks early in their careers (“only” a 4x increase).