Everyone knows the United States has the highest income inequality among the rich nations of the world. OK. Which rich country offers the biggest payoff to ability? The United States does. Put the two together. If U.S. inequality is the result of the U.S. rewarding ability, is there really a problem?
That the U.S. labour market is in fact the most responsive in the OECD to differences in abilities is the conclusion of a new study by the labour economist, Eric Hanushek of Stanford University and the Hoover Institution, and three German colleagues. They make use of an OECD-sponsored survey of almost 35,000 people in 22 OECD countries that took place in 2011-12. The survey asked participants detailed questions about their incomes, work experience, education and so on and then (imagine!) administered tests of their numeracy, literacy and ability to solve problems.
Hanushek and his colleagues took the results and…
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