The critique in the National Review is weak on a couple of levels. First, the admission of potential omitted variable is of course
standard intellectual honesty from a research perspective. The question of how significant that bias is depends on whether the relevant variables omitted from the analysis are highly correlated with the Gini Coefficient, if they are not then their coefficient estimates are reasonable. Second, using R-square as a justification for variable inclusion or ommission of a relevant variable, as the writer for NR does, is a undergraduate level no-no. Scott Winship, the critic at the Brookings Institute, promises a better model. Well, we are waiting. I am personally sceptical he is going to produce one.
Finally, those who think structural unemployment (like the Fed) and income inequality (like the National Review) doesn’t matter, I present two counterfactuals to your beliefs.
According to the Economist, 1/3 of the 3 million people who dropped out the labour force are now enrolled in post-secondary
education. Ivy League schools are hitting all time high rejection rates.
What is the market telling you?