Barack Obama has been doing well recently. The public is beginning to experience the economic recovery. Job growth and consumer spending are up, a bit. Obama is shaping the political agenda on his own terms, with the full support of his party. At year’s end, he negotiated more resolutely with the Republican Congress, extending the payroll tax cut thus far for a couple of months, with every indication that it will be extended for a year. He has the political advantage on this, along with other legislative issues, as reported in The New York Times. He refused to be forced into making an abrupt decision in the Keystone XL oil pipeline. His Attorney General, Eric Holder, is challenging the legality of voter ID laws in the old confederacy. His job approval rating is up, as the Republican’s in Congress approval is down.

I think that the improvement in Obama’s standing is related to the change in the public debate, away from the obsession with deficits and cutting, toward jobs, inequality and social justice. This is not only a matter of changed tactics, but of a transformed political environment. Obama can thank Occupy Wall Street for making this possible. It’s an OWS not a Tea Party environment now. But it’s not just a matter of the environment. Obama also has contributed in a significant way. He made these issues his own in his Osawatomie, Kansas speech. I agree with David Howell, it was one of his best. He again revealed his capacity as story-teller-in-chief.

Howell liked the speech because it spoke to a pressing problem and its sociological consequence and political cause: “the massive and continued growth in inequality, linking this to the collapse of the middle class and to the obstructionism of the Republican-controlled Congress.”

I liked it especially because Obama continued to cogently tell our story, describing the path of the country, both in the short and the long run. He explained his approach in his first term and suggested where he is going. He showed how his policy positions fit into a long and deep American story. He went to Osawatomie, the site of an historic speech by Teddy Roosevelt. The former Republican President spoke about the problems of progress and social justice in the shadow of the industrial revolution. Obama addressed the same problems in the shadows of the post-industrial electronic revolution. Then and now the meaning of America was at stake. The power of Obama’s speech was its historic richness, tied to the everyday experience. Inequality, social justice and the progress of the Republic and its citizens, Obama revealed, are at stake. He did this in an understated way. It was a grand speech, without being grandiose (the contrast to Newt Gingrich comes to mind). Consider some highlights and also take a look at the speech as it was delivered (also embedded below).

Obama recognized that for many the American Dream seems to be fading. He points to broad disappointment and dismay.

“For most Americans, the basic bargain that made this country great has eroded. Long before the recession hit, hard work stopped paying off for too many people. Fewer and fewer of the folks who contributed to the success of our economy actually benefited from that success. Those at the very top grew wealthier from their incomes and their investments — wealthier than ever before. But everybody else struggled with costs that were growing and paychecks that weren’t — and too many families found themselves racking up more and more debt just to keep up.

Now, for many years, credit cards and home equity loans papered over this harsh reality. But in 2008, the house of cards collapsed.”

This was the condition of the country when Obama became president. And since:

“[T]here’s been a raging debate over the best way to restore growth and prosperity, restore balance, restore fairness. Throughout the country, it’s sparked protests and political movements — from the tea party to the people who’ve been occupying the streets of New York and other cities. It’s left Washington in a near-constant state of gridlock. It’s been the topic of heated and sometimes colorful discussion among the men and women running for president. (Laughter.)

But, Osawatomie, this is not just another political debate. This is the defining issue of our time. This is a make-or-break moment for the middle class, and for all those who are fighting to get into the middle class. Because what’s at stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home, secure their retirement.”

He then linked this debate to an earlier one, at another time of economic transformation and growing inequality.

“[I]n 1910, Teddy Roosevelt came here to Osawatomie and he laid out his vision for what he called a New Nationalism.”

Roosevelt was concerned with the inordinate power of the captains of industry and the gross inequality that resulted when that power was left unchecked. Obama drew the comparison.

“Today, over 100 years later, our economy has gone through another transformation. Over the last few decades, huge advances in technology have allowed businesses to do more with less, and it’s made it easier for them to set up shop and hire workers anywhere they want in the world. And many of you know firsthand the painful disruptions this has caused for a lot of Americans.”

Obama accepted that the primary concerns of his opposition, deficits and debts, had to be addressed:

“But in order to structurally close the deficit, get our fiscal house in order, we have to decide what our priorities are. Now, most immediately, short term, we need to extend a payroll tax cut that’s set to expire at the end of this month. (Applause.) If we don’t do that, 160 million Americans, including most of the people here, will see their taxes go up by an average of $1,000 starting in January and it would badly weaken our recovery. That’s the short term.

In the long term, we have to rethink our tax system more fundamentally. We have to ask ourselves: Do we want to make the investments we need in things like education and research and high-tech manufacturing — all those things that helped make us an economic superpower? Or do we want to keep in place the tax breaks for the wealthiest Americans in our country? Because we can’t afford to do both. That is not politics. That’s just math.” (Laughter and applause.)

Obama is calling for a sharing of responsibility and prosperity as an American heritage. He went to Osawatomie because this was also the theme of Roosevelt, the great Republican President. Obama approvingly quoting the Republican hero:  “ ‘We are all Americans,’ Teddy Roosevelt told them that day. ‘Our common interests are as broad as the continent.’ ” Obama then identifies our project with the Republican’s:

“And well into our third century as a nation, we have grown and we’ve changed in many ways since Roosevelt’s time. The world is faster and the playing field is larger and the challenges are more complex. But what hasn’t changed — what can never change — are the values that got us this far. We still have a stake in each other’s success. We still believe that this should be a place where you can make it if you try. And we still believe, in the words of the man who called for a New Nationalism all those years ago, ‘The fundamental rule of our national life,’ he said, ‘the rule which underlies all others — is that, on the whole, and in the long run, we shall go up or down together.’ And I believe America is on the way up.”

Obama’s speech was well received. It is notable that he openly addressed the issue of social justice, addressing inequality as being the primary problem of our time. He is attempting to redefine the politics of the moment, building upon social ferment and discontent, most dramatically expressed by Occupy Wall Street, but quite evident in the labor struggles that started in Madison, Wisconsin last year, as we have observed here.

The President’s Republican opponents are appalled by his newly intensified commitment to class warfare. Many on the left are heartened by his change in direction, though skeptics are waiting to see if this is for real from a President that they think has been too closely connected to Wall Street and corporate wealth. I see the constant centrist, adopting new tactics appropriate to a changed political environment, a centrist trying to move the center left, now focused on the movement because it is again a real possibility.

Extreme inequality has finally made it to prime time. Occupy Wall Street helped focus attention on the problem last Fall, and President Obama finally rose to the challenge with what was perhaps the best speech of his presidency. He spoke forthrightly about the massive and continued growth in inequality, linking this to the collapse of the middle class and to the obstructionism of the Republican-controlled Congress.

Concern over rising inequality has even made its way into the Republican presidential primary debates. While Mitt Romney has announced (with the Supreme Court) that “corporations are people” (see Stephen Colbert’s hilarious PAC advertisement), he has also said that he is really concerned about the poor and that we should address income inequality, but only in “quiet rooms.”

The argument on the right has always been that people should not bemoan extreme inequality as long as America remains the land of opportunity, where anyone who goes to school and works hard can make it. Those of a certain age will remember the 1960s pop hymn to American mobility “Only in America” by Jay and the Americans (who else?). Did anyone question the reality behind these uplifting lyrics? At least for white people?

But now the reality behind mobility promise of America has also hit prime time. The New York Times ran a front page story on the compelling evidence, quite well-known for some time among labor economists (at least progressive ones), that Americans actually have far lower chances of moving up the income ladder than those in other rich countries. Extreme inequality and low social mobility have become definitive of the American social condition, an apparent refutation of the American dream.

The latest contribution to a better understanding of inequality as “causing an unhealthy division in opportunities and a threat to economic growth” is a fantastic recent speech at the Center for American Progress by Alan Krueger, Obama’s new Chairman of Economic Advisers. He makes his case with the help of 11 powerful figures, some of which will look familiar to those who have followed recent discussions of inequality, and especially to those who have read earlier Metrics of Protest posts.

Krueger presents what he calls the “Great Gatsby Curve.”  The basic message is the mirror-opposite of the conservative “Only in America” mantra about American mobility: extreme inequality is associated with dramatically reduced economic mobility. There is a close correlation across countries between income inequality and income mobility. The Gatsby Curve, reproduced below, shows that those countries with the greatest inequality in the mid-1980s also have the lowest income mobility across generations.

To be more specific, Krueger’s figure shows that in the middle of their working careers, fathers and sons tend to have much closer incomes in countries with the highest income inequality (the UK and US) than in more egalitarian countries (Germany, and especially the Scandinavian countries). The figure also includes Krueger’s projection for the U.S. to 2010, which is based on the relationship shown on the graph (the regression line) together with the increase in the U.S. inequality since 1985. Growing inequality begets class lines increasingly locked in place – a sort of Feudal Capitalism.

This is no accident. As Krueger puts it:

“… because of rising inequality the happenstance of having been born to poor parents makes it harder to climb the ladder of economic success. There is a cost to the economy and society if children from low-income families do not have anything close to the opportunities to develop and use their talents as the more fortunate kin from better off families who can attend better schools, receive college prep tutoring, and draw on a network of family connections in the job market” (p. 6).

So what’s to be done about it? Take a look at Krueger’s conclusion for his proposals and judge for yourself whether these will turn back the inequality tsunami. What can be said with some certainty is that there is no plan (and little concern) on the Republican side.

The headline on the front page of the Thanksgiving Day The New York Times: “Opening Day for Holiday Shopping Shows Divide.”

The next day – Black Friday – Bloomberg ran a story with the headline “U.S. Workers’ Pay Slide Poses Consumer Risk. ”

It may turn out to have been a “Black Friday” for top end retailers, but it’s a bleak season for low income America and the businesses that cater to it. According to the Times’ story: “Wal-Mart’s profits declined in the third quarter as it kept many prices low so its shoppers could afford them.” Michael T. Duke, Wal-Mart’s chief executive, told analysts that ‘There is a real sense that the economic strain is taking its toll.” Without the fuel of credit that had increasingly been required to power spending by low-income workers, Wal-Mart now has to resort to layaway plans for its shoppers.

As 10 percentage points of national income has been directed away from the bottom 80% to the top 1% since 1979, those paid the lowest wages have seen their buying power erode the most. While the quality and quantity of education force can explain much of the distribution of income within the bottom 99% (together with personal networks, effort and luck), differences in educational attainment have nothing to do with the transition of the American economy to extreme inequality since the 1970s. It is also quite clear that among developed countries, America is exceptional: only the UK comes close to US-style extreme inequality.

The lesson is that extreme inequality is the outcome of political choices that have empowered a tiny minority. It has to do with political choices, the way institutions function, and social norms; it is not a natural market payoff to investments in education. The shift of income to the top .1% (which has driven the growth of the top 1%) reflects the market power of a small number of CEOs and finance, medical and legal professionals.

Here are some metrics that focus on what has happened to the wage/salary earnings of American workers.

Employee compensation in the last quarter (April-September 2011) accounted for the smallest share of national income since 1929 (it was 44%, which compares to 53% as recently as 1970). In contrast, the corporate profit share was the largest since 1929 (10% in 2010, compared to 5% in the 1970s and 1980s). (as reported in The New York Times)

What about the distribution of income, regardless of whether it comes as wages/salaries, profits or interest? The following shows the changes from 1979 to 2007:

• the top 1% of households increased its share of after-tax income from 8% to 17%;
• the middle 60% of all households saw a decline from 50% to 43%;
• the after-tax income share received by bottom 20% fell from 7% to 5% (see my first post).

What happened to average real wages by education group (in 2007 dollars)?

• workers with just a high school degree had a real hourly wages decline by 35 cents, from $15.36 to $15.01;
• workers without a high school degree experienced a collapse of $2.29 per hour wage, from $13.69 to $11.38;
• workers who invested in college but didn’t graduate , wages increased by 56 cents, from $16.42 to $16.94,  a gain of 3%.
• workers with only a college degree gained about $5, from $21.53 to $26.51, a rise of 23%.

It’s important to put into perspective this 23% increase in wages/salaries for those with the highest educational attainment.

First, it is not close to the gain in output noted above (+225%), or the increase in output per capita (+50%), or the increase in the share of national income taken home by the top 1% (+144%), much less the the top .1% (324%) (EPI Briefing Paper #331, figure D).

Second, there was no increase in real pay for the college+ group from 2001 to 2007; by this measure, the Bush “boom” entirely bypassed the most educated.

And third, recent research has shown that about one-fifth of the increase in the college-to-high school wage gap between 1980 and 2000 was accounted for by the higher cost-of-living in the (increasingly income-segregated) communities where those with college degrees live (NBER Working Paper No. 14370).

The fact is that as a group, even those with at least a college degree have shared little in America’s growth during the age of free market fundamentalism. It’s not about education.

What does this mean for the standard of living for most Americans? A new and much improved measure of poverty from the Census Bureau has found that, after accounting for taxes, government benefits, and typical expenses, one in every three Americans (33%)was classified in 2010 as either poor ($11,282 for an individual and $24,343 for a family of four) or near poor (50 percent above the poverty line). Further, the Census Bureau found that 10.3 million people who worked full-time in 2010 fell into the “near-poor” category. 

It turns out that this 33% poverty/near poverty rate for American households is nearly identical to the share of American workers paid a very low wage, as Figure 1 shows. For reference, this figure presents the low-wage share for France (which has nearly eliminated low wages by steadily increased the statutory minimum wage). As I’ll show in another post, France has achieved this over the last decade without increasing the unemployment rate or decreasing the employment rate for young workers.  (The source for this and the statistics on France that follow: a forthcoming paper by Howell, Okatenko and Azizoglu.)

Figure 1:

Low-Wage Shares of Employment for the US and France (low-wage = less than 2/3 of the median full-time wage)

Figure 2 shows that most young American workers with only a high school degree are now paid extremely low wages.  This is most certainly NOT the case in France. Almost half of all young American male workers were paid low wages in 2009, up from just 17% in 1979. In contrast, only about 12% of young French male workers with just a high school degree were paid low wages, down from 20% in 2009.

This figure also shows that the US-French gap in the low wage share for young female workers was gigantic: 65% of American female workers with just a high school degree were low-paid in 2010, which was up from 45% in 1979, compared to just 18 percent for their French counterparts, which was down from 25% in the mid-1990s. The payment of low wages is a political choice.

Figure 2:

Low-Wage Shares of Employment for Young Workers (20-34) with only a High School Degree, the US and France

Finally, it is worth pointing out that it is not just poorly educated American workers who are being paid low wages. Figure 3 shows that the low-wage share of workers with “some college” was 50% in 2010, up from 29% in 1979. For those with college and graduate degrees, in 2010 the figure was 19.5%, up from 13.3% in 1979.

Figure 3:

Low-Wage Shares for Young (20-34) US Workers by Education Group

In sum, it’s no surprise that there is a “divide” among consumers and that low end retailers are in trouble. The problem is the redistribution of income away from most households in an age of drastically reduced credit. The results: 1/3 of American households are poor or near-poor, 1/3 of all workers are paid low wages, the real earnings of those without a college degree have fallen or remained constant since the 1970s, there has been a sharp decline in the labor share and record levels for profits, and extreme inequality (the share of income received by the top 1%) has exploded. These outcomes reflect policy choices made under a regime of free market fundamentalism.

To return to the pre-1979 income distribution, we must fundamentally change the way compensation systems work at the very top of the income distribution, but we also need to substantially raise the wage paid to the bottom third of American workers. There is no economic reason why America must be in a league of its own within the developed world in both extreme inequality and the incidence of low pay.

]]> http://www.deliberatelyconsidered.com/2011/11/the-metrics-of-protest-black-friday-and-low-wage-america/feed/ 1 http://www.deliberatelyconsidered.com/2011/11/college-degrees-not-the-answer-to-extreme-inequality/ http://www.deliberatelyconsidered.com/2011/11/college-degrees-not-the-answer-to-extreme-inequality/#comments Mon, 07 Nov 2011 21:02:22 +0000 http://www.deliberatelyconsidered.com/?p=9497 Not so long ago, during the first several decades of the post-war era, the American dream of a broad and growing middle class was a significant reality. But since the 1970s the shape of the American distribution of income has steadily become more like an hourglass: as the middle has collapsed, large numbers of workers earn very low wages and at the other end of the scale, very few take home gigantic sums.

Figure 1 shows the extraordinary reallocation of national resources from the bottom 80 percent of the population to the top 1 percent, while those in between (81st-99th) have, as a group, shown no change in their share of total income.

FIGURE 1

Source: CBO Report “Trends in the Distribution of Household Income Between 1979 and 2007”

Not surprisingly, over the last three decades many households in the bottom 80 percent have faced sharp declines in their standard of living as the costs of health care, higher education, food and energy have risen far faster than the wage check. The result has been the accumulation of unprecedented levels of mortgage, credit card, and student debt.

I have argued that the roots of the economic crisis can be found in the shift in economic thinking and public policy toward free market fundamentalism in the 1970-80s, which fueled the rise in debt, financial instability, and extreme inequality. We’ve seen a toxic mix of financial deregulation, evisceration of protective labor market institutions (like collective bargaining and the minimum wage), a political system corrupted by campaign contributions, and an increasingly polarized education system that performs poorly for most of those in the 80 percent and terribly for the most disadvantaged communities.

But this is not at all the conventional wisdom. Rather, it has become widely accepted that the government is the root cause of the economic crisis of 2008-11 and the decline in living standards for the vast majority. The problem in this conservative vision is too much regulation, too much taxation, too much encouragement of home . . .

Read more: The Metrics of Protest: Extreme Inequality and the Payoff to College Degrees

Not so long ago, during the first several decades of the post-war era, the American dream of a broad and growing middle class was a significant reality. But since the 1970s the shape of the American distribution of income has steadily become more like an hourglass: as the middle has collapsed, large numbers of workers earn very low wages and at the other end of the scale, very few take home gigantic sums.

Figure 1 shows the extraordinary reallocation of national resources from the bottom 80 percent of the population to the top 1 percent, while those in between (81^st-99^th) have, as a group, shown no change in their share of total income.

FIGURE 1

Source: CBO Report “Trends in the Distribution of Household Income Between 1979 and 2007”

Not surprisingly, over the last three decades many households in the bottom 80 percent have faced sharp declines in their standard of living as the costs of health care, higher education, food and energy have risen far faster than the wage check. The result has been the accumulation of unprecedented levels of mortgage, credit card, and student debt.

I have argued that the roots of the economic crisis can be found in the shift in economic thinking and public policy toward free market fundamentalism in the 1970-80s, which fueled the rise in debt, financial instability, and extreme inequality. We’ve seen a toxic mix of financial deregulation, evisceration of protective labor market institutions (like collective bargaining and the minimum wage), a political system corrupted by campaign contributions, and an increasingly polarized education system that performs poorly for most of those in the 80 percent and terribly for the most disadvantaged communities.

But this is not at all the conventional wisdom. Rather, it has become widely accepted that the government is the root cause of the economic crisis of 2008-11 and the decline in living standards for the vast majority. The problem in this conservative vision is too much regulation, too much taxation, too much encouragement of home ownership for low-income families, and government workers (who take too much for themselves in wages, benefits and job security). And worst of all is fighting the economic crisis with deficit spending. Incredibly, many leading academic economists have lent support to this free market fantasy, which of course has the causation between unemployment and government spending exactly backwards.

In the free market vision, extreme inequality is not the real problem. It is government spending and regulations, and reducing both would induce employers to generate jobs, workers to get off unemployment benefits, and students to invest in their own education (as public spending for education is cut back). Mainstream economists have long been fixated on supply side solutions to inequality and low pay. It is a natural part of the package of free market orthodoxy: more education makes people more productive and in competitive labor markets workers get paid what they’re worth (otherwise known as their “marginal product”).

A good example of this free market vision can be seen in David Brooks’ recent column in which he argued that the “right” inequality to worry about is not what’s going to the top 1 percent, but instead it is the “chasm between college and high school grads.” And we get much more than just higher incomes from more higher education. As he put it: “Today, college grads are much less likely to smoke than high school grads, they are less likely to be obese, they are more likely to be active in their communities, they have much more social trust, they speak many more words to their children at home.”

Unfortunately, while college grads may, on average, have higher scores on all these good outcomes, it seems unlikely that an increase in college degrees would have any effect on any of them. Let’s say we increase in the 6-year graduation rate for Bachelor’s degrees from about the current abysmal level of 55% (see below). Should we really expect to see less smoking, less obesity, more social trust and more words spoken to children?  Actually, given the costs and benefits of college attendance spelled out below, we might reasonably expect these outcomes to worsen, as recent graduates with modest incomes realize that they are unable to pay off their  mountainous student debt.

So what is the payoff to getting a college degree? We can start with Figure 1. Since 30 percent of the population over age 25 had college degrees in 2010 (Department of Education, Digest of Education Statistics: 2010, table 8), not many college graduates could have been among the top 1 percent of winners.

Figure 2 provides a view of the timing of the growth in inequality at the top. Saez shows that all the action at the top has taken place within the top 1%, whose share of total income rose from about 14% in 1993 to 23% in 2007, and then declined to about 21% in 2008, as the financial system nearly collapsed.

FIGURE 2

Nothing like this sort of take-off in inequality appears in the earnings data organized by educational attainment. Figure 3 shows that real earnings for those with only a college degree rose modestly in the 1990s and not at all since (in 2007 dollars).  At the peak of the last business cycle, in 2000, the average college graduate wage was $25.86 and increased to $26.40 the next year. Six years later the college wage was $26.51. Measured from 2001 to 2007, the Bush “boom” increased the average college wage by a full 11 cents.

It is true, as Figure 3 reports, that average wages have been much higher for college than high school graduates. But while the average college graduate earns about 1.7 times more than the average high school graduate, this ratio has remained unchanged since 1998: the payoff to a college degree stopped increasing over a decade ago.

The share of young people (25-29) with a college degree rose in the 1990s, but this measure of rising educational attainment has been flat in the 2000s: 29.1% in 2000, 29.6% in 2007 and 31.7% in 2010 (Department of Education: Digest of Education Statistics: 2010, Table 8).

But while many more students have sought post-secondary degrees, the reality of low wages for recent graduates and high costs of schooling have produced dismal graduation rates. Students entering a four-year college in 2003 had a graduation rate of just 55.5% six years later. Even worse, community colleges offering a two-year Associate’s degree report a three year graduation rate of just 29.2% for the 2006 entering class (NCHEMS Information Center, from Department of Education data).

The fact is that many students do not complete college, perhaps partly because they are pretty good at weighing the benefits and costs. Figure 3 graphically illustrates the tiny payoff to going to college and not finishing a four-year college degree. On average, the wage increase from “some college” over a high school degree was $1.85 per hour in 1998, $2.03 in 2000, and $1.92 in 2007.

FIGURE 3

Real Hourly Earnings by Educational Attainment, 1979-2007 (2007 dollars)

Source: Economic Policy Institute

If we succeed in getting more students out of college with diplomas, nearly all will get paid far less than the average college graduate (since they are younger and will come from the lower part of the high school performance distribution). Figure 4 compares the median annual earnings for high school graduates in 2010 with the average annual earnings of those in the 1^st quartile of the college graduate earnings distribution (those with earnings in the bottom 25% of earnings for all college grads). The increase for undertaking an additional four years of schooling is $5,600 for women and $4,850 for men.

Ignoring the complications of discounting, let’s say it cost $10,000 per year in tuition and related costs, and opportunity costs of $25,000 (foregone earnings, at slightly below the median high school graduate rate). Let’s further assume she won’t need to bear any costs of student loans (an entirely unlikely scenario – generally only possible for those whose parents are in that top 1%…).

Under this scenario, she’s got $140,000 invested in her college degree ($35,000 x 4). If her payoff is the average one ($5,600), it will take her about 25 years to break even.

This simple example illustrates the reality that the payoff to getting a college degree isn’t so obvious, given a labor market paying low wages to almost one-third of all workers and costs of education that are rising far faster than the overall inflation rate. This helps explain not just the dismal graduation rates mentioned above, but also why the percentage of 25-29 year olds with a college degree or more has hardly budged over the last decade (29.1% in 2000, 29.6% in 2007, and 31.7% in 2010; Department of Education, (Digest of Education Statistics: 2010, table 8).

It will take some radical institutional changes before we get to a more egalitarian and productive economy, as Brooks would have us do. We would need substantial reductions in the incidence of low pay and the burden of post-secondary education costs on less well-off families. Progressive change requires reversing the inequality revealed in figure 1: let’s start by giving back those 10 percentage points of national income to the bottom 80 percent of the American people. One critical step is to reduce the incidence of low pay without reducing job opportunities. Some say this is not possible, but France has shown that it can be done. I’ll make that case in the next post.

FIGURE 4

Median Annual Earnings in 2010 for High School Graduates and Average Earnings for College Graduate in the 1^st Earnings Quartile (Usual weekly pay X 50)

Source: Bureau of Labor Statistics

]]> http://www.deliberatelyconsidered.com/2011/11/college-degrees-not-the-answer-to-extreme-inequality/feed/ 4 http://www.deliberatelyconsidered.com/2011/10/the-metrics-of-protest-%e2%80%9c99-percent%e2%80%9d/ http://www.deliberatelyconsidered.com/2011/10/the-metrics-of-protest-%e2%80%9c99-percent%e2%80%9d/#comments Mon, 31 Oct 2011 14:06:21 +0000 http://www.deliberatelyconsidered.com/?p=9271

Occupy Wall Street protests have spread across the country behind the rallying cry that the “99 percent” have been left behind. There is a sense of outrage that the “system” is not just rigged in favor of the elite – something like the top 1% – but has spun out of control, leading to an accelerating concentration of wealth and power in the hands of the very few.

Wage stagnation, the explosion of health and education costs as the American welfare state shrinks, and above all the financial manipulation of debt has generated extraordinary profits on Wall Street and massive indebtedness and housing foreclosures on Main Street. Losses from outrageous risk-taking by too-big-to-fail financial institutions are made good by the taxpayer, who is told there is no alternative.

This new gilded age political-economic system can be thought of as the interlocking trifecta of a mostly degraded and increasingly dual educational system, a financial system that became mostly unregulated by either law or social norms, and a political system increasingly corrupted by money.

The educational system has promoted a meritocracy of cumulative advantage. The vast majority of American students experience primary and secondary schools during which they fall far behind their peers in much of the rest of the developed (and even less-developed) world, and then face costs of post-secondary education that produce a level of debt that cannot possibly be repaid out of earnings. But the elite reproduces itself with an ability to pay for college and graduate school educations whose superiority has steadily grown, while at the same time feeling entitled since the educational process has also become extraordinarily competitive.

The financial sector was systematically deregulated as free market orthodoxy took off in the 1980s. This deregulation served to extract resources from the “real” economy and concentrated it in the bank accounts of a tiny elite, who are increasingly those same victors of the Darwinian educational competition. As the concentration of income at the very top of the distribution proceeded in the 1990s-2000s, . . .

Read more: The Metrics of Protest: “99 Percent”

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Occupy Wall Street protests have spread across the country behind the rallying cry that the “99 percent” have been left behind. There is a sense of outrage that the “system” is not just rigged in favor of the elite – something like the top 1% – but has spun out of control, leading to an accelerating concentration of wealth and power in the hands of the very few.

Wage stagnation, the explosion of health and education costs as the American welfare state shrinks, and above all the financial manipulation of debt has generated extraordinary profits on Wall Street and massive indebtedness and housing foreclosures on Main Street. Losses from outrageous risk-taking by too-big-to-fail financial institutions are made good by the taxpayer, who is told there is no alternative.

This new gilded age political-economic system can be thought of as the interlocking trifecta of a mostly degraded and increasingly dual educational system, a financial system that became mostly unregulated by either law or social norms, and a political system increasingly corrupted by money.

The educational system has promoted a meritocracy of cumulative advantage. The vast majority of American students experience primary and secondary schools during which they fall far behind their peers in much of the rest of the developed (and even less-developed) world, and then face costs of post-secondary education that produce a level of debt that cannot possibly be repaid out of earnings. But the elite reproduces itself with an ability to pay for college and graduate school educations whose superiority has steadily grown, while at the same time feeling entitled since the educational process has also become extraordinarily competitive.

The financial sector was systematically deregulated as free market orthodoxy took off in the 1980s. This deregulation served to extract resources from the “real” economy and concentrated it in the bank accounts of a tiny elite, who are increasingly those same victors of the Darwinian educational competition. As the concentration of income at the very top of the distribution proceeded in the 1990s-2000s, spectacular displays of conspicuous consumption became commonplace. At the same time, a political system corrupted by the absence of meaningful limits to special interest campaign spending could not rein in the financial sector with limits to risk-taking, even after both the magnitude of the crisis and its causes were plain to see.

And in the face of all this, what in the end has been the rallying cry of protest at Occupy Wall Street and beyond? A simple statistic originally generated in a technical article in a leading economics journal by Thomas Piketty and Emmanuel Saez – the after-tax income share of the top 1 percent. Their work told the story of a staggering increase in the share of after-tax income received by those with top incomes since the 1970s. And so: the “99 percent”.

The Congressional Budget Office has just released an update of these figures. The after-tax, after-benefit share of total household income taken by the top 1 percent grew from 8 percent in 1979 to 17 percent in 2007. The shares of each of the bottom four quintiles (together the bottom 80 percent) all fell by 2-3 percentage points. Households in the top quintile but not in the top 1 percent (the 81^st-99^th percentiles) showed no change, while those in the bottom 20 percent fell from 7 percent to 5 percent. In sum, only the top 1% gained, and the top .01 percent gained even more magnificently.

It is not just that wages and salaries have grown vastly more unequal. Policy decisions have greatly reduced the equalizing effect of taxes and transfers. As the CBO puts it, “In 1979, households in the bottom quintile received more than 50 percent of transfer payments. In 2007, similar households received about 35 percent of transfers.”

Our political-economy trifecta (education-finance-politics) has not just rigged the system to syphon the productivity of the economy into the hands of the top 1 percent. It has also systematically attacked the standard of living of workers in the bottom half (or more) of the workforce.

One source of this attack has been to reduce the legal minimum wage to a level so low it has become largely irrelevant as a wage floor. In another post, I will show that different approaches to the use of a statutory minimum wage can go a long way towards explaining why, for over three decades, about 30 percent of all American workers are paid very low wages (less than 2/3 of the median wage). This compares to a 2009 low wage incidence of less than 10 percent of French workers (whose unemployment rate is almost identical!). “30 percent” should become another Metric of Protest.

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Last week, the legislation known as the “Domestic Workers Bill of Rights” took effect in New York State, having been signed on August 31 by Governor David Paterson. The existence and passage of this bill is due primarily to several years of organizing by Domestic Workers United (DWU), an organization of nannies and housecleaners in New York City.

DWU offers computer literacy and child care training to its members, helps protect workers against abusive employers, and has produced a report on domestic employment, “Home is Where the Work Is,” based on original research. Their main policy effort, however, has been campaigning for the passage of this bill, which will affect over 200,000 workers in the state.

The law includes the following provisions: The right to overtime pay (at time-and-a-half) after 40 hours of work in a week, or 44 hours for workers who live in their employer’s home; a day of rest (24 hours) every seven days, or overtime pay if the worker agrees to work on that day; three paid days of rest each year after one year of work for the same employer; protection under New York State Human Rights Law, and the creation of a special cause of action for domestic workers who suffer sexual or racial harassment.

Although these demands are not especially radical (more controversial provisions, such as paid holidays and two weeks notice prior to termination, were removed from the final version), this law will materially influence the lives of many workers. Perhaps equally important, the law is symbolically significant, for a number of reasons. First, domestic workers have traditionally been excluded from labor legislation, beginning with the New Deal laws covering collective bargaining and minimum wage and hour regulations.

Although over the years some laws (such as those covering the minimum wage) have been extended to apply to domestic workers, their work remains largely unregulated. Thus the bill, which also mandated investigation into the feasibility of granting collective bargaining rights to these workers, is a step toward establishing nannies and housecleaners as “real” workers who deserve recognition and protection from the state.

Second, but related, domestic employees differ from other workers in multiple ways: they work in private homes rather than in public workplaces, they usually work alone, and they are employed directly by their own clients. Furthermore, they are almost always women of color, often undocumented immigrants. For these reasons they are especially vulnerable to mistreatment by their employers. Typically the conditions of employment are determined informally between worker and employer, and clear communication is often lacking. The mere existence of the law encourages the formalization of these implicit agreements and takes a step toward recognizing that the “private” sphere is also a paid workplace for many women.

Beyond making paid domestic labor more visible, this legislation also brings to light the continuing dilemma over housework and child care that many families face.  This dilemma has several causes, including: the continuing refusal of men to share the “second shift,” especially when it comes to housecleaning, which leads their wives to pay other women to do it; the extremely long hours worked by professionals in the corporate world; and the absence of state supports, such as day care centers, for working families.

In the absence of cultural and policy shifts that would create more support for the professionals who employ these workers, domestic workers pick up the slack. As DWU often points out, the labor of these workers frees their employers to work in law firms, finance, academia, and elsewhere, and as such is critical to local and even global economies.

Finally, domestic work is a function of high income-inequality in the U.S., which has been shown to be correlated to increasing employment of household workers, and of continued economic pressures in other countries, which lead women to leave behind their own families to immigrate to the U.S. and take care of ours.

Thus domestic labor is tied into social issues such as immigration, work hours, differential remuneration of men and women, and state labor regulation, as well as the intimate (but no less political) question of the gender division of labor in the home. This law, I hope, will contribute to more open public conversation about both.

Fact sheets on the law and the report on collective bargaining