President Obama's State of the Union Address touched on a topic that has become so intense that even the Republican Party has adopted the mantra that we must address income inequality. Now, to be sure, one part of income inequality (the part generally ignored by Republicans) is that the rich are becoming richer at the expense of the less-rich. But another part (and this is politically more popular) is that the middle class in the U.S. is shrinking. The cover story of this week's Economist relates to this, as does a lengthy story and Upshot blog post in today's NYTimes. The Upshot blog uses U.S. census data from IPUMS at the Minnesota Population Center to show, in particular, that:
Education matters more than it used to. In the 1970s, high school graduates who did not have a four-year college degree were well represented among the middle and upper class. They no longer are, as high-paying, blue-collar jobs have become rarer. College graduates have not suffered as much, though they are also less likely to be high income than they were in 2000.It is not, however, that education is a more powerful predictor of success than it used to be. Rather, the time when low levels of education could be overcome by well-paying blue-collar jobs is gone. That was transitory. It can't be fixed by somehow reinvigorating trade unions. The jobs are gone. Gone to China and elsewhere where labor is vastly cheaper. After China--whose population has stopped growing--it will be India, where the biggest contribution to the world's total population will be made between now and the middle of this century. The result is, of course, a higher standard of living for the rest of us, because even if wages aren't going up much, the price of goods made overseas is going down. Compare the price of a TV or similar popular appliance now with what that same product was in real terms 15-20 years ago and you will see how much better off the average person is even if income has been flat.
So, what to do? The Economist has the answer: Talent, perseverance, and gumption. Those are the characteristics that move people forward in an open society, such as all western democracies. Not everyone is equally talented but perseverance and gumption go a long way, starting with improving your education and avoiding pregnancies at young ages and when you aren't yet married. On this point, the New York Times has these data from the census analysis:
Married couples with children — who make up a category that is shrinking over all — are diminishing even faster as a share of the middle class. In the late 1960s, about 45 percent of all households included married adults and their offspring. But among middle-class households, more than 60 percent had that traditional family arrangement.
Today, married couples with children at home make up just a quarter of households. But even as they diminished as a share of the population, these families surged up the economic ladder as more married women went to work in the paid labor force. By 2000, 42 percent earned more than $100,000 in today’s dollars.In sum, the hollowing out of the middle class started with global demographics, but is exacerbated by domestic demographics. We should be able to deal with the latter more readily than the former.