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.
Fascinating article on a little town in Armenia: http://www.cnn.com/2014/12/14/world/cnnphotos-lichk-lost-men/index.html
ReplyDeleteAfter spending some time travelling around the world - I have often reflected that what most people need is ECONOMIC opportunity. When people have access to education and real economic freedom - it truly gives the best chance to improve their lives. Indeed, there's a good argument that economic freedom is much more important than political freedom. The classic example of this, of course, is China. People may be limited in their political expression, but the upwards growth in the wellbeing of Chinese citizens is undeniable. America's middle class may be shrinking, but China's is growing! That statement right there - speaks volumes about the future.
ReplyDeleteIt is deeply troubling that the USA has an income distribution that is heavily tilted to a few rich power brokers. We cannot be a true democracy that serves its citizens well - if we keep this up. The roots of this struggle go back a long way in America. We preach a "dialog" of economic opportunity, but our own society has been - and still continues to be - less egalitarian than we would like to believe. Do folks like "Occupy" represent a real force for change - that is a good question. But with the world moving in the direction of scarce resources, if someone doesn't "knock hard" on the pyramid of power then I don't see how family incomes will become more favorable.
Pete, Redondo Beach
Yes, it is true that China's middle class is growing, but it's also true that 19 percent of Chinese live on less than $2/day (about the same as Armenia and Iraq). Of course, in India the figure is 59 percent, according to World Bank data, so there is a lot of room for improvement there--again at the expense of the formerly well-paid blue-collar workers in the U.S.
ReplyDeletethanks for the comments. your feedback surprised me! If you had asked me to guess the number of Chinese citizens who live on less than $2/day, I would have guessed higher. It is actually very interesting that China is lifting the incomes of so many of their people. If we take a country such as China, and we think about the economics involved, if the whole population raises its income by an increment of $1/day, its a big change! Little wonder then, that China is at the stage of "breaking through" to become the biggest economy in the world.
ReplyDeleteYes, I agree, although the sheer size of China in demographic terms is what grabs our attention. World Bank data also show that the average income in China is lower than in Mexico, but that doesn't get much press.
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