Category Archives: Middle Class

A Vision for a High-Wage America

Source: Michael McCormack and Jeff Madrick, The Century Foundation, October 16, 2017
From the summary:
America has deliberately chosen to be a low-wage society since the 1970s. This status was not thrust upon it inevitably by technological change or globalization, but instead was the result of deliberate policy choices made over the years. America likewise has the ability to reverse course, pursuing a policy agenda that would put it back on the path toward a high-wage economy. ….

…. This report provides an overview of the current state of the U.S. economy, characterized by a sluggish recovery, stagnant living standards, inequality, increasingly volatile and uncertain incomes, especially for low-income Americans, persistent poverty, and declining benefits. Our review below of the economic data and literature will demonstrate the persistence of reduced opportunity and a low-wage America for millions since the 1970s.

The report also explores the deliberate policy choices that led to the low-wage economy that developed in the late 1970s and was solidified by the 1980s and 1990s. There was only a brief reprieve during the full-employment economy of the late 1990s, when wage growth lifted wages for all income levels; even during this time, anti-inflationary monetary policy reduced the bargaining power of workers relative to capital.

After reviewing the political and academic influences that created a low-wage America, the report proposes alternative policy choices to build a high-wage America that extends prosperity to a broader range of workers. The three main pillars of a high-wage economy identified in this report—public investment and industrial policy, education and training, and labor standards and social supports—will guide the Rediscovering Government Initiative’s research and event agendas in the coming months, as it seeks to build an agenda that can return American workers to prosperity…..

What You Should Know

  • Between 1973 and 2015, productivity increased by 73.4 percent, but hourly compensation increased by only 11.1 percent. And that meager wage growth has happened mostly at the top of the income scale. Since the late 1970s, wage growth has stopped for the eightieth percentile of earners on down, and for much of the wage distribution, earnings have actually fallen.
  • Deliberate policy choices since the 1970s have contributed to this wage stagnation, including the attack on labor unions, cuts to social programs, tight monetary policy, tax cuts and free-market economic policies.
  • U.S. manufacturing work is particularly underpaid when compared to other nations. Manufacturing workers in the United States ranked eighteenth out of twenty-seven OECD nations with available data.
    The high-wage agenda requires new approaches to directly confront underemployment and unemployment that may include government acting as an employer of last resort and support for labor organizing, which is now actively thwarted.
  • Rebuilding the nation’s apprenticeship system that still only reaches less than half a million workers, and translating promising high school career academies into respected vocational and career education system that, among other things, can create inclusive access to well-paid skilled blue collar jobs.
  • Without Strong Unions, Middle-Class Families Bring Home a Smaller Share

    Source: Alex Rowell and David Madland, Center for American Progress, September 14, 2017

    New data from the U.S. Census Bureau show that in 2016, the median U.S. household earned $59,039, a 3.2 percent increase from the previous year. Seven years after the end of the Great Recession, the median household’s income has approximately recovered to its pre-recession level, when adjusted for inflation, but has effectively remained stagnant since the late 1990s.

    Middle-class households are not seeing the high levels of income growth that are being enjoyed by America’s highest-income earners. Furthermore, the share of income that is earned by the middle 60 percent of households, by income, has fallen to record lows. A revitalized union movement could help reverse the decades-long trend of growing inequality and a shrinking middle class. But anti-union attacks at the state and national levels threaten to further tilt our nation’s economy against workers…..

    The fall of the US middle class and the hair-raising ascent of Donald Trump

    Source: Steven Pressman, Real-World Economics Review, no. 78, March 2017

    …. This paper focuses on one particular political consequence of a shrinking middle class. It contends that this was a key factor in Donald Trump becoming President of the United States. Then it argues that the policies promulgated by Trump will not help the US middle class but will exacerbate recent inequality trends. The paper concludes with some suggestions for reviving the middle class. ….
    Related:
    Trumponomics: causes and consequences – Part I
    Source: Real-World Economics Review, Issue no. 78, March 22, 2017

    Articles include:
    Trump through a Polanyi lens: considering community well-being
    Anne Mayhew

    Trump is Obama’s legacy. Will this break up the Democratic Party?
    Michael Hudson

    Causes and consequences of President Donald Trump
    Ann Pettifor

    Explaining the rise of Donald Trump
    Marshall Auerback

    Class and Trumponomics
    David F. Ruccio

    Trump`s bait and switch: job creation in the midst of welfare state sabotage
    Pavlina R. Tcherneva

    Trumponomics: causes and consequences – Part II
    Source: Real-World Economics Review, Issue no. 79, March 30, 2017

    Articles include:
    Economic policy in the Trump Era
    Dean Baker

    Major miscalculations: globalization, economic pain, social dislocation and the rise of Trump
    William Neil

    Is Trump wrong on trade? A partial defense based on production and employment
    Robert H. Wade

    President Trump and free-trade
    Jacques Sapir

    U.S. private capital accumulation and Trump`s economic program
    Jim Stanford

    Trump` s contradictions and the future of the Left
    Boris Kagarlitsky

    Trumponomics, firm governance and US prosperity
    Robert R Locke

    The Jobs That Weren’t Saved

    Source: Sean Gregory, Time, May 18, 2017

    …. If Trump’s Carrier deal was a reminder of how the bully pulpit could be used to make the private sector bend, Rexnord’s closure shows its limits–and offers a lesson in the challenges of reversing a global economic trend decades in the making. …. Some 19.5 million Americans held manufacturing jobs in 1979, an all-time high. By 1983, the figure was already down to about 16.7 million. By 2024, according to projections from the Bureau of Labor Statistics, just 7.1% of Americans will work in manufacturing.
    The reasons are many, but the prime culprits are globalization and automation. In 1991, China accounted for 2.3% of the world’s manufacturing exports. In 2001, the country joined the World Trade Organization, and by 2013, China’s share of global exports was 18.8%, according to a 2016 study in the Annual Review of Economics. Countries such as Mexico and the Philippines have also increased their exports. Labor in these markets tends to be substantially cheaper than in the U.S., and trade deals like NAFTA make it easy for American companies to produce goods in far-flung locales. To economists, however, America’s shrinking manufacturing jobs have less to do with free trade than with robots. ….

    What France and the UK can teach Trump about reviving America’s middle class

    Source: Steven Pressman, The Conversation, May 11, 2017

    America’s middle class is in deep trouble.

    Signs of its decline are everywhere, from stagnant incomes and falling wealth to soaring household debt and the rise of populist politicians promising a return to the “glory days.”

    While there is near universal agreement that a thriving middle class is essential to long-term economic prosperity, we’re deeply divided about what builds it. Conservatives, such as those in the White House and in control of Congress, contend that lower taxes are a key ingredient. Liberals argue it comes down to government policies that give low earners a leg up and support those already in the middle.
    My own research on trends in the U.S. and eight other developed countries looks at what conditions create more middle-income households. If President Donald Trump really wants to help the working class voters who elected him, he should look to what other developed nations have been doing to sustain a large middle class.

    His current proposals, I believe, will simply accelerate its erosion in the United States….

    Related:
    The fall of the USmiddle class and the hair-raising ascent of Donald Trump
    Source: Steven Pressman, Real-World Economics Review, issue no. 78, 2017

    According to Thomas Piketty (2014), between 1980 and 2010 the share of total US income going to the top 10% of earners rose from around 30 – 35%, where it stood for several decades, to nearly 50%. These are very conservative estimates. Piketty’s figures come from the distribution of adjusted gross income (AGI), reported by the US Internal Revenue Service. AGI subtracts from income things like investment losses, retirement account contributions and their returns (see Pressman 2015, Chapter 2). With large adjustments, someone can make a lot of money but have little AGI; or, as in the case of Donald Trump, you can report a negative AGI of nearly $1 billion. In addition, tax – free income (such as unrealized capital gains and interest on municipal bonds), as well as returns on money hidden in tax havens, are not reported to the IRS and do not appear in AGI. Like the adjustments helping Trump avoid taxes, this income mainly goes to the wealthy and has been growing for several decades (Zucman, 2015).

    The Path to a Fair and Inclusive Society: Policies that Address Rising Inequality

    Source: Justin Steil, Stephen Menendian, Samir Gambhir, University of California, Berkeley – Haas Institute for a Fair and Inclusive Society, Policy Brief, 2017

    From the summary:
    A major policy brief from the Haas Institute for a Fair and Inclusive Society offers a proven roadmap to end extreme inequality in the United States. The brief, entitled “The Path to a Fair and Inclusive Society: Policies that Address Rising Inequality,” names six basic solutions to tackle what may be the greatest problem of the 21st Century.

    These solutions include:
    -increasing the minimum wage
    -expanding the Earned Income Tax
    -building assets for working families
    -investing in early childhood education
    -making tax code more progressive
    -ending racial segregation

    Documenting decline in U.S. economic mobility

    Source: Lawrence F. Katz, Alan B. Krueger, Science, April 24, 2017

    Economists and other social scientists have long studied intergenerational income mobility, but consistent data linking adult incomes of children and their parents at similar ages over many generations have been unavailable, which thwarted attempts to study long-term trends. Chetty et al.’s study in this issue of Science is therefore a tour de force for producing historically comparable estimates of absolute income mobility—the fraction of individuals in a birth cohort who earn, at age 30, more than their parents did at roughly the same age—over the post–World War II period. Their striking conclusion is that there has been a large decline in the rate of upward mobility across successive U.S. birth cohorts, from 92% of children born in 1940 earning more than their parents to only half of children born in 1984. Although Chetty et al. find that the slowdown in Gross Domestic Product growth has played a role, they conclude that faster economic growth is insufficient to restore mobility to its immediate postwar level in light of increased income inequality—a critical insight for policy and research…..

    The fading American dream: Trends in absolute income mobility since 1940

    Source: Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca, Jimmy Narang, Science, April 24, 2017

    From the abstract:
    We estimated rates of “absolute income mobility”—the fraction of children who earn more than their parents—by combining data from U.S. Census and Current Population Survey cross sections with panel data from de-identified tax records. We found that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. Increasing GDP growth rates alone cannot restore absolute mobility to the rates experienced by children born in the 1940s. However, distributing current GDP growth more equally across income groups as in the 1940 birth cohort would reverse more than 70% of the decline in mobility. These results imply that reviving the “American dream” of high rates of absolute mobility would require economic growth that is shared more broadly across the income distribution.

    Escaping Poverty Requires Almost 20 Years With Nearly Nothing Going Wrong

    Source: Gillian B. White, The Atlantic, April 27, 2017

    The MIT economist Peter Temin argues that economic inequality results in two distinct classes. And only one of them has any power. ….

    …. Temin argues that, following decades of growing inequality, America is now left with what is more or less a two-class system: One small, predominantly white upper class that wields a disproportionate share of money, power, and political influence and a much larger, minority-heavy (but still mostly white) lower class that is all too frequently subject to the first group’s whims. Temin identifies two types of workers in what he calls “the dual economy.” The first are skilled, tech-savvy workers and managers with college degrees and high salaries who are concentrated heavily in fields such as finance, technology, and electronics—hence his labeling it the “FTE sector.” They make up about 20 percent of the roughly 320 million people who live in America. The other group is the low-skilled workers, which he simply calls the “low-wage sector.” ….